Accounting monograph regarding the repartition of surplus / profit of a non-profit organization

The Association “Save the forest” is a non-profit entity that has been set up according to the Government Ordinance no. 26/2000 regarding associations and foundations. In order to obtain income, the entity sells promotional materials. The income from this business is considered business income that is subject to corporate income tax. In 2014, the association obtained an excess of RON 1,000.

Is such entity bound to set up a legal reserve? Can the association distribute dividends?

The normative framework regulating the accounting of a non-profit organization is given by the Ordinance of the Finance Ministry no. 1969/2007. According to point no. 183 of this ordinance, legal reserves are to be set up annually from the surplus / profit of the organization, within the thresholds and limitations that are stipulated by the law.

From the point of view of accounting registrations, amounts representing reserves set up from the surplus / profit of the current financial year shall be registered according to point 191, par. (4) of the ordinance, by the accounting posting:

129 ”Profit appropriation” = 106 “Reserves”

The accounting surplus / profit remaining after appropriation shall be taken over to the account 117 ”Other retained earnings” at the beginning of the financial year following the one for which financial reports are prepared. From this account, the amount shall be apportioned to other legal destinations.

The registration into accounting of the destinations meant for the surplus / accounting profit shall take place after the General Assembly of the organization approves the appropriation of the surplus / profit, by registering amounts representing reserves and other purposes. Entities are not allowed to adjust registrations made regarding the appropriation of the surplus / profit.

Associations are incorporated, organized and operated based on the Government Organisation no. 26/2000 regarding associations and foundations. This ordinance does not lead to any obligation for associations to set up any reserve fund as the Company Law imposes under art. 183.

As a result, the associations that are set up according to the Government Ordinance no. 26/2000 regarding associations and foundations are not bound to set up any legal reserve.

As regards dividend distribution, art. 1 of the Government Ordinance no. 26/2000 ascertains the fact that natural persons can set up foundations that can carry out activities of general interest or for the interest of a community. If a foundation carries out its business for the personal interest of the founding person, such interest must not be that of obtaining profit. As a result, non-governmental organizations are not to distribute dividends to their founders and the gains that are obtained remain available for continuing their business.

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