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Show the Treatment of the Following Items by a Not-for-profit Organisation: - Accountancy

Answer in Brief

Show the treatment of the following items by a Not-for-Profit Organisation:

(i) Annual subscription

(ii) Specific donation

(iii) Sale of fixed assets

(iv) Sale of old periodicals

(v) Sale of sports materials

(vi) Life membership fee

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Solution

i) Annual Subscription

a) Subscriptions received during an accounting year (whether related to the current year or previous and subsequent year) are shown on the debit side of the Receipts and Payments Account.

b) Subscription amount related to the current accounting year only, whether received or yet to be received are shown on the credit side of the Income and Expenditure Account.

c) Subscriptions received in advance for the subsequent year are shown on the Liabilities side of the Balance Sheet.

 d) Subscriptions due but not received are shown in the Assets side of the Balance Sheet.

ii) Specific donation

a) The amount received for specific donation is shown on the debit side of the Receipts and Payments Accounts.

b) The amount received for specific donation is shown on the Liabilities side of the Balance Sheet as it is used for the specific purpose for which it is received.

iii) Sale of fixed assets

a) The amount received from the sale of fixed assets are recorded on the debit side of the Receipts and Payments Account.

b) Profit (or loss) on the sale of fixed assets is credited (or debited) to the Income and Expenditure Account.

c) The book-value of the fixed assets sold is deducted from its respective assets on the Assets side of the Balance Sheet.

iv) Sale of old periodicals

a) The amount received from the sale of old periodicals are shown on the debit side of the Receipts and Payments Account.

b) As the sale of old periodicals by any organisation is considered as revenue receipts, so it is shown on the credit side of the Income and Expenditure Account.

v) Sale of sport Materials

a) The amount received from the sale of sport materials are debited to the Receipt and Payments Account.

b) As the sale of sport materials by any sport club is considered as revenue income, so it is shown on the credit side of the Income and Expenditure Account.

vi) Life Membership Fees

a) The amount paid by a person to become a member of an organisation is called life membership fees. As this is a receipt for an NPO, so it is debited to the Receipt and Payment Account.

b) Life Membership fees is not recurring in nature and received once for a whole life from a member. Thus, as Life Membership Fees are capital receipts, so these are added to the Capital Fund on the Liabilities side of the Balance Sheet.

  Is there an error in this question or solution?
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APPEARS IN

NCERT Class 12 Accountancy - Not-for-profit Organisation and Partnership Accounts
Chapter 1 Accounting for Not-for-Profit Organisation
Long Answer | Q 5 | Page 51
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