Practical Guidebook For NGO-INGO - NPO

Practical Guidebook
for
NGO-INGO-NPOs
For further Consultation and queries please contact:
Bidur Luitel
Principal,
Bidur Associates, Chartered Accountants
Cell : +977- 98512 38754

Email : bidur@bidurassociates.com
luitel.bidur@gmail.com
: bidurassociates@gmail.com
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Viber : +977- 98512 38754
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Practical Guidebook for NGO-INGO-NPOs
Table of Contents
A. Introduction ............................................................................................................................... 4
B. Difference between NGO & NPO .............................................................................................. 5
C. Difference between INGO & NGO ............................................................................................ 6
D. Funding Source for NGO ........................................................................................................... 6
E. NGO Registration in Nepal ........................................................................................................ 7
F. NPOs Registration in Nepal ..................................................................................................... 11
G. INGOs Registration in Nepal ................................................................................................... 13
H. Project Start and Close............................................................................................................. 15
I. NPO/NGO Renewal Process and Documents needed ............................................................... 16
J. Tax Provision for NGOs/INGOs .............................................................................................. 17
K. VAT Provisions for NGOs and INGOs .................................................................................... 19
L. Income Tax and VAT Compliance Checklist for NGOs and INGOs ......................................... 20
M. Accounting Treatment and Financial Reporting ....................................................................... 21
N. Key Problems faced by NGO/INGOs/NPOs ............................................................................ 30
O. Final word ............................................................................................................................... 31
P. Format Of Financial Statements ............................................................................................... 32
Bidur Associates, Chartered Accountants Page 2 of 48

Abbreviations Used
IRD = Inland Revenue Department
INGO = International Non-Governmental Organization
NGO = Non-Government Organization
NPO = Non-Profit Organization
SWC = Social Welfare Council
SOFP = Statement of Financial Position
SOIE = Statement of Income & Expenditure
NAS = Nepal Accounting Standards
VAT = Value Added Tax

A. Introduction
This handbook consist information about NGOs, INGOs and NPOs, their registration and
renewal process in Nepal, applicable tax and VAT provisions for them and the accounting
treatment for the preparation of the financial statements. As we are aware about the fact
that the Accounting Standard Board of Nepal has introduced a uniform reporting format
and accounting standards to be applied consistently while preparing and presentation of
the financial statements of NPOs, it is felt necessary that the proper understanding in this
sector is required.
This standard “NAS for NPOs” guides to prepare the general purpose financial statement
to the entire non-profit organization as a single entity and reduce the diversities that exist
among NPOs in accounting practice and presentation. The applicability of this standard
and effective date for application has been as prescribed. This handbook also consists of
the key problem that these entities might face in the implementation of the standard. The
format for the preparation and presentation of financial statement has been included
herewith in this handbook for your reference.
This handbook has been developed for informational purposes only and does not act as an
implied or written opinion of the Firm and its employee. The section in this handbook is
merely guidelines and should not be read to create any contractual obligations.
The aim of this document is to provide an overview of NPO/NGO/INGO and present all
the necessary facts of such entities.
While we have taken utmost care to make sure there are no mistakes, the Guidebook is
designed to provide a general understanding only. We, therefore, suggest that you seek
independent and responsible advice before taking any important decisions based on this
material. We trust the handbook will be of use to implementing NGOs/INGOs in Nepal,
grant-making Agencies, consultants and auditors dealing with non-profit organizations.
Here at Bidur Associates Chartered Accountants, we are committed to sharing this

informative and insightful Practical Guidebook for NGO-INGO-NPO that reflects
HOW/WHERE/WHAT/WHY/WHEN of entire non-profit organization including,
accounting, reporting, incorporation, closure, tax and legal compliance. We have
understood, and now ready to serve our clients.
Are you prepared for the same?

B. Difference between NGO & NPO

An NGO refers to a non-governmental organization formed by ordinary citizens that operates
autonomously of government. On the contrary, an NPO is an organization set up to provide goods
and services to people and operates on the principle that no member will receive share profits or
losses by the entity.
Basis NGO NPO

Nature Association of person An organization
Registration Registration under Association Registration under Companies Act, 2063
Registration Act, 2030
Concept Much broader Form of NGO
Area of Area of operation is large Limited area of operation
Operation
Purpose Works for promoting humanitarian Set up to promote art, science, education
or cooperative objectives instead or any other social or cultural purposes.
of a commercial one. Works for any purpose other than making
Works for social and public profits( intends to use profit for the
welfare promotion of its objectives)
Fund Raising Raise funds from government, Initial funds raised by trustees or
businesses or any foundations or members of NPO
from general public (Donations, Domestic and foreign grants
program and activities)
Examples Examples: Red Cross, Rotary Examples: Trade, commerce, arts, charity,
education, religion, environment
protection, social welfare, sports, research

C. Difference between INGO & NGO

INGOs or International Non-Governmental organizations comprise members from different
countries. Their hierarchy distributes among the members who participate in the organization
from various parts of the world. NGOs' organizational structure has a restriction on only one
country and sometimes only a couple of states. In, they work on similar grounds and their
objective is also identical however differ in case of organizational hierarchy and mode of
operations.
Basis INGO NGO

Nature Autonomous Organization Registered under national laws
Scope of area Multiple offices across the nation Operates within the country
Operation Operates on global platforms Limited scope of operation
Purpose Works for global purposes such as Works for the betterment of the
women empowerment society
Members Members from different parts of Members of local residents
the world
Funds Approach renowned brands and Major source of funding from
corporate for the procurement of mainstream organizations
the funds
D. Funding Source for NGO

You can make yourself accessible by making your own Websites to start a Non-Profit
Organization in Nepal. You can quickly and very easily attract volunteers and donors and also
provide information to your potential beneficiaries’ through the website. Continue building
networks with persons in your regional and international communities. Try making connections
with people, local government, funding organizations, religious organizations, and other places
that can relate closely to your NGO’s work. They will be your funding source. The potential
sources of funding can be:
i. Individual Sources
ii. Company Donations
iii. Crowd Funding
iv. Community Donations
v. Government Grants (State or Local)
vi. Foreign Institutions
vii. Fund Raising Campaigns, etc.

E. NGO Registration in Nepal

The governing laws for NGO are as follows:
 Social Welfare Act, 2049
 Associations Registration Act, 2030
 Relevant guidelines adopted by the Social Welfare Council
NGOs Registration Flow chart
• Formation of Team & Promoters

Step-1
• Apply for recommendation letter from local Ward Office

Step-2
• Submit Application to relevant District Co-ordination Committee for

Step-3 "Certificate of Registration"
• Obtain Registration Number for NGO from District Administration

Step-4 Office
• Obtain affiliation certificate from Social Welfare Council

Step-5
• Registration in Inland Revenue Department for tax and obtain PAN

Step-6 Certificate
• Register at local level ward office

Step-7

Documents Required for Registration

 Copy of Resolution by board members resolving to establish the proposed NGO.
 Certified copy of citizenship certificate of all board members;
 Passport-sized photographs and copies of character report from Nepal Police of all
members from the relevant districts;
 Proposed draft of memorandum and articles of association of the NGO (Bidhan);
 Rent agreement with the lessor of the location of the office of the NGO along with a
copy of the citizenship certificate of the house owner; and
 Receipt of 3 months’ rent paid in advance as per the agreement with the house owner.
Detailed Formation and process for NGOs:

Step 1: Formation and registration Process:
1) At least 7 Founders holding a Nepali Citizenship:
- 1 President,
- 1 Vice-President
- 1 Secretary
- 1 Treasurer
2) Collect the citizenship, Passport size photo and character report from Nepal Police of all members
from respective district of origin.
3) Set up the formal documentation of the organizational goal and mission and form a bylaw
(Bidhaan):
- Memorandum of Association With the help of Team or Hire a lawyer.
- Article of Association
4) Prepare the minutes (in the register note) of the first meeting of the member of the NGO, stating
the decision to open an NGO and why.
Specify the name of Promoters and their role, objectives, mission, and source of funding.
Here, every page needs to be signed by Promoters. Also, include at least 3 signatures of witness.
5) Draft the Lease Agreement. Even if you are planning to start your NGO from you home, you will
need this to validate the location of your NGO including a copy of citizenship of the house owner.
If the house is under your name, you will need a copy of Land Ownership Certificate (Lalpurja)
too.
6) Stamp of your organization name and logo is a must.

(Yes, before registering. You will need it on every application you fill in from now on.)
7) Consider the budget aspect. The total cost to register an NGO will come around Rs.15,000 (not
including the lawyer’s consultancy fee) which may vary depending upon the district and local
level.
Note: File at least 5 copies of each document -you do not want to run around finding a photocopy
machine.

Step 2: Recommendation letter from ward office
1. “Recommendation Letter “is needed from the Ward Office. The Ward office varies with the
location and address of your organization. You need to submit application for the
recommendation letter with the above-mentioned documents. The application should be signed by
president and stamped. If you have already designed a letter pad for your organization you can
use it, if not plain A4 size paper is acceptable.
Step 3: Certificate of Registration from District Co-ordination Committee (Jilla Samanwaya

Samiti)
1. After receiving the Recommendation Letter from ward office, you need to submit an application
to District Coordination Committee for the “Certificate of registration”. An application form is
provided by District Coordination Committee. Attach the required document.
Step 4: Registration Number from District Administration Office.
1. Here, you will receive the registration number for your NGOs. You will need to fill in five copies
of application form provided by the District Administration Office.
Note: Also keep the soft copy of your Bidhaan handy because sometime they ask us for a soft copy
for their record.
Step 5: Affiliation Certificate from Social Welfare Council
1. You need to fill the application form provided by Social Welfare Council and submit it with the
copies of Recommendation Letter from ward office and Certificate of Registration from District
Coordination Committee and District Administration Office with another mentioned document.
SWC has issued a guideline for the affiliation of such entities with SWC. Please refer
https://swc.org.np/pages/437 for the guideline.
SWC has also issued guidelines for the approval of NGO. Please refer https://swc.org.np/pages/435
Step 6: Inland Revenue Department - (PAN Registration certificate)
1. All the NGOs must have the PAN card number that is 10-digit alphabetic number under Income
Tax Act 2058 and Regulation 2059. Before you visit the office, make sure you have a copy of the
minute, where it is clearly mentioned who among the Board of members will sign the application
form.
You need to submit an application for Permanent Account Number (PAN) provided by Inland
Revenue Department with copies of the above mentioned minute, Registration Certificate,
citizenship and two identical passport size photos of the person who signs the application form,
sketched map of the location of your main office.
IRD official vets your application with regard to correctness and completeness. If found correct
and complete, you will receive a “Temporary Account Number Registration Certificate”. It is
valid for 3 months. You will receive the “Permanent Account Number (PAN) Registration
Certificate” and your “PAN Card” within 3 months.

Applicable Government fee and charges:

Authority Fee (In NPR)
Ward Office 2000(may vary from one local level to another)
District coordination Committee N/A
District Administration Office 1000(May vary from one district to another)
Social Welfare Council 3000
Inland Revenue Department N/A
Important things for future reference;

 Make copies of all the certificates you have received and file the originals somewhere
safe.
 Call your first official board meeting and lay out a timetable of action for getting your
new project running. Do not forget to minute the decision you have made and get it
signed by all members.
 Let people know that you exist and what you plan to do- Build a website and open social
media account.

F. NPOs Registration in Nepal

Companies Act 2063 governs the registration and establishment of a company not
distributing profits in Nepal.
NPOs Registration Flow Chart
• Online reservation of company name from OCR website

Step-1
• Drafting and submission of physical copy of document(AoA and MoA)

Step-2 to OCR
• Registration of company at OCR

Step-3
• PAN registration at Inland Revenue Office

Step-4
• Business registration at local level ward office

Step-5
• Enlisting the company at Social Welfare Council (if required)

Step-6
Members/Promoters Required for Registration

A Non Profit Company requires at least five promoters for registration.However the
Companies Act, 2063 doesn’t limit the maximum number of promoters. Any person,
trustee of a public trust or corporate body can incorporate a company not distributing
profits.
The membership is not transferable and expires only as a result of death, cancellation of
registration or dissolution, voluntary resignation, and merger with another company.
Documents needed for registration at OCR:

 Application for registration,
 MoA and AoA of proposed company(2 copies of each),
 Citizenship certificate of promoters and witnesses,
 Copy of certificate of registration, MOA, AOA and board resolution of the promoter,
if promoter is a company,
 Power of Attorney for the registration
Government Fees Applicable for Registration

 Registration fee of NRP 15,000
Time for Registration

 Takes around 10 to 15 days for the completion of registration process

Share Capital Requirement and Liabilities to Shareholders

Share capital is not required for establishing a company not distributing profits and such
company is not permitted to distribute dividend to its members.
The company may receive membership fees from its members and can receive donation,
gift pursuant to law for the accomplishment of its objectives.
The liability of the members of such company is limited to the extent of the limit s/he has
accepted in writing. The members are not liable to the debts and liabilities of the
company.
Affiliation with Social Welfare Council

Affiliation with SWC is not compulsory. It is only required if the company is receiving
grant from foreign countries or entities.
Tax Exemptions
A NPO is entitled to tax exemption on income tax for operational income if it obtains tax
exemption certificate as per Income tax Act, 2058.

G. INGOs Registration in Nepal

Laws Governing the INGOs in Nepal are:
- Social Welfare Act, 2049
- Social Welfare Council Rules 2049
Social Welfare Council (SWC) is the main Regulating body responsible for regulating the
INGOs.
Major Agreements required for

the Operation
General Agreement
Project Agreement
S.N. General Agreement(GA) Project Agreement(PA)

1. It provides the basis for the operation of It executed between INGOs, SWC and the
INGOS which is executed between INGOs local partner.
and SWC.
2. GA incorporates information such as It incorporates
a.) Areas where the INGOs wants to supports a.) Background
in Nepal. b.) Objectives
b.) Amount of fund per annum that will be c.) Implementation
used to implement project process/methodology.
c.) Date of submission of Project Agreement d.) Monitoring plan
d.) Submission of progress report e.) Budget estimate etc. the projects
e.) Other compliance requirement that that INGOs intent to operate.
INGOs need to submit before SWC.
Note: The application of the PA needs to be submitted within 3 months from the date of
the signing of the General Agreement before SWC. If INGOs are not able to do so within
the time mentioned, the SWC will provide additional 3 months for submission of the
application. Fine will be charged if submission is not made within extended period.
INGO Can conclude more than one PA under a GA.
Minimum Limit of Donation
INGOs are required to donate at least USD 2,00,000 per annum. The source of fund for
INGOs should be injected from outside of Nepal.
Implementation of Project
Projects are implemented through the local partners having minimum work experience of
2 years. The Local partners may be;
- NGO
- Company not distributing profit
- Any registered established with the objective not to distribute profit.

Status of Local Office

INGOs need to set up a local office for its operation in Nepal.
a) The local office will not have independent legal status or corporate personality
separate from the INGOs existing under the laws of a foreign jurisdiction. The local
office remains as part of INGOs in terms of authority and its function.
b) The local office of the INGOs will also have to be registered with the tax authority of
Nepal and obtain a Permanent Account Number (PAN).
Documents Required
Documents required for the approval of general agreement along with the application to
be submitted by INGOs;
 Certificate of Registration of the home country
 Bylaws
 Financial Commitment (min. USD 2,00,000 per annum)
 Project Proposal/ Concept paper
 Draft General Agreement (in the prescribed format)
 Letter of Authorization to deal with the business of agreement
 A copy of citizenship, Passport and Bio data of the authorized person
 Covering Letter
 Reliable Funding Sources.
SWC shall grant approval within 3 months period from the date of receiving of the
application.
Restriction to INGO
 Restricted to make any share investment in any profit motive institution with the
intention of carrying business in Nepal.
 Cannot spend more than 20% of total funding in administrative cost.
Financial Assistance to Local Partners

An INGO doesn’t need to obtain approval to provide the financial assistance to the local
partners.
However, local partners should get approval from SWC before receiving the financial
assistances from INGOs.

H. Project Start and Close

Documents need for approval of SWC for project Approval:
Detail on Project/ Cost Estimation/ Budget
Application + Donor Details
After submitting above file, SWC investigate and take decision

accordingly.
SWC approve the project and give the time period for the progress report of project
according to the nature of project.
For project close, there is no such process as submitting document at SWC. But you have
to submit the progress report to SWC time to time. Organization should maintain the
Fund Accountability Statement and whenever asked by SWC, organization should able to
give transparent and fair report of the project.
Process that occur during project closure;

• Forming Project Completion Task Force
• Identifying Completion Criteria
• Obtaining formal Closure acceptance from stakeholder
• Stakeholder analysis and the power/interest
• Financial Closure
• Taxation Closure Managing Admin and Human Resources Closure
• Ensuring responsibility for future maintenance
• Answering Evaluation questionnaire
• Contingency Plans

I. NPO/NGO Renewal Process and Documents needed

 All the NGOs registration must be renewed annually at:
a. Tax office for tax exempted certificate
b. Ward Office and Municipality Office (Nagarpalika)
c. District Administration Office
d. Social Welfare Council (every 3 year)
 All the NPOs registration must be renewed annually at:

A. Tax Office for tax exempted certificate
B. Ward Office and Municipality Office
C. Social Welfare Council
Details of Documents to be submitted:

A. Documents needed at Tax Office:
 Application in prescribed format
 Photocopies of all the certificates
 Audit report
 Tax clearance certificate
B. Documents needed at Ward office of Municipality
 Photocopy of tax clearance
 Photocopy of Auditor’s license
 Tax certificate, Photocopy of Bidhan
 Photocopy of Minute
 Photocopy of Ward office application + receipt and Application.
C. Document needed at District Administration Office (Jilla Prasashan Office)

 Photocopy of Auditor’s license & Tax certificate
 Photocopy of Bidhan
 Photocopy of Minute
 Upcoming year Planning
 List of Promoters
 Application.
D. Documents needed at Social Welfare Council (Once in every 3 years)

 Photocopy of Auditor’s license, Tax certificate and all the certificate.
 Photocopy of Bidhan
 Photocopy of Nagarpalika (TDS of rent)
 Photocopy of Minute (Board member selection meeting)
 List of Promoters
 Application.

J. Tax Provision for NGOs/INGOs

NGO’s and INGO’s are social organizations without any profit motive. Such social
organizations are registered as a Tax Exempt Entity under Income Tax Act of Nepal
having obtained affiliation from Social Welfare Council.
Grants received by the NGO’s and INGO’s are exempt from income taxes upon obtaining
the tax exemption certificate from the Inland Revenue Department.
Despite of being tax exempt entity, the tax exemption is provided specifically for the
following income received by the entity under section 10G as per the Income Tax Act;
a. Donations and Prizes received by the organization
b. Any other forms of contributions received such that the contributor has not interest of
any form with the entity and the contribution is directly related with the objective/aim
of the organization.
i.e. Tax Exemptions is not applicable for any other income earned by organization such
as interests, rent income, service fees, investment income and other income that has been
obtained as a result from competitive bidding.
For any other income earned by the organization except Donations taxes shall be
applicable in any surplus funds generated from such activities during the fiscal year.
How to Obtain Tax Exemption Certificate

An application has to be submitted to IRD for providing TEO Certificate along with the
following details attached;
- Copy of Registration Certificate, Registration Number
- MoA, AoA & other relevant documents in case the entity is company. .
- Copy of PAN certificate
- Copy of an audit report if any
- TDS payment Certificate
After submission of application, Tax officer inspect the documents and when all the
registration criteria stated above are met, Tax exemption Certificate is provided to the entity.
The validity of tax exemption certificate is only one year.
Audit of Tax Exemption organization must be completed within 3 months from the end of
the fiscal year.
Renewal of Tax Exemption Certificate

Renewal of Tax Exemption Certificate of NGO/INGO shall be done within one year form
the end of fiscal year.
Documents required to be submitted:
- Audited Financial Statement
- Proof of Deposit of Withholding Tax and Tax Return
- Annual Salary Sheet
- Previous Year Tax Exemption Certificate

A Tax Exempt Entity cannot enjoy Tax Exemption Benefits until the Certificates are
renewed.
If it is not renewed within above time period, the organization will no longer be regarded
as Tax Exempted Organization and all the income will be subject to Tax including gifts
and donations.
The NGO shall be liable to pay 25% corporate taxes on any surplus fund for the fiscal
year if the NGO/INGO has not obtained or renewed the tax exemption certificate.
Filing of Tax Returns

The NGO should file the tax returns for every Nepalese Fiscal Year (Shrawan to Ashadh,
Mid July to Mid July) within three months (Ashoj end) from the completion of the fiscal
year. The annual audit report of the organization also needs to be submitted for filing the
tax returns. The tax return can be filed from the Inland Revenue Departments official tax
portal i.e. ird.gov.com.np.
NGO’s and INGO’s shall file the D3 Tax Form.

Under D3 Form, incomes qualifying as tax exempt incomes are filed under Annexure
5(KA) whereas taxable incomes are filed under Annexure 5.
Provisions for Tax Deducted at Source

A. Payment to TEO
No TDS will be deducted in case the TEO receives Tax Free Income from the party as
mentioned above. However, while making the payment of Non Tax Free Income,
TDS Provisions are attracted for Tax Exempted Organizations.
(Example; since interest income is taxable for TEO, bank has to deduct TDS as per
applicable provisions).
B. Payment by TEO
It shall be the responsibility of the organization to deduct applicable TDS while
making payment to the vendors and shall deposit such deducted TDS in the Inland
Revenue Office and submit ETDS Returns within 25th of the following month (as per
Nepalese Calendar).
Exclusions from Tax Exempt Organization

Any certified tax exempt organizations will be immediately discarded from tax exemption
if they provide payments to third parties such that:
- The payment is not related with attaining objective/aim of the organization or
- The payment made is not related to the payment of any goods or services received
from that third party (Misappropriation of fund).
In such case, all the incomes including donation will be taxed.
Donations Made to Tax Exempt Organization

Any person providing the donation to Tax Exemption Organization can claim expenses lower
of:
- Rs. 1 Lakh or
- 5 % of Adjusted Taxable Income

K. VAT Provisions for NGOs and INGOs

Only if the NGO or INGO engages in the transactions of Vatable goods and services and
the annual transaction of the prescribed threshold, then NGO or INGO should
compulsorily be registered in VAT.
a) On Transactions of goods and services attracting VAT

Nepal Government, Province Government, Local Level, International Agencies,
Public Entities are required to collect VAT if such entities transact in goods and
services attracting VAT. (Section 15(3))
Example; VAT should be collected in auction of assets by NGO’s and INGO’s and
deposited in the respective Inland Revenue Department.
b) Receiving Services from person / companies outside Nepal

Any person in Nepal receiving service from person outside Nepal need to pay Vat for
that service. (Sec 8, Reverse Charging of VAT)

L. Income Tax and VAT Compliance Checklist for NGOs and INGOs
To Do’s When Frequency Penalty for Non Compliance

Deduct applicable TDS on As and when
payments to vendors and As and when transaction transaction Organization has to bear the TDS amount
employees takes place takes place through its own fund.
Deposit deducted TDS in the Within 25th of the Interest at 15% p.a. up to the period of
Inland Revenue Office following month Monthly Basis failure to pay TDS
Submit ETDS Returns through Within 25th of the Fine at 2.5% p.a. of TDS amount to be
Income Tax Portal following month Monthly Basis deposited
Audit of financial statements for Within Ashwin End of the
the fiscal year following year Annual Basis -
Submission of Income Tax Fine at 0.1% of gross assessable income
Returns (D3 Returns) of the fiscal Within Ashwin End of the (total income) or Rs. 100 per month of
year through Income Tax Portal following year Annual Basis delay whichever is higher.
NGO/INGO cannot enjoy the tax
Renewal of tax exemption Within Ashwin End of the exemption facility and has to pay 25%
certificate for the next fiscal year following year Annual Basis corporate taxes on any surplus funds.
Submission of VAT Return for Within 25th of the
each month following month Monthly Basis Fine at Rs. 1000 Per Return non filed
Interest at 15% p.a. of payable amount
Payment of VAT liability for each Within 25th of the Additional fee at the rate of Ten Percent
month following month Monthly Basis per annum

M. Accounting Treatment and Financial Reporting

Basis of Accounting for recording its expenses and income:
- Cash Accounting Method or
- An Accrual Method
Particulars Cash Basis Accrual Basis
Revenue Received Earned
Expenses Paid Incurred
Accounting treatment as per GAAP

As per GAAP, the financial statements include following:
- Income and Expenditure Statement
- Balance Sheet
- Fund Accountability Statement
1. Receipt Vs Income
S.N. Receipt Income
1. All receipts are not income. All income may not be received during the
year. This happens if the organization
follows accrual accounting.
2. For example, money received For example, money for credit sales may
from sale of fixed assets, loans be received in the nextyear. Interest earned
taken,advances from on fixed deposits.
customers, etc. is not income.
2. Payment Vs Expenditure.
Using the same logic, all payments are not expenditure. For example, money paid
for purchase of fixed assets, loans repaid or given to others, advances to
contractors, etc. are not expenditure.
Common issue that might include:
a. Borrowings
b. Advance for expenses
c. Accrued Expense/Income
3. Income and Expenditure Statement

An income statement is a financial statement that shows you the company's income
and expenditures. It also shows whether a company is making profit or loss for a
given period. The net result is either surplus (Excess of income over expenditure) or
deficit (Excess of expenditure over income).
4. Balance sheet
Non-Profit Company issues a Balance Sheet which measures non profit’s assets,
liabilities and net assets in a single document. The assets include fixed assets as on
date, prepaid expenses, accrued income and investments and the closing balance of
cash and bank. The Liabilities include all fund based items such as donation, prize
fund, tournament fund, etc, outstanding loans, outstanding expenses and advance
income.
The Shareholders equity is obtained by deducting the total liabilities from the total
assets.

5. Fund Accountability Statement

Fund accountability Statement is maintained by the NGOs/INGOs/NPOs. Funds at
NGOs/INGOs are maintained in excel sheet including all projects in one sheet. It
includes:
a) Opening Fund Balance
b) Fund received from donors
c) Program cost
d) Loans and Advance
e) Other Liabilities and unrestricted reserve
f) Closing Fund Balance
Accounting Treatment as per NAS for NPOs

Applicability criteria
NAS is applicable to all not for profit organization
 Registered with the Social Welfare Council
 Working in Nepal under a general agreement, or
 Project offices working under the bilateral agreement with Nepal Government
and Foreign Government.
Applicable Date
As per note issued by ICAN the NAS for NPOs will be applicable from 16th July 2023
(Shrawan 1, 2080). Entities can apply this standard voluntarily till 31 Ashad,2080.
The Financial Statement include to each of following documents;
(1) Statement of Financial Position

(2) Statement of Income and Expenditure
(3) Statement of change in reserve
(4) Cash flow statement
(5) Statement of Accounting policies and notes to financial statement.
The NPOs shall prepare the following two statement for the externally funded
projects as Project Level Reporting as required by the Agreement where the
above mentioned first five statements may or may not be relevant.
(6) Fund Accountability Statement
(7) Statement of budget variance (Budgeted Vs Actual Expenditure Report)
1. Statement of Financial Position

The elements directly related to the measurement of financial position are assets, liabilities
and fund balance.
1.1. Recognition of assets and liabilities

An item that meets the definition of an element should be recognized if:
(i) It is probable that any future economic benefit associated with the item will flow to or
from the non-profit organization; and
(ii) The item has a cost or value that can be measured with reliability.
1.2. Current and Non- current Assets

a) Current Assets: Working Capital: Cash and Bank, Inventories, Receivable, Advance;
b) Non-current Assets: Investments, Tangible Assets, Intangible Assets, Other Non-
Current Assets;

c) Debt: Since the end of the last year if the debt is expected to be liquidated within a
year that will be classified as current liabilities; otherwise, it is classified as non-
current liabilities.
Assets and Liabilities item are presented in Financial Statement ranking from liquidity or
current and non-current classification.
Assets and Liabilities are not presented net in financial Statement.
1.3. Non- Current Assets

Property, Plant and Equipment
Property, Plant and Equipment include land, building, structures, machinery and vehicle and
include the assets under construction
Accumulated depreciation and accumulated impairment of assets is shown in the Statement of
financial position as a deduction from the assets of each item.
1. Land
The Accounting treatment of Land acquired through different modes will be as follow:
a. Land acquired through purchase

Land should be recorded at the aggregate of the purchase price paid /payable and other
cost incidental to acquisition such as registration charges.
In the case of land acquired under a scheme of compulsory acquisition, in the event that
there is a dispute between the NPO and the previous owner where the lands has been
acquired, with regard to the rate of compensation, in the determining the cost of the land
for purpose of the financial statements, an appropriate allowance shall also be included
for the additional compensation that may become payable provided the following
conditions are satisfied.
i. The payment of additional compensation is probable, and
ii. The amount so payable can be reasonably estimated.
b. Land acquired free of cost

Land is sometimes provided by the government to the NPO free of cost. Land may also
be provided by individuals or institutions through an endowment for the specific
purposes like construction of parks and similar common facilities, etc. The cost of such
land to NPO is zero. In the substance, such Land received is a non-monetary grant and,
accordingly both grant and assets should be accounted for at the fair value.
Any incidental cost of acquisition such as registration charges shall be added to the
above.
c. Vested government land
Such land is neither owned by the NPO nor do the economic benefits from the use of
such land flow to the NPO. The ownership remains with the government remains with
the government and the NPO merely acts as a trustee in respect of such land. Such land
shall therefore not be considered as an asset of the NPO. However, disclosure relating to
same shall be made clearly.
2. Property, plant and equipment

Property, Plant and equipment that are received directly as donation or endowment
should be recognized as property, plant and equipment at the fair value and the
corresponding amount should be recognized as deferred income account. Such items
should thereafter be depreciated while corresponding amount could be transferred from
the deferred income to the Statement of Income & Expenditure.
While property plant & equipment is purchased as a part of a project through restricted
funds which initially written off as a project cost with corresponding income, if on the

conclusion of the project, the asset is not handed over to the beneficiary or returned to
the original donor, the assets is valued at fair vale on the conclusion of the project and
brought into financial statement under property plant and equipment with corresponding
credit to a deferred income. Depreciation provide on such assets will be charged against
such deferred income. For the purpose of depreciation, the date of valuation for inclusion
in the financial statements is considered that date of purchase.
a. An item of property, plant or equipment comprises its purchase price, including
import duties and non-refundable purchase taxes, and any directly attributable cost of
bringing the assets to working condition for its intended use. Any trade discount and
rebates are deducted when arriving at the purchase price.
b. The depreciable amount (cost less expected proceeds from disposal) of an item of
property, plant and equipment should be allocated on a systematic basis over its
useful.
c. If an item of property, plant or equipment becomes impaired, in that it is unlikely to
generate cash flows to absorb the carrying amount of the item over its useful life, it
carrying value should be reduced to the cash flows to be recovered from the assets.
Cash flow need not to be discounted and could come from either the disposal value of
the asset or from its continuing use. Indicators of impairment would include a
significant decline in the market values or obsolescence.
Intangible Assets
Intangible assets including intellectual property, development expenses, computer software,
mining rights, and leases.
Intangible assets are shown in the statement of financial position as at the balance net of
direct acquisition costs less accumulated amortization and accumulated impairment losses.
Investments
It is initially recognized at cost. Such assets should be re-measured at lower of cost or net
realizable value at the reporting data.
Under the cost model, Investment property is measured at cost less accumulated depreciation
and any accumulated impairment losses. Fair value is disclosed.
Gain and losses on disposal are recognized in Income and Expenditure.
1.4. Current Assets

Inventories
An entity shall measure inventories at the lower of cost or net realizable value.
Net Realizable Value (NRV) is the estimated selling price in the ordinary course of operating
less the estimated cost of completion and necessary to make sales. Any write down to NRV
should be recognized as expenses in the period in which the reversal occurs.
An entity shall measure the cost of inventories by using the First in First out (FIFO)or
weighted average cost formula.
Item are on occasion received as a donation by an NPO for distribution to beneficiaries or for
sale with the proceeds being used for the benefit of such beneficiaries. Such items donated
and held as at the statement of Financial Position should be measured at fair value.
Cost of inventories of a service provider
To the extent that service providers have inventories, they measure them at the cost of their
production. The cost of inventories of a service provider does not include profit margin or
non-attributable overheads that often factored into process charged by service providers.

1.5. Accumulated fund and reserve

Unrestricted fund
Many NPOS have resources which are available for the general purposes of the NPOS as
set out in its governing document.
Unrestricted fund is equivalent to the NPOS own capital, and should be presented
separately from restricted funds in the financial statements. However, in the case of
projects that have been completed, any surplus remaining in restricted funds if permitted
by the relevant contract or agreement, may also be transferred for inclusion in the
unrestricted fund.
Restricted fund
Nearly all NPOS hold funds that can be applied only for particulars purposes within their
overall objectives. These purposes are often imposed by donors (whether it be the
Government other donors) and contained in an agreement or may be self-imposed
through announcements made during the courses of a fund-raising campaign usage are
restricted funds and have to be communication. Funds held for such specified usage are
restricted fund and have to be separately accounted for in the financial statements.
Income that is generated from assets held in a restricted fund will normally be subject to
the same restriction specifically otherwise.
Restricted fund also called “Unspent Grant”, represent a part of Restricted Net Assets in
NPOS.
Accumulated fund
Maintenance of the accumulated fund of an NPO is based on the maintenance of its
financial capital. An NPO’s capital has been maintained If the financial value of its net
assets at the end of a period equals or exceeds the financial value of its net assets at the
beginning of the period.
If an NPO fails to maintain its accumulated fund, its ability to continue to provide
services will dwindle and affect its ability to service future beneficiaries. Future resource
providers may need to make up the deficiency, unless the organization has the ability to
generate income, e. g by fundraising, in order to avoid such decline. Restricted funds
constitute an important part of the accumulated fund of an NOP it is therefore important
to distinguish between the restricted accumulated fund and the general accumulated
fund.
NPO is required to present the statement of change in reserve covering all types of the
reserve.
1.6. Non-Current Liabilities

Non-Current Liabilities include long term debt, security deposit; it will also include
accrued severance benefits.
NPO has to recognize the related plan assets and accrued severance benefits (plan
Liabilities) and should make necessary provision as per actuarial valuation to meet the
liability of the defined plan as at the end of the relevant accounting period.
1.7. Floating debts and current Liabilities

A liability should be classified as a current liability when it is expected to be settled in
the normal course of the entity’s operating cycle. Floating Debt is the debt which is
expected to terminate within one year. Current liabilities are short- term borrowing, trade
payable, accrued expenses, accrued payable, etc. It will also include current portion of
long-term debt.

1.8. Net assets without restrictions

Net assets without restrictions from the donors include the assets created from
unrestricted subsidy or grants from the donor.
1.9. Fair Value

When measuring fair value, an assets is acquire or a liability is assumed in an exchange
transaction for that asset or liability, the transaction price is the price paid to acquire the
asset or received to assume the liability (an entry price).In contrast, the fair value of the
asset or liability is the price that would be received to sell the asset or paid to transfer the
liability (an exit price) . Entities do not necessarily sell assets at the prices paid to acquire
them. Similarly, entities do not necessarily transfer liabilities at the prices received to
assume them. As a result, an entity’s intention to hold and assets or to settle or otherwise
fulfill a liability is not relevant when measuring fair value.
2. Statement of Income & Expenditure

Statement of Income and Expenditure portrays an integrated result of the entire non-profit
organization as one unit of financial statements. The elements that are related to the
measurement of income and expenditure are explained below;
2.1. Business Profits

Business profits refer to the increase in net assets arising as a result of recurring revenue
business and business specific purposes incidental thereto.
2.2. Revenue Recognition and Measurement
a. Grant- Restricted Funding:

Restriction contribution is not gratuitous. They are based on payment, contracts, or other
understanding, where the conditions for the receipt of funds are linked to a performance,
of a service or other process.
Revenues should not therefore be recognized until there is reasonable assurance that the
contribution will be received, and the conditions stipulated for its receipt have been
complied with.
On receiving any restricted contributions, e. g. bank deposit, the contribution should be
recognized to the restricted fund account in the statement of Financial Position and
corresponding effect in the bank account. Thereafter, on a systematic basis, an amount
equivalent to that which has been spent on agreed “restricted” activities during the month
should be taken to income, by debiting the restricted fund account in the statement of
Financial Position and crediting restricted Income account.
b. Grants-Unrestricted Funding
Revenue that arises from the general unrestricted resources has characteristics similar to
revenue in the entities and should be treated accordingly. It should only be recognized
when the amount of the revenue can be measured reliably, or when it is probable that the
economic benefit associated with the transaction will flow to the NPO. Example:
membership fees, sundry donations, consultancy fees, sales of goods or any other source
of unrestricted income.
c. Donation/Grant is recognized as revenue when the actual donation is received in cash or
kind.
d. Donation received in kind should be measured at fair value.
e. Even if the actual fee to be paid is not received, force recognizes revenue when the
recovery becomes certain.

2.3. Business expenses

a) Project costs will be identified separately as unique purpose business expenses and
revenue.
b) Unique business functional cost shall be classified by nature.
c) Unique purposes of business functional expenses shall be classified describes in the
following subparagraphs:
- Cost of doing business
- General and Administrative Expenses
d) The purpose is to show the unique business expenses costs separately and divide by
nature for the cost of each segment as analytical information as a disclosure.
Common cost allocation

If any cost item is related to more than one activity and allocation of costs is required
between the activities. In this case it should be applied consistently to establish a reasonable
allocation basis according to the operating nature and method of operation of non-profit
organization as follows:
a. Facility costs
b. Others cost items usually proportional to each activity by personnel costs and facility
costs are allocated in accordance with those standards or shall apply others appropriate
allocation criteria.
2.4. Business Income

Business income refers to a non-profit business profits. It includes interest income,
dividend income, profits and gains from the disposal of investment, assets revaluation,
reversal of impairment of intangible assets, gain from the disposal of intangible assets,
etc.
2.5. Business Expenses

Business expenses are interest expense, loss or valuation of investments and loss on
disposal of intangible assets, impairment loss, loss on disposal of intangible assets etc.
2.6. Income tax expense

a) Usually the not for profit organization are tax exempt. If not exempted, incidence of tax
should be discloser as current taxes for the income tax pertaining to the reporting period
and wherever deferred tax implication may arise deferred tax assets/liability and deferred
tax income /expenses should be recognized and discloser.
b) Current tax should be charge directly to the relevant fund account, if the tax relates to
items that are credited or charge, in the same or a different period, directly to such a fund
account.
c) Where an entity is entitled to tax exemption, the discloser of such fact is to be made as
explanatory notes appropriately. Where an exemption is available, deferred tax is not
calculated and considered at all.
2.7. Foreign Currency Translation

The exchange difference revaluation gain or loss arising due to the revaluation of the
monetary asset or liability held in foreign currency by applying the exchange rate shall
be charge to the Statement of Income and Expenditure.

3. Cash Flows Statement

Cash flow statement should be prepared for the entire non-profit organization as one unit.
But, depending on the nature and needs of non-profit organizations, the cash flow statement
can be prepared in separate columns each unique purpose operation and revenue division.
3.1. Preparation of Cash Flow Statement

Cash flow statement shall disclose the cash flow from operating activities, investment
activities and financing activities separately. Cash flow from these three activities is
added to opening cash balance to derive the closing cash balance.
Cash Flow Statement can be prepared by applying the direct method or the indirect
method.
Cash flow from Operating Activities

Operating Cash flows are not restricted donation income, grant income, fee income,
investment income, patient care income. This includes operating income and revenue.
Operating cash outflow includes labor costs, facility costs, other expenses, and operating
expenses.
Cash flows from operating activities are primarily derived from the principal revenue
producing activities of the non-profit organization. Therefore, they generally result from
the transactions and other events that enter into the determination of statements of
Income and Expenditure. Examples of cash flows from operating activities:
- Grant received from various donors.
- Cash receipts from the sale of goods and the rendering of services.
- Cash receipts from royalties, fee commissions and other revenue.
- Cash payments to suppliers for goods and services;
- Cash payments to and on behalf of employees;
- Cash payments or refunds of income tax; and
- Cash receipts and payments from contracts held for dealing or trading purposes,
Cash Flow from Investing Activities:

The separate disclosure of cash flows arising from investing activities is important
because the cash flows represents the extent to which expenditure have been made for
the resource intended to generate future income and cash flows. Examples of cash flow
arising from investing activities are:
a) Cash payment to require property, plant and equipment, intangible and other long-
term assets.
b) Cash receipt from sale of property, plant and equipment, intangible and other long-
term assets
c) Cash lending and recovery activities.
Cash Flow from Financing Activities

The separate disclosure of cash flows arising from investing activities is important
because it is useful in predicting claims on future cash flows by the providers of capital to
the entity.
Examples of cash flows arising from financing activities are:

a) Cash proceeds from issuing debenture, loan, notes, bonds, mortgages and others
short-term or long-term borrowings;
b) Cash repayment of amounts borrowed; and
c) Cash payment by a lessee by a lessee for the reduction of the outstanding liability
relating to a lease.

4. Recognition and Measurement

4.1. Recognition Criteria of Assets
Assets are initially recognized at acquisition cost.
The exchanged assets or assets received as grant or free of charge are recognized at the
fair value
Except when prescribed separately, if the obsolescence of assets resulted a sharp decline
in the market value, the difference between the recoverable amount of the asset and the
carrying amount is the impairment loss. The value of the assets shall be carrying amount
minus impairment loss.
4.2. Measurement and recognition of restriction fund

Restricted fund should be presented in the statement of financial position at the time of
receipt, that is, when received as cash or deposited to the bank account-or at the time
when there is reasonable assurance that it will be received.
4.3. Accounts receivable and revaluation of receivables
If the receivables could not be recovered in full or part of the principal or interest, such
trade receivables shall be impaired providing the provision or allowance for bad or
doubtful debts applying reasonable and objective criteria.
The new carrying amount of the receivables shall be the difference between the existing
carrying amount and allowance for doubtful debts.
Allowance for accounts receivable are operating expense (bad debt expense).
4.4. Revaluation of PPE :

An entity shall choose either the cost model or revaluation model as its accounting policy
and shall apply that policy to an entire class of assets.
(a) If an assets carrying amount is increased as a result of a revaluation, the increase shall be
recognized in net worth under the heading of revaluation surplus.
However, the increase shall be recognized in the Statement of Income & Expenditure to
the extent that it reverses a revaluation decrease of the same asset previously recognized
in the statement of Income & Expenditure.
(b) If an assets carrying amount is decreased as a result of revaluation, the decrease shall be
recognized in that statement of Income & Expenditure. However, the decrease shall be
recognized in net worth to the extent of any credit balance existing in revaluation surplus
in the respect of that asset. The decrease recognized in net worth reduces the amount
accumulated in capital fund under the heading of revaluation surplus.
4.5. Revaluation of investment securities

Investment in financial assets such as shares, government bonds; debenture etc. should
be recorded initially at a cost. Such assets should be re measured at lower of cost or net
realizable value at the end of each fiscal year.
4.6. Valuation of accrued severance benefits

1. Retirement benefit is an amount equivalent to the severance to be paid to the current
and former employees which is the part if the liabilities in the statement of financial
position.
2. If the NPO set a defined contribution plan, NPO does not recognize the related plan
assets and accrued severance benefit. But NPO must pay the contributions for the
relevant accounting period which is the cost of the relevant accounting period.
3. If the NPO set a defined benefit plan, NPO has to recognize the related plan assets
and accrued severance benefits and should make necessary provision as per actuarial
valuation to meet the liability of defined benefit plan as at the end of the reporting
period.

N. Key Problems faced by NGO/INGOs/NPOs

Following are the Key challenges that NGO/INGO/NPOs usually faced on applying
financial reporting standards:
- Treatment of Foreign Exchange Translation
- Gain / Loss on Foreign Exchange and its tax implications
- Depreciation on Grant Assets and its tax implications
- Sale of Assets purchased on Tax exemption facilities
- What happens if we do not comply with NAS for NPOs?
- Treatment of FUND after completion of Project and its tax implications
- Changes in accounting estimates, policies and errors
- Reporting for profit making and non-profit making activities.
- Tax provisions, return and compliance
- VAT applicability, registration and compliance
- First Time compliance of NAS for NPOs
- Overhand Allocations
- Closure of NPOs
- Salary and TAx of Expat (Non Residents employee)
Please consult the Key members of the firm for detail consultation on above subject
matters.

O. Final word
Non-profit accounting is astonishingly complex affairs to deal with. It is widely
acknowledged that accountability and transparency are the most significant issues of non-
profit organization as they are inextricably linked with Government agencies like SWC,
IRD, CDO office and donor agencies.
This Guidebook has been made on the request of the several accountants working on
NGO sectors who have shared their problems with us in confidence. Many people
working across development sectors, agencies, researcher, fellow colleges, and students
have helped us to add depth and insight to this document.
We have kept the key problem faced by the NGO/INGOs unanswered keeping our own
tradition, as we cannot mention individual names and cases. Any person or organization
willing to get the details answered and get the excel copy of the Financial statements are
requested to contact the number or email mentioned below:
Key Members of Firm
Mr. Prabin Shrestha

Audit Manager
prabin@bidurassociates.com
+977-9843681404
Mr. Milan Rumba

Audit Manager
milan@bidurassociates.com
+977-9845905515

P. FORMAT OF FINANCIAL STATEMENTS

XYZ-NGO/INGO/NPO NEPAL
STATEMENT OF FINANCIAL POSITION
As at … Ashadh 20X2 (...th July 20X2)
As at As at
Particular Notes …..Ashadh 20X2 …..Ashadh 20X1
Assets
Non-Current Assets
Property, Plant and Equipment 4.1
Intangible Assets 4.2
Investment property
Long term Investment
Other non-current Assets
Total Noncurrent Assets
Current Assets
Inventories 4.3
Account Receivable 4.4
Cash and cash equivalents 4.5
Total Current Assets
Total Assets
Liability and Reserve
Accumulated Reserve
Unrestricted Funds/accumulated surplus 4.6
Designated Funds 4.7
Restricted Funds 4.8
Endowment Fund 4.9
Other Capital Reserve 4.10
Total Accumulated Reserve
Non-Current Liability
Loan and borrowings
Employee benefit liability
Deferred Revenue
Other Non-Current Liabilities
Total Non-Current Liabilities
Current Liabilities
Account Payable 4.11
Loans and Borrowing
Provisions 4.12
Bank Overdrafts 4.13
Total Current Liabilities
Total Liabilities
Total Liabilities and Reserves

STATEMENT OF INCOME AND EXPENDITURE
For the Year Ended …..Ashadh 20X2 (….July 20XX)
Current Previous
Particulars Notes Year Year
INCOME
Incoming Resources 4.14
Financial income
Other Income
Total Income
Staff Cost/Expenses 4.15
Program Expenses 4.16
General Administration Expenditure
Depreciation
Other Expenditure
Total Expenditure
Net surplus/(Deficit) before Taxation
Income Tax Expenses 4.17
Surplus/(Deficit) for the year
APPROPRIATION OF SURPLUS FOR THE YEAR
Allocation to Reserves
Allocation to Endowment Fund

STATEMENT OF CHANGES IN RESERVES
Description Restricted Designated Unrestricted Endowment Capital Result for the Total
Reserves Fund Reserves Funds Reserves Year
Balance as at.. Ashadh 20X0 -
Result for the Year - -
Allocation of results to Restricted - -
Reserves
Allocation of results to - -
Designated Fund
Unrestricted Fund
Endowment Fund
Allocation of results to Capital - -
Fund
Balance as at 1st Shrawan 20X1 -
Result for the Year - -
Allocation of results to Restricted - -
Reserves
Designated Fund
Unrestricted Fund
Endowment Fund
Allocation of results to Capital - -
Fund
Balance as at ..Ashadh 20X2 -

STATEMENT OF CASH FLOWS
Particulars Current Year Previous Year

CASH FLOWS FROM OPERATING ACTIVITIES
Surplus/ (Deficit) for the Year (Before Tax)
Adjustments to reconcile surplus/ (deficit) to net cash flows:
Non- Cash Items
Depreciation and Impairment of Property, Plant and Equipment
Amortization and impairment on intangible assets
Provision and losses on Inventories
Movement in provisions, receivables and specific risks
Interest and Securities income
Losses/ (gains) on securities
Gains from disposal of fixed assets
Working Capital Adjustments
Accounts Receivables
Prepayments
Inventories
Other financial assets
Accounts payable
Accrued expenses and deferred income
Other financial liabilities
Less:
Income Tax Paid
Interest paid
Net Cash from /(used in ) operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property Plant and Equipment
Purchase of Intangible Assets
Proceeds from sale of equipment
Purchase of securities
Interest Received
Income from securities, net
Net Cash from /(used in ) investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing of Government loans
Repayment of Government loans
Net Cash from /(used in ) financing activities
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 01 Shrawan 20X1
CASH AND CASH EQUIVALENTS AT 32nd Ashadh 20X2

Fund Accountability Statement of ABC Fund
Financial Year : 20X1/20X2
Pro
ject
Project Code:
Village/Municipality: District:
(NRs. In '000)
Fund Received During the

Previous Current Year Period
A Sources of Fund
Year Actual Budget Q Q Q Total to
Q1 2 3 4 Date
Opening Fund
Balance
Fund Received
during the Period
Less: Unused
fund refund
Total Fund
Available (A)
Expenditure (As Previous Current Year Expenditure Total to

B
per Budget Line) Year Actual Budget During the Period Date
1 Activity 1.1
2 Activity 1.2
3 Activity 1.3
4 Activity 1.4
5 Activity 1.5
Total Expenditure (B)
Fund Balance (A-B)
Fund Balance Represented by:
SN Particulars Closing Fund Balance for the Period
1 Cash Balance
2 Bank Balance
Advance &
3 Receivable
4 Payables
Total
Prepared By: Reviewed By:
Approved By:
Date:

Statement of Budget and Expenditure (Variance Analysis) of ABC Fund
Year:
Period:
Project Title:
Donor:
Currency:
Budget Actual
Activity Source of Over/Under Percentage of Explanation for
Expenditure Expenditure Actual Spent %
Description Fund/Donor Spent in NPR Over/Under Spent Over/Under Spent
for the Period for the Period
Output 1
Activity 1.1
Activity 1.2
Activity 1.3
Output 2
Activity 2.1
Activity 2.2
Total

XYZ-NPO NEPAL
Statement of Accounting Policies and Notes to Financial Statements
For the Year ended 32nd Ashadh 2079 (16th July 2022)
1. General Information
XYZ- NPO Nepal is a non-governmental not for profit organization established under Institute
Registration Act (“Sanstha Darta Ain”)……. It is established on ………… and affiliated with Social
Welfare Council/ District Administration Office. Its registered office is in ………… as principle place
of activities.
It is domiciled in Nepal and is the local representation of XYZ- NPO in the foreign country.
Except for certain activities that will conclude on the realization of their relevant activities in
accordance with the relevant terms of reference, the financial statements have been prepared on going
concern basis.
2. Basis of Preparation
2.1 Statement of Compliance
The Statement of Financial Position, Statement of Income & Expenditure, Statement of Changes in
Reserves, Statement of Cash Flows together with the Accounting Policies and Notes to the financial
statements as at …… Ashadh 20X2 and for the year ended comply with the Generally Accepted
Accounting Principles to the extent applicable and the Nepal Accounting Standards for NPOs (NAS
for NPOs) issued by Accounting Standard Board of Nepal.
The Financial Statements were authorized for issue as per decision of the Board or Executive
Committee dated ……..
2.2 Basis of Measurement

The Financial Statements have been prepared using the historical cost convention or at Fair value
where specifically disclosed.
2.3 Functional and Presentation Currency

The Financial Statements are presented in Nepali Rupees (NRs.), which is the organization’s
functional and presentation currency. All financial information presented in Rupees has been rounded
to the nearest rupees/thousands/million, except when otherwise indicated.
2.4 Changes in Accounting Policies and Disclosures

The Accounting policies have been consistently applied, unless otherwise stated, and are consistent
with those used in previous years.
2.5 Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements requires the use of certain critical accounting estimates
and judgments. It also requires management to exercise judgment in the process of applying the
accounting policies. The management makes certain estimates and assumptions regarding the future
events. Estimates and judgments are continuously evaluated based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. In the future, actual result may differ from these estimates and assumptions.
(The estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are to be disclosed).

3. Summary of significant accounting policies

3.1 Property Plant and Equipment
a. Cost and Valuation
All items of property, plant and equipment are initially recorded at cost. Subsequent to the
initial recognition of an asset, property plant and equipment are carried at cost less any
subsequent depreciation. Subsequent expenditure is capitalized only when it increases the
future economic benefits embodied in the items of property and equipment. All other
expenditure is recognized in the statement of Income and Expenditure as an expense as
incurred.
Buildings owned are used for purposes of XYZ-NPO Nepal only and not for income
generating purpose and therefore do not fall under the definition of Investment Property.
b. Depreciation
Depreciation is provided for on all Property Plant and Equipment on the straight line basis
and is calculated on the cost of all property, plant and equipment other than land, in order to
write off such amounts les any terminal value over the estimated useful lives of such assets.
The annual rates of depreciation currently being used by XYZ-NPO Nepal based on useful
life less residual/terminal values are:
Assets Rate pa.

Buildings 2.5%
Motor Vehicles 20%
Computer equipment 33%
Computer Software 33%
Office Equipment 20%
Furniture and Fittings 10%
Donated Assets
Where property plant and equipment is purchased as a part of a project through restricted
funds which initially written off as project cost with corresponding income, if on conclusion
of the project, the asset is not handed over to the beneficiary or returned to the original donor,
the asset is valued on the conclusion of the projects with the approval from funding agencies
and brought into the financial statements under property plant and equipment with
corresponding credit to Capital Reserve. Depreciation provided on such assets will be charged
against such Capital Reserve. For purpose of depreciation the date of valuation for inclusion
in the financial statements is considered the date of purchase.
3.2 Intangible Assets

Intangible assets acquired separately are measured on initial recognization at cost. Following
initial recognition, intangible assets are carried at cost minus any accumulated amortization,
except for assets with indefinite useful lives. Internally generated intangible assets are not
capitalized; expenditure is therefore reflected in the Statement of Income and Expenditure in
the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite useful lives are amortized over their useful economic life. The
amortization, period and method for an intangible asset with a finite useful life are reviewed
at least at each financial year end. Accordingly, straight line amortization over the useful life
is carried out.
Intangible assets with a indefinite useful lives are tested for impairment annually. Such
intangibles are not amortized. The useful life of an intangible asset with a indefinite life is
reviewed annually to determine whether indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from indefinite to finite is made
on prospective basis.

3.3 Foreign Currency Transactions

Transaction in currencies other than Nepal Rupees is converted into Nepal rupees at rates
which approximate the actual rates at the transaction date. At the reporting date, monetary
assets (including securities) and liabilities denominated in foreign currency are converted into
Nepal rupees at the rate of exchange at that date. Realized and unrealized exchange
differences are reported in the statement of Income and Expenditure.
3.4 Cash and Cash equivalents

XYZ-NPO Nepal considers and classifies cash in hand, amounts due from banks and short-
term deposits with an original maturity of three months or less under the category of “Cash
and cash equivalents”. Bank borrowings that are repayable on demand and form an integral
part of the XYZ-NPO Nepal’s cash management are included as a component of cash and
cash equivalents for the purpose of statement of cash flows.
3.5 Inventories
Inventories are valued at the lower of cost and net realizable value. Net Realizable Value is
the price at which inventories can be reasonably expected to be sold in the market place, less
any estimated cost necessary to make the sale.
The cost is determined on first in first out (FIFO) method and includes expenditure incurred
in acquiring the inventories and bringing them to their present location and condition.
Items donated for distribution or resale is not included in the financial statements until such
time they are distributed or resold.
3.6 Provisions
A provision is recognized in the statement of financial position when XYZ-NPO Nepal has a
legal or constructive obligation as a result of past event, it is probable that an outflow on an
asset will be required to settle the obligation, and the obligation can be measured reliably.
3.7 Employees Benefits Liabilities

The organization’s obligation in respect of the defined future benefit plans is calculated
separately for each benefit plans by estimating the amount of future benefit that employees
have earned in the current and prior periods. The calculation of the defined benefit obligations
is performed annually.
Gratuity, medical facilities and accumulated leave provision has been provided as per By-
Laws, assuming that all the staffs will be retired at the reporting date.
3.8 Loans and Borrowings and Account Payables

Loans and Borrowings and Accounts payables are stated at their cost.
3.9 Accounting for the receipt and utilization of Funds/Reserves

Reserves are classified as either restricted or unrestricted reserves.
a. Unrestricted Reserves/Funds/accumulated surplus

Unrestricted funds are those that are available for use by XYZ-NPO Nepal at the discretion of
the Board, in furtherance of the general objectives of XYZ-NPO Nepal and which are not
designated for any specific purpose.
Surplus funds are transferred from restricted funds to unrestricted funds in terms of the
relevant Donor Agreements or with the prior approval of the donor.
Contributions received from the general public are recognized in the Statement of Income and
Expenditure on a cash basis.

b. Designated Reserves/Funds
Unrestricted funds designated by the Board to a specific purpose are identified as designated
funds. The activities for which these funds may be used are identified in the financial
statements.
Where grants are received for use in an identified project or activity, such funds are held in a
restricted fund account and transferred to the statement of Income and Expenditure to match
with expenses incurred in respect of that identified project. Unutilized funds are held in their
respective funds accounts and included under accumulated fund in the statement of Financial
Position until such time as they are required.
Funds collected through a fund-raising activity for any specific or defined purpose are also
included under this category.
Where approved grant expenditure exceeds the income received and there is certainty that the
balance will be received such amount is recognized through Debtors in the Statement of
Financial Position.
c. Restricted Fund
The activities for which these restricted funds may and are being used are identified in the
notes to the financial statements Restricted Reserves/Funds. Such restricted fund may include
conditions for refund should there be balance of fund at the end of the project.
d. Endowment Reserves/Funds
Where assets are received as an endowment, which are not exhausted, only the income earned
from such assets may be recognized and used as income.
e. Investment Income and other gains realized from funds available under each of the above
categories are allocated to the appropriate funds, unless the relevant agreement or minute
provides otherwise. Where such income can be used for general purpose, same shall be
treated as income in the Statement of Income and expenditure.
3.10 Grants and Subsidies

Grants and subsidies are recognized in the financial statements at their fair value. When the
grant or subsidy relates to an expense it is recognized as deferred income necessary to match
it with the costs over the accounting years, which is intended to compensate for on a
systematic basis.
Grants and subsidies in the form of PPE(Fixed Asset) are generally shown as deferred income
in the statement of Financial Position and credited to the Statement of Income and
Expenditure over the useful life of an asset by the amount of depreciation with corresponding
debit to deferred income over more than one accounting period.
In the case of grants received to fund an entire project or activity, which includes the purchase
of an asset, and the cost of such asset is charged with the project costs to the Statement of
Financial Performance, the grant value is recognized as income in the same period as the cost
of the asset is charged to the Statement of Income and expenditure. At the end of the project,
when there is certain fair value remains of such assets charged to the Statement of Income and
Expenditure, same will be recognized as capital reserve at fair value with corresponding value
of PPE. Each year and over its useful life, the depreciation will be charged to capital reserve
with corresponding credit to related PPE.

3.11 Income Recognition

a. Contribution/Incoming Sources
Income realized from restricted funds is recognized in the Statement of Income &
Expenditure only when there is certainty that all of the conditions for receipt of the funds
have been complied with and the relevant expenditure that it is expected to compensate has
been incurred and charged to the Statement of Income & Expenditure. Unutilized funds are
carried forward as such in the Statement of Financial Position.
Gifts and donations received in kind are recognized at fair value at the time that they are
distributed to beneficiaries, or if received for resale with proceeds being used for the purpose
of XYZ-NPO Nepal at the point of such sale. Items not sold or distributed are inventoried but
not recognized in the financial statements.
All other income is recognized when XYZ-NPO Nepal is legally entitled to the use of such
funds and the amount can be quantified. This would include income receivable through fund
raising activities and donations.
b. Financial Income
Interest earned is recognized on an accrual basis when there is certainty of receipt.
Dividend received is recognized when the right to receive dividend is established.
Revenues earned on services rendered are recognized in the accounting period in which the
services were rendered and accepted by the clients.
Net gains and losses on the disposal of property, plant and equipment and other non- current
assets, including investments, are recognized in the Statement of Income and Expenditure
after deducting from the proceeds on disposal, the carrying value of the item disposed of any
and any related selling expenses.
c. Other income is recognized on an accrual basis except otherwise categorically explained to be

on cash basis.
3.12 Expenditure recognition

Expenses in carrying out the projects and other activities of XYZ- NPO Nepal are recognized
in the Statement of Income & Expenditure during the period in which they are incurred. Other
expenses incurred in administering and running XYZ- NPO Nepal and in restoring and
maintain the property plant and equipment to perform at expected levels are accounted for on
an accrual basis and charged to the Statement of Income & Expenditure.
3.13 Taxation
a. Current Taxes
Income tax is provided in accordance with the provisions of the Income Tax Act on the
profits earned by XYZ-NPO Nepal subject to exemption referred to in Note … to the
financial statements.
b. Deferred Taxes
Deferred Tax is provided on the difference between the values of assets and liabilities as per
the Statement of Financial Position and as listed for the purpose of Income Tax as at the date
of the Statement of Financial Position adjusting for any differences that will not reverse in the
foreseeable future.
The carrying amount of such deferred taxes will be reviewed at each date of the Statement of
Financial Position and will be increased by virtue of any new assets being included or be

reduced by the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized.
Or
XYZ-NPO Nepal has got tax exempted status and according no provision for tax has been
made.
c. Value Added Taxes

Value added taxes (VAT) that are payable on services and goods purchase are normally
included in the cost of such item. An exception would be where XYZ-NPO Nepal is
exempted and entitled to refund, in such case, same would be reflected as receivable in the
Statement of Financial Position.
Or
In case of NPO is VAT registered and required to file returns , in such case, VAT paid on
services and goods will be shown as receivable. Generally, in such VAT NPO, income will
also be vatable hence will be required to issue VAT invoices. In such case, VAT invoices are
shown as payable and on monthly filing difference between payable and receivable will be
swapped and difference if payable is settled.
3.14 Borrowing Costs

Borrowing costs that are attributable to the acquisition, construction or production of a
qualifying assets, are charged off to Statement of Income & Expenditure as expense. Other
borrowing costs are treated as an expense in the period in which it is incurred.
3.15 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events and whose existence
will be confirmed only on the occurrence or non-occurrence of one or more uncertain future
events that are not wholly within the control of XYZ-NPO Nepal. It may also be a present
obligation that arises from past events but in respect of which an outflow of economic benefit
is not probable or which cannot be measured with sufficient reliability. Such contingent
liabilities are recorded under Note …. For certain operational claims reported as contingent
liabilities, it is not practical to disclose detailed information on their corresponding nature and
uncertainties.
Note: Each entity is entitled to provide additional information on accounting policies or

rewrite the above narrative to reflect more realistic information.

Notes 4.1
Property Plant and Equipment
Opening Additions during Disposals during Balance at
Item Balance the year the year …03.20X2
Land
Buildings
Vehicles
Computer Equipment
Office Equipments
Furniture and Fittings
- - - -
Capital Work in Progress
Total - - - -
Depreciation
Balance as at Charge for the Disposals during Balance at
Item 01.04.20X0 year the year …03.20X2
Land
Buildings
Vehicles
Computer Equipment
Office Equipments
Furniture and Fittings
- - - -
Capital Work in Progress
Total - - - -
Notes 4.2
Intangible Assets
Opening Additions during Disposals during Balance at
Item Balance the year the year ...03.20X2
Software
Emblem
Other Intangible Assets
Total - - - -
Amortization
Balance as at Charge for the Disposals during Balance as at
Item 01.04.20X1 year the year 32.03.20X2
Software
Emblem
Other Intangible Assets
Total - - - -
Notes 4.3
Inventories
Particulars 20X2 20X1
Raw Materials and Consumables
Finished Goods and Goods for Sale/use
Work in Progress
Stationery and Printings

Project Materials
General Inventory
Total - -
Note: Above items of inventories are illustrative only, the classification needs to included all kind of
inventories NPOS carry which could be stationary, publication materials, general materials, project
materials, etc.
Notes 4.4
Accounts Receivables
Deposits and Advances
Prepayments
Withholding Taxes
Other Accounts Receivable
Less: Allowance for Accounts receivable
Total - -
Notes: Where any amount become difficult to recover due to various reasons, then in such cases, the
account receivable is considered as impaired and allowance for account receivable (Previously known
as doubtful receivable) will be made.
Notes 4.5
Cash and Cash Equivalents
Cash in Hand
Cash at Bank
Short- Term Deposits
Total - -
Notes 4.6
Unrestricted Funds
Balance at beginning of the year
Unrestricted surplus/deficit in operating activities
Balance at end of the year - -
Notes 4.7
Designated Funds
Additional Funds received during the year
Balance as at year end - -
Designated for 20X2 20X1

Activities 1
Activities 2
Activities 3
Total - -

Notes 4.8
Restricted Funds
Additional Funds received during the year
Transfer to Unrestricted Funds
Balance as at year end - -
Project Wise Allocation and Movement in Restricted Funds

Name of Project Balance Received/ Transferred Interest Balance carried
Donor Name/ Brought restricted to SOIE Income forward shown
Organization Description Forward surplus on in restricted fund
during Restricted balance
the year Funds
ABC
PRO
MNC
Total - - - - - -
Notes 4.9
Endowment Funds
Surplus/deficit for the year
Notes 4.10
Other Capital Reserves
Surplus/deficit for the year
Notes 4.11
Accounts Payables
Refundable to donors
Prepayment received
Advances from Suppliers
Accrued Expenses
Other Payables
Total - -
Notes 4.14
Incoming Resources
Grants - Restricted Funding
Grants - Unrestricted Funding
Income from endowments
Donations from the public

Corporate Fundraising
Gifts in Kind
Profits from trading or other activities (refer
(a))
Other fund raising activity
Total - -
(a) Profit from trading activities

Sale Proceeds
Cost/Fair Value of items
Profits earned - -
Notes 4.15
Staff Cost
Wages and salaries
Allowances and benefits
Post-employment benefit costs
Total - -
Notes 4.16
Program Expenses
Program 1
Program 2
Program 3
Program 4
Total
Notes 4.17
Income Tax Expenses
Applicable rates of tax and the relevant tax regimes.
As per the Nepalese Income Tax Act XYZ, NPO Nepal is liable to be taxed at … % for any surplus
during the accounting period where it fails to receive income tax exemption status.
Or Alternatively,
XYZ-NPO Nepal has got tax exempted status and accordingly no provision for tax has been made.
However, income tax deducted at sources of income has been charged to such revenue and reflected
net of such withholding tax. Total of such withholding tax amounts to.
Notes 4.18
Capital Commitments
XYZ-NPO Nepal has committed to building 5 houses in …. in ….. District at a cost of Rs. …. of
which a sum of Rs. … has been expended as at the date of the Statement of Financial Position.
Notes 4.19

Contingent Liabilities
XYZ-NPO Nepal has committed to provide equipment to a value of Rs. …. to other beneficiaries on
the basis of funds to be provided by Donor X. In the event that these funds are not received XYZ-
NPO Nepal would be required to meet this cost.
Notes 4.20
Related Party Transaction
XYZ-NPO Nepal has entered into a contract with P and Sons to provide computer equipment at a
value of Rs. …. Owner of P and Sons is also a director or executive members or employees of XYZ
NPO Nepal.
Disclosure of remuneration paid to CEO/GM and top and management team including those paid to
Executive members. Those executive members involved in the activities of NPO and remuneration
paid thereof should be disclosed or any relevant related parties transaction should be disclosed.
Note: Each entity is entitled to provide additional information on accounting policies or rewrite
the above narrative to reflect more realistic information.

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Cell : +977- 98512 38754

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INGO = International Non-Governmental Organization

NGO = Non-Government Organization

NPO = Non-Profit Organization

SWC = Social Welfare Council

SOFP = Statement of Financial Position

SOIE = Statement of Income & Expenditure

NAS = Nepal Accounting Standards

VAT = Value Added Tax

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Here at Bidur Associates Chartered Accountants, we are committed to sharing this

Are you prepared for the same?

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B. Difference between NGO & NPO

Basis NGO NPO

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C. Difference between INGO & NGO

Basis INGO NGO

D. Funding Source for NGO

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E. NGO Registration in Nepal

NGOs Registration Flow chart

• Formation of Team & Promoters

• Apply for recommendation letter from local Ward Office

• Submit Application to relevant District Co-ordination Committee for

• Obtain Registration Number for NGO from District Administration

• Obtain affiliation certificate from Social Welfare Council

• Registration in Inland Revenue Department for tax and obtain PAN

• Register at local level ward office

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Documents Required for Registration

Detailed Formation and process for NGOs:

6) Stamp of your organization name and logo is a must.

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Step 2: Recommendation letter from ward office

Step 3: Certificate of Registration from District Co-ordination Committee (Jilla Samanwaya

Step 4: Registration Number from District Administration Office.

Step 5: Affiliation Certificate from Social Welfare Council

Step 6: Inland Revenue Department - (PAN Registration certificate)

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Applicable Government fee and charges:

Important things for future reference;

Bidur Associates, Chartered Accountants Page 10 of 48

F. NPOs Registration in Nepal

NPOs Registration Flow Chart

• Online reservation of company name from OCR website

• Drafting and submission of physical copy of document(AoA and MoA)

• Registration of company at OCR

• PAN registration at Inland Revenue Office

• Business registration at local level ward office

• Enlisting the company at Social Welfare Council (if required)

Members/Promoters Required for Registration

Documents needed for registration at OCR:

Government Fees Applicable for Registration

Time for Registration

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