Finance: Advice line - Pesh Framjee on finance and governance

Q: We have raised income to build a new hospice. Should the property be treated as restricted once it is built?

When a charity receives income restricted for the purpose of purchasing such assets it raises the question of when a restriction is extinguished.

In all cases, the intention of the donor would remain paramount. Where it is clear that donors intended the continuing use by the charity of the fixed asset, the fund would remain a restricted fund with the restrictions being extinguished over the expected useful life of the asset. This could be achieved through the depreciation charge and the matching restricted fund.

In essence, you need to consider carefully the terms of the appeal and the intention of the donors. If you sold the hospice the month after it was built, your donors would be right to consider this wrong, but if this was done many years down the line, there would be a different reaction.

Appendix 3 of the SORP explains: "Where funds are provided for fixed assets the treatment of the fixed assets acquired with those funds will depend on the basis on which they are held. The terms on which the funds were received may require that the fixed asset that is provided should be held by the charity on trust for a specific purpose. Alternatively, if the charity's governing instrument allows them to do so, the trustees may choose to settle the fixed asset on trust for a specific purpose implied by the appeal. In either case the asset will form part of restricted funds, as will a fixed asset that has itself been given to the charity on trust for a specific purpose. There is, however, no general rule and the treatment will depend upon the circumstances of each individual case."

Pesh Framjee is head of the non-profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to pesh.framjee@haynet.com.

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