The subsequent transfer determines the specifics of accounting — in particular, why these are inventories rather than fixed assets.
Legal framework
According to Clause 1.a of Article 34(1) of the Law of Ukraine No. 280/97-ВР “On Local Self-Government in Ukraine” dated 21 May 1997, the powers of the executive bodies of village, settlement and city councils include self-government powers. Among them there is the ability to establish, in addition to those already provided for by law, other social guarantees at the expense of local funds and charitable assistance.
Charity
The legal basis of charitable activities, including the regulation of social relations aimed at developing charity, humanism and compassion, is established by the Law of Ukraine No. 5073-VI “On Charity and Charitable Organisations” dated 5 July 2012 (hereinafter referred to as Law 5073).
According to Clause 1 of Article 1(1) of Law 5073, a beneficiary is a person (individual, non-profit or municipality) receiving assistance from one or more benefactors in order to achieve charitable goals. The goals of this activity include promoting the legitimate interests of beneficiaries in legally defined areas, as well as developing and supporting these areas in the best interests of the community (Article 3(1) of Law 5073).
Thus, modular houses received by a municipality free of charge for the purpose of their further transfer are considered charitable assistance.
Donation agreement
The purpose of charitable assistance must be clearly defined in the donation agreement.
According to Article 729 of the Civil Code of Ukraine (CCU), a donation agreement is a legally binding instrument whereby one party (donor) transfers property or property rights to another party (donee) free of charge for charitable purposes.
Where real estate or valuables are transferred, the agreement must be in writing. Further, in accordance with Article 719(2) of the CCU, if real estate is donated, the agreement must be certified by a notary.
There should always be a written agreement, regardless of the nature of the property transferred. The agreement must clearly set forth the following provisions:
- What exactly the assistance is being transferred for (purpose);
- Detailed transfer procedure (including the list of the supporting documents);
- How the property will be used and the terms and conditions for the use.
Accounting for assistance in the budget
According to Article 13(4) of the Budget Code of Ukraine (BCU), everything that a budgetary institution receives on top of the general budget fund, including as property or assets in kind, is considered to be its own revenue. These revenues are credited to the special budget fund.
It is important to choose the correct code at an early stage when the estimate is adjusted.
Charitable assistance falls under the second group of internal revenues. This group has two subgroups:
Subgroup 1: If an institution uses assistance for its primary activities, it should be recognised under the following code:
25020100 “Charitable contributions, grants and donations”.
According to Clause 20 of Article 13(4) of the BCU, these revenues can only be used for the primary activity of the institution.
Subgroup 2: If the institution receives assistance that will be transferred further — to other institutions, facilities, companies, individuals, including for the purpose of disposing of assets to institutions, companies, individuals, etc., it must be recognised under a different code:
25020200 “Revenues received by budgetary institutions from companies, organisations, individuals and from other budgetary institutions in order to implement targeted measures, for the purpose of disposing of land plots and other real estate located on them, which are privately owned by individuals or legal entities, in the public interest”
Reporting on receiving assistance in kind
Upon receiving charitable assistance in kind (e.g., modular houses), the institution must prepare and submit a Certificate of Receipt in Kind to the State Treasury Service.
- Submission deadline: on or prior to the last banking day of the reporting month.
- Certificate form: for local budgets, Appendix 32 to the Procedure for Treasury Services of Local Budgets approved by Order of the Ministry of Finance of Ukraine No. 938 dated 23 August 2012.
Accounting of modular houses
Assets received in kind, which are to be transferred to other institutions or administrators of budget funds, are considered to be inventories rather than fixed assets, since they meet the criteria for recognising inventories.
This is stated in Clause 5 of Section II of the National Regulation (Standard) of Accounting in the Public Sector 123 (Inventories) (NP(S)BODS 123) approved by Order of the Ministry of Finance No. 1202 dated 12 October 2010.
Account for bookkeeping purposes
As per the Procedure for the Implementation of the Chart of Accounts in the Public Sector approved by Order of the Ministry of Finance No. 1219 dated 29 December 2015, these assets are recognised in the following subaccount:
1815 “Assets for distribution, transfer, sale”
This account is intended for recognising assets that were purchased, received or manufactured in order to further transfer, distribute or sell them. Products made of precious stones and metals, textbooks, educational materials, weapons stocks, etc. can also be recognised in this account.
Accounting entries when recording aid
According to the Standard Correspondence of Sub-Accounts (approved by Order of the Ministry of Finance No. 1219), the following entry should be used if you record inventory that was received free of charge (e.g., humanitarian or charitable aid):
|
No. |
Description of the transaction |
Correspondence of accounts |
|
|
Debit |
Credit |
||
|
3.9 |
Recording inventory received as humanitarian (charitable) aid, donation, non-refundable aid |
1815 “Assets for distribution, transfer, sale”, |
2117 “Other current accounts receivable”, 6211 “Settlements with suppliers and contractors”, 6415 “Settlements with other creditors” |
Modular houses received free of charge must be recorded as inventory rather than put into operation as fixed assets if their purpose is further transfer.
Initial cost of an asset: what to account
According to Clause 8 of Section II of NP(S)BODS 123, the initial cost of inventories that are purchased on a cash basis is their cost price. It includes the costs that were required to render these assets ready for use.
That is, all costs for connecting utilities, landscaping, etc. should be included in the initial cost. For this, a similar accounting entry should be used:
|
No. |
Description of the transaction |
Correspondence of accounts |
|
|
Debit |
Credit |
||
|
3.10 |
Inclusion of the costs provided for by NP(S)BODS 123 in the initial cost of inventories |
1815 “Assets for distribution, transfer, sale”, |
2117 “Other current accounts receivable”, 6211 “Settlements with suppliers and contractors”, 6415 “Settlements with other creditors” |
Modular houses recognised on the balance sheet of one institution can be transferred to one or multiple new balance sheet holders. If they are transferred to several institutions, each modular house must be recorded as a separate inventory accounting unit.
How to formalise a transfer in accounting
According to Standard Correspondence No. 1219, the transfer of inventories free of charge must be recognised in accounting as their write-off. For this, the following accounting entry should be used:
|
No. |
Description of the transaction |
Correspondence of accounts |
|
|
Debit |
Credit |
||
|
3.16 |
Disposal of inventories in cases provided for by law (except for those received through intra-departmental transfer of inventories) |
8511 “Expenses for non-exchange transactions”, |
1815 “Assets for distribution, transfer, sale”, |
The transfer of these assets must be properly documented. This is regulated by the Order of the Ministry of Finance No. 431 “On Approval of Standard Forms for Accounting and Write-Off of Inventories by Public Sector Entities and the Procedure for Their Preparation” dated 13 December 2022, whereby standard forms for accounting and write-off of inventories and the procedure for preparing these documents are approved.
An Acceptance Certificate should be drawn up to confirm the transfer of material assets recorded as inventories.
Important technical and legal requirements
Along with determining the new balance holder of modular houses, a full package of documents should be provided that should include:
1. Resolution of the local council. There must be a resolution of the local self-government body on the transfer of the asset free of charge: this is the legal basis for formalising the transfer.
2. Technical inspection. If the houses were built or installed using structural designs or technologies, technical inspection documents must be drawn up to certify the condition and suitability of the facility for operation.
3. Cost estimate documentation. There must be a complete package of documents confirming the cost, scope and technical specifications of the work performed.
4. Construction Work Completion Certificate. If any construction or installation services were provided, the customer should prepare:
- Form KB-2v: Work Completion Certificate;
- Form KB-3 — Statement of Costs.
These documents may be needed by the new balance sheet holder to confirm the initial value of the asset and proper accounting.
Therefore, to ensure that the transfer of modular houses is legal and correctly reflected in the accounts, the municipality must have a relevant resolution from the local council, develop technical, financial and supporting documentation and record all business transactions in the accounting system as prescribed by law.
