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Allocating costs by activity

August 4, 2015


Type: Charities & Not for Profit Blogs

Welcome to our series on SORP 2015 where the specialist charities and not for profit team at Chiks bring you bite size guidance on the changes that SORP 2015 will bring to your organisation.

In this blog post we look at how costs should be allocated by activity in the Statement of Financial Activities (Module 8) – note that the approach taken to this topic is the same in both SORPs.

General Principles:
The SOFA must distinguish between expenditure incurred on charitable activities, which contribute to furthering the charity’s aims, and purposes and those undertaken to raise funds.

A charity’s SOFA or related notes should provide an analysis of a charity’s significant activities in a way that is relevant to both the charity and the user of the accounts.

Significant activities are those which due to their scale or importance are key to the charity in meeting its aims and objectives. The activities should also be consistent with the significant activities noted in the trustees’ annual report.

Methods of Allocating Costs:
To ensure the accounts present the costs of activities fairly the following principles must be applied:
• Direct costs attributable to a single activity must be allocated directly to that activity.
• Shared costs which contribute directly to more than one activity must be apportioned between those activities.
• Support costs which are not attributable to a single activity must also be apportioned between the activities being supported.
The methods of apportionment adopted must be reasonable and consistent between reporting periods.

Disclosure Required:
Charities reporting on an activity basis must disclose:
• Details of the accounting policy adopted for the apportionment of costs and any estimation techniques used to calculate their apportionment.
• The total amount of support costs incurred.
• An analysis of material items or categories included in support costs.
• The amount of support costs apportioned to each of the charity’s significant activities.

To discuss this further or if you require any assistance on any of the articles in our SORP2015 bite sized guidance series, please contact a member of our dedicated charities and not for profit team.

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