DK Goel Solutions Class 12 Accountancy Chapter 1 Financial Statements of Not for Profit Organisations

Accountancy

Short Answer Questions

Question 1. Give three essential features of Receipts and Payments Account.

Solution 1. Features of Receipts and Payments Account:

1.) Capital and Revenue: It records all receipts and payments whether they are of revenue nature or capital nature.

2.) Period: It records cash and bank transactions without distinguishing among current, previous or succeeding (next) accounting periods.

3.) Opening and Closing Balance: Opening balance of this account shows cash in hand and/or at bank in the beginning of the accounting period and closing balance shows cash in hand and/or at bank at the end of the accounting period.

Question 2. Give three essential features of Income and Expenditure Account.

Solution 2. Features of Income and Expenditure Account:-

1.) Nature: It is a Nominal Account. Hence, it is debited with expenses and losses and it is credited with income and gains.

2.) Opening and Closing Balance: It does not have an opening Balance. Its Balance at the end is either surplus or deficit. It is transferred to Capital Fund in the Balance Sheet.

3.) Adjustment: This account is prepared on accrual basis of accounting and thus all adjustments relating to prepaid or outstanding expenses and income, provision for depreciation or doubtful debts are made.

Question 3. Distinguish between Income and Expenditure Account and Receipt and Payment Account on the basis of:

(1) Nature, (ii) Nature of items, (iii) Period

Solution 3.

Question 4. How would a not-for-profit organisation deal with the following items:

(i) Outstanding Subscriptions, (ii) Subscriptions Received in advance, (iii) Tournament Fund.

Solution 4.

(i) Outstanding Subscription:- Outstanding Subscription Of that year is recorded on debit side of Income and Expenditure A/c and also shown in the Balance Sheet of Current year in the Assets Side.

(ii) Subscriptions Received in advance:- Subscriptions Received in advance for the following year are shown on the liabilities side of the Balance Sheet.

(iii) Tournament Fund:- Tournament Fund will be treated in the liability side of Balance Sheet according to its Adjustments.

Question 5. List the items that you will exclude from the Income and expenditure Account and in each case state briefly in a sentence or two why you excluded that item?

Solution 5.

1. Opening and closing cash/bank balances have been excluded.

2. Payment for purchase of Government securities being capital expenditure has been excluded.

3. Amount of subscriptions received for the year 2013-14 and 2014-15 have been excluded.

4. Life membership fee is an item of capital receipt and so excluded.

5. Donation for building is a receipt for a specific purpose and so excluded.

Question 6. Explain the following terms:

(i) Capital Fund; (ii) Legacy (iii) Specific Donations.

Solution 6.

(i) Capital Fund:- Capital Fund does not carry any restriction with respect to its use. In other words, managements can use the amounts in the fund as it deems appropriate, but to carry out the purpose for which the organisation exists.

(ii) Legacy:- Legacy is the amount received as donation by a Not-for-Profit Organisation under Will of deceased person. The donor may or may not specify conditions for its use. In case, no condition is specified, it is accounted as ‘General Donation’. And if a condition is specified, it is accounted as ‘Specific Donation’.

(iii) Specific Donation:- In case the donor specifies the purpose for which the donation can be used, it is a Specific Donation. For example, a donor donates Rs. 5,00,000 for a library. It means the donation received can be used only for library, i.e. it is a specific donation. Specific donation is capitalised and is shown on the liabilities side of the Balance Sheet.

Question 7. How will you deal with sale of old assets while preparing the financial statements of a not-for-profit organisation?

Solution 7. Sale of an asset may result in gain, if sale value is more than the book value; or loss, if sale value is less than the book value; or neither profit nor loss, if sale value is equal to the book value. Book Value of an asset as on the date of sale is determined after charging depreciation up to the date of sale. Sale Value is credited to the Asset Account while gain, if any, is credited or loss, if any is debited to the Income and Expenditure Account.

Question 8. How would a non-profit organisation record the following items while preparing Income & Expenditure Account and Balance Sheet

(i) Entrance Fees

(ii) Life Membership Fees

(iii) Legacy

(iv) General Donation

Solution 8.

(i) Entrance Fees:- Entrance Fee or Admission fee is the amount paid by a person at the time of becoming a member of a Not-for-Profit Organisation. Entrance Fee or Admission Fee is a revenue receipt and therefore, is accounted as an income and credited to Income and Expenditure Account.

(ii) Life Membership Fees:- Life Membership Fees is accounted as a Capital Receipt and added to Capital Fund on the liabilities side of the Balance Sheet. It is not accounted as income because a life member makes one time payment and avails services all through his life.

(iii) Legacy:- Legacy is the amount received as donation by a Not-for-Profit Organisation under Will of deceased person. The donor may or may not specify conditions for its use. In case, no condition is specified, it is accounted as ‘General Donation’. And if a condition is specified, it is accounted as ‘Specific Donation’.

(iv) General Donation:- General Donation is the donation in which the donor does not specify any condition for its use. The amount of general donation is accounted as an income and credited to income and expenditure account.

Question 9. How will you treat the following items while preparing Income and expenditure A/c and Balance sheet of non-profit Organisation?

(i) Donation for Building (ii) Sale of Newspapers (iii) Investment purchased.

Solution 9.

(i) Donation for Building:- Donation for Building means the donation received can be used only for building it is a specific donation. Specific donation is capitalised and is shown on the liabilities side of the Balance Sheet.

(ii) Sale of Newspapers:- Amount paid for newspapers, magazines, periodicals, etc. is debited to income and Expenditure Account, it being a revenue expense. Thus, amount realised from sale of old newspapers, magazines, periodicals, etc. is credited to Income and Expenditure Account.

(iii) Investment Purchased:- Purchases of Investments are treated as capital expenditures and shown on the assets side of the Balance Sheet.

Question 10. What amount will be credited to the Income and Expenditure Account for the year ending 31st March, 2019 on the basis of following information?

Subscriptions received during the year 2018-19 were 1,80,000.

Solution 10.

Question 11. What amount will be credited to the Income and Expenditure Account for the year ending 31st March, 2019 on the basis of the following information :

Subscriptions received during the year 2018-19 were 2,00,000.

Solution 11.

Question 12. What amount will be credited to the Income and Expenditure Account for the year ending 31st March, 2019 on the basis of the following information :

Subscriptions received during the year 2018-19 were 5,00,000.

Solution 12.

Question 13. Sports Club Ahmedabad had received in 2014-15 Rs. 80,000 as subscription. Further information is:

What amount should be credited to Income and Expenditure Account as subscriptions?

Solution 13.

Question 14. How much amount will be recorded in Income and Expenditure Account if club has 400 members each paying an annual subscription of 100. Outstanding Subscription on 31st March, 2019 were 2,000.

Solution 14.

Question 15. How much amount will be recorded in Income and Expenditure Account if club has 500 members each paying an annual subscription of 200. On 31st March 2019, Advance Subscription is 1,000 and Outstanding Subscription is Rs. 5,000.

Solution 15.

Question 16. How much amount will be recorded in Income and Expenditure Account if there are 500 members, each paying an annual subscription of 100; subscriptions received during the year 46,000; subscriptions received in advance at the beginning of the year 1,200.

Solution 16.

Question 17. Salary paid by Rotary Club for the year ended 31st March, 2019 amounted to 1,20,000. How much amount will be recorded in 'Income and Expenditure Account' if unpaid salary was 5,000 and salary paid in advance was 1,000 on 31st March, 2019.

Solution 17.

Question 18. Salary paid by Lions Club for the year ended 31st March, 2019 amounted to 1,80,000. How much amount will be recorded in Income and Expenditure Account if outstanding salary on 31st March, 2018 was 10,000 and Outstanding salary on 31st March, 2019 was 6,000.

Solution 18.

Question 19. Salary paid by Jaipur Sports Club for the year ended 31st March, 2019 amounted to 2,00,000. How much amount will be recorded in Income and Expenditure Account in the following case :

Solution 19.

Question 20. In the year 2015-16, salaries paid in cash amounted to Rs. 40,000. Ascertain the amount chargeable to Income and Exp. A/c for the year ending on 31st March 2016 from the following additional information:

Solution 20.

Question 21. Calculate what amount will be posted to Income and Expenditure Account for the year ending 31st March, 2016:

Amount paid for stationery during the year Rs.10,000; stock of stationery in hand at the beginning and end of the year RS.1,200 and Rs.1,500 respectively.

Solution 21.