Building Under Construction Treatment in NPO's Balance Sheet

Non-profit organizations (NPOs) are required to prepare financial statements that comply with generally accepted accounting principles (GAAP). One of the critical items that NPOs need to account for in their financial statements is the building under construction treatment. This treatment is essential because the NPOs are involved in the construction of buildings that may take several years to complete. Below are some of the key points to consider when accounting for building under construction in NPOs' balance sheets:

Initial Recognition

When NPOs embark on building construction, they need to recognize the building under construction as an asset in their balance sheet. The NPO should also recognize the costs incurred during the construction of the building, such as labor, materials, and other expenses. These costs should be capitalized as part of the building under construction.

Measurement and Valuation

The building under construction should be measured at cost, which includes all the costs incurred during the construction process. These costs should be accumulated and recorded in a separate account until the building is complete. Once the construction is complete, the NPO should reclassify the building under construction account to a fixed asset account.

Impairment

During the construction process, the NPO may incur losses or damages to the building under construction. In such cases, the NPO should recognize the impairment loss in the income statement. The impairment loss should be equal to the difference between the carrying amount of the building under construction and its recoverable amount.

Disclosure

The NPO should disclose the following information in the notes to the financial statements:

- The nature of the building under construction
- The expected date of completion
- The estimated total cost of the project
- The amount of costs capitalized during the year
- The amount of interest capitalized during the year (if any)
- The amount of impairment loss recognized during the year (if any)

Conclusion

In summary, the building under construction treatment is essential in NPOs' balance sheets, as it helps to provide accurate and reliable financial information to stakeholders. The NPOs need to ensure that they comply with GAAP when accounting for building under construction.

On assets sides because it lies under tangible assets under development