Non-Property assets, what do you do with them? Depreciate or not?

Church accounting for assets and depreciation

These notes relate to non-property assets – such as ministry activities’ equipment, furniture, vehicles, office equipment,  – ie not land and buildings and not fixtures and fittings that add value to the property or buildings

We have recently received the interim and annual accounts from a few churches that have included asset and depreciation schedules. The attempted inclusion of asset deprecation schedules raises some interesting points about assets and financial management for a local church.

Firstly, applicable policy

Does the church or its denomination have a policy on non-property asset purchases? Is there a related policy about depreciation?

General accounting

It is not usual practice for churches and NFPs to maintain depreciation. Rather, the accepted accounting practice is to expense purchases in the financial year in which they are purchased.

There are 3 practical reasons for not treating purchases as assets for deprecation:

1. there are no taxation requirements or advantages for including a depreciation expense, such as reducing taxable profits, and
2. it a is mistaken understanding that, by depreciating an asset, savings are created for replacements, and
3. there is no financial management benefit for the local church – actually it is misleading for the annual P&L over time.

There is an important practical alternative for churches.

The best practice is to budget for all purchases, whether new or replacement items, in the year expected for acquisition so that funds are prepared, saved if necessary. This practice is necessary especially for large cost items. See our blog about this: https://www.benkorp.com/sinking-funds-for-churches-have-sunk/.

How to manage assets

The practical procedure for managing assets is in 4 parts:

1. Allocate the purchase expense of the asset-type items to their appropriate account in the P&L/I&E, and
2. Maintain an “asset register” in Xero – do not prepare/maintain a deprecation schedule, and
3. Use Xero’s expense accounts and tracking functions to track, review, and manage maintenance of equipment, vehicles and all such non-current type items.
4. Use the P&L reporting functions to setup specific reports for your church. Teach the finance and property teams to use these reports.

If you have any questions about this blog or anything in regards to the financial management or your church or organisation contact us via email: [email protected]

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