Accounting for Non Profit Organisation | CMA Inter syllabus

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Preparation of Financial Statements of Not-for-Profit Organisation

Some of the organizations or institutions are constituted to provide valuable services to the society and not with the primary objective of earning profit.

Non-profit Organisations

The organizations which are primarily formed with the objective of offering some specific services to the society and not with profit motive only are referred to as Non-profit Organisations. Such organisations include educational institutions, public medical organisations, social clubs, charitable trusts, trade unions, Cultural clubs like Rotary or Lions club Religious institutions etc. Their main objective is to operate for adding value to different sections of the society.

Features of Non-profit Organisations

The salient features of such non-trading estitis are:

 ● This organization is governed by elected body or trustee board.
 ● Its operation is not driven by any profit motive unlike trading concerns.
 ● Main purpose of the organization is to provide social service.
 ● Main source of their income comes from donation and membership subscription.
 ● The funds are utilized maximum for the benefits of the society.
 ● The membership process for this concern is non-transferable.
 ● The method of accounting that is followed here is entity concept.

Items of incomes and expenses of Non-profit Organisations    

These organisations get their funds in the form of contributions by way of entrance fees, life membership fees, annual subscriptions, donations, grants, legacies etc. The accounting of such organisations is based on similar principles followed by the other organisations. Given the nature of these institutions, there are certain items of revenue and expenses that need special understanding so that accounting treatment could be correctly decided. There are certain items of income and expenditures which are unique for the non-trading entities. They could be listed as:

Income items	Expenditure items
Donations	Upkeep of grounds
Entrance fees	Tournament expenses
Subscriptions	Prizes
Grants received	Events

 The accounting treatment of some of these items of inflows are as follows:

1. Entrance Fees – These are received at the time of admission of a new member and thus are one-time fees. They are non-recurring in nature. It could be either capitalized as they are non-recurring or taken as revenue as per the rules of the institution. There’s a view that addition of member is an ongoing activity and thus every year the institute will get entrance fees. So it may be taken as a normal revenue receipt.
2. Donations – They could be used for meeting capital or revenue expenses. If donations are received for a special purpose, the amount is credited to a fund from which the amounts are disbursed. The fund may be invested in specified securities. Income from such investments is credited to the fund A/c only. Small donation amounts which are not earmarked for any specific purpose may be treated as revenue receipts.
3. Legacy – Many times trusts are formed in the memory of certain persons by their will. In such case after the demise of the person, the funds pass on to the institution. Such legacies are of course one-time and therefore should be taken to the capital fund.
4. Endowments – Sometimes, donations are also in the form of endowments to be used as per instructions of the donor. These are to be treated as capital receipts.
5. Life membership fees – These could be taken as capital receipts and every year a charge is debited based on some logic. In other words, when received, it could be treated as deferred receipt in the balance sheet and every year a specific amount is credited to Income & Expenditure A/c.
6. Subscriptions – These are annual receipts and therefore taken as revenue receipts. These must be recognised as revenue on the accrual concept.

Financial Statements of Non-profit Organisations

The different components of the financial statements of non-profit organisations are:
 ● Receipts & Payments Account;
 ● Income & Expenditure Account; and 
 ● Balance Sheet.

3.2.1 Preparation of Receipts and Payments Account

This is the summarized form of the cash book of a non-profit organisation. Entries are made on cash basis and items pertaining to previous year or current year or subsequent years are also recorded. It is a memorandum account in which the receipts are shown on left side and payments are shown on the right side. Capital as well as revenue items are entered in the Receipts and Payments Account. This account is real account in nature. No provisions are recorded in this account. The account begins with the opening balance of cash and bank and ends with the closing balance of cash and bank.

The proforma of a typical Receipts and Payments Account is as under:

Receipts	(₹)	Payments	(₹)
Starts with opening balance
All receipts - capital or revenue		All payments - Capital or revenue
May be related to any period previous, current or subsequent.		May be related to any period previous, current or subsequent.
		Ends with closing balance

Features of Receipts and Payments Account

1. It is an account which contains all Cash and Bank transactions made by a nonprofit organization during a particular financial period.
2. It is a memorandum account.
3. It is Real Account by nature.
4. It starts with the opening balances of Cash and Bank.
5. It is a summary of Cash Book. Summary of all Cash Receipts both capital & revenue during the period are debited to it. All Cash Payments both capital & revenue during the period are credited to this Account. It ends with the closing Cash and Bank Balances.
6. While recording the Cash and Bank transactions all entries are made on Cash Basis.

3.2.2 Preparation of Income and Expenditure Account

This is the income statement of the non-profit organisation. As the name suggests only revenue items i.e. revenue incomes and revenue expenditures are recorded herein. Incomes are recorded on the credit side, while the expenses are recorded in the debit side. Both incomes and expenses must be taken on the basis of accrual concept. This account should reflect only items that are pertaining to current period. The balance of this account shows either a surplus or deficit. Excess of income over expenditure is called surplus and excess of expenditure over income is called as deficit.

Expenses	(₹)	Income	(₹)
Only revenue expenses		Only revenue receipts
Only related to current period		Only related to current period
Shows either surplus		Or shows deficit

Features of Income and Expenditure Account

1. It is by nature Nominal Account.
2. All expenditures of revenue nature for the particular period are debited to this account on accrual basis.
3. All revenue incomes related to the particular period are credited to this account on accrual basis.
4. All Capital incomes and expenditures are excluded.
5. Only current year’s incomes and expenses are recorded. Amounts related to other periods are deducted.Amounts outstanding for the current year are added.
6. Profit on Sale of Asset is credited. Loss on Sale of Asset is debited. Annual Depreciation on Assets is also debited.
7. If income is more than expenditure, it is called a Surplus, and is added with Capital or General Fund etc. in the Balance Sheet.
8. If expenditure is more than income, it is a deficit, and is deducted from Capital or General Fund etc. in the Balance Sheet.

3.2.3 Preparation of Balance Sheet

It is prepared as on the last day of the accounting period. It also has assets and liabilities and prepared based on accounting equation. But, there’s no capital account. Instead there is a capital fund. The surplus or deficit from Income & Expenditure A/c is adjusted against this capital fund at the end of the year.

Receipts & Payments Account	Income & Expenditure Account
1. It is a summarised Cash Book	1. It closely resembles the Profit & Loss Account of a Trading concern.
2. Receipts are debited and Payments are credited.	2. Incomes are credited and Expenditures are debited.
3. Transactions are recorded on Cash basis.	3. Transactions are recorded on Accrual Basis
4. Amounts related to previous period or future period may remain included. Outstanding amount for current year is excluded.	4. Transactions are recorded on accrual basis. All amounts not related to the current period are excluded. Outstanding amounts of current period are added.
5. It records both Capital and Revenue transactions.	5. It records Revenue transactions only.
6. It serves the purpose of a Real Account.	6. It serves the purpose of a Nominal Account.
7. It starts with opening Cash and Bank Balances and ends with closing Cash and Bank Balances.	7. It does not record such balances, rather its final balance shows a surplus or a deficit for the period.
8. It does not record notional loss or noncash expenses like bad debts, depreciations etc.	8. It considers all such expenses for matching against revenues
9. Its closing balance is carried forward to the same account of the next accounting Period.	9.   Its closing balance is transferred to Capital Fund or General Fund or Accumulated Fund in the same period’s Balance Sheet.
10. It helps to prepare an Income & Expenditure A/c.	10. It helps to prepare a Balance Sheet.

Fund Asset Accounting and its peculiarities:

Following are the concepts of some funds which are generally maintained by non-profit organizations:

1. Capital Fund : It is also called “General Fund” or “Accumulated Fund.” It is actually the Capital of a nonprofit concern. It may be found out as the excess of assets over liabilities. Usually “Surplus” or “Deficit” during a period is added with or deducted from it. A portion of capitalised incomes like donations may be added with it.
2. Special Fund: It may be created out of special donation or subscription or out of a portion of the “Surplus”. For example a club may have a “Building Fund”. It may be used for meeting some specific expenses or for acquiring an asset. If any income is derived out of investments made against this fund or if any profit or loss occurs due to sale of such investments, such income or profit or loss is transferred to this fund.
   If the Special Fund is used to meet an expense, the following entry is passed

Special Fund A/c                                           Dr.

To, Bank A/c (amt. of expense)

NB: The balance of the Fund is shown as a liability in the Balance Sheet

Finally, when the balance is transferred to Capital Fund, the entry will be:

Special Fund A/c                                           Dr.

To, Capital Fund A/c  (Balance of Special Fund)

If the Special Fund is used to purchase an asset

Asset A/c                                                      Dr.

To, Bank A/c (Cost of the asset )

Special Fund A/c                                          Dr.

To, Capital Fund A/c  (Special Fund closed)

(iii) Donations

1. Donation received for a particular purpose should be credited to Special Fund. For example, Donation received for Building should be credited to Building Fund A/c.
2. For other donations received the by-laws or rules of the concern should be followed.
3. If there is no such rule, donations received of non-recurring nature should be credited to Capital Fund. Recurring donations received should be credited to Income & Expenditure Account.
4. Donation paid by the concern should be debited to Income & Expenditure Account.

(iv) Legacy received 

It is to be directly added with Capital Fund after deduction of tax,( if any). It is a kind of donation received according to the will made by a deceased person.

(v) Entrance Fees or Admission Fees

1. The rules or by-laws of the concern should be followed.
2. If there is no such rule, Admission or Entrance Fees paid once by members for acquiring membership should be added with Capital Fund.
3. If such fees are of small amounts covering the expenses of admission only, the fees may be credited to Income & Expenditure Account.

(vi) Subscriptions

1. Annual subscriptions are credited to Income & Expenditure Account on accrual basis.
2. Life membership subscription is usually credited to a separate account shown as a liability.

Annual Subscription apportioned out of that is credited to Income & Expenditure Account and deducted from the liability. Thus the balance is carried forward till the contribution by a member is fully exhausted. If any member dies before hand, the balance of his life Membership contribution is transferred to Capital Fund or General Fund.

Illustration 13

On 31st March 2021, a club had subscription in arrears of ₹. 28,000 and in advance ₹. 4,000. During the year ended 31st March 2022, the club received subscription of ₹. 2,08,000 of which ₹. 12,500 was related to 2022-23. On 31st March, 2021, there were 5 members who had not paid subscription for 2022 @ ₹. 1,600 per person. Prepare the Subscription Account for the year 2021-22.

Solution:

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Illustration 14

The City Sports Club of Surat had received in 2021-2022 ₹ 50,000 towards subscription. Subscription for 2020-21 unpaid on 1.4.2021 were ₹ 5,000.

Subscriptions paid in advance on 31.3.2021 were ₹ 1,250 and the same on 31.3.2022 was ₹ 1,000. Subscriptions for 2021- 2022 unpaid on 31.3.2022 were ₹ 2,250.

Show a statement showing the amount of subscriptions that would appear in Income and Expenditure Account of the club for the year ended 31.03.2022.

Solution:

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 Illustration 15

The following is the Income and Expenditure Account of GB Club for the year ended 31st March. 2022:

Income and Expenditure Account of GB Club

for the year ended 31st March, 2022

Expenditure	(₹)	Income	(₹)
To, Salaries	19,500	By, Subscription	68,000
To, Rent	4,500	By, Donation	5,000
To, Printing	750
To, Insurance	500
To, Audit Fees	750
To, Games & Sports	3,500
To, Subscriptions written of	350
To, Miscellaneous Expenses	14,500
To, Loss on sale of Furniture	2,500
To, Depreciation:
Sports Equipment	6,000
Furniture	3,100
To, Excess of income over expenditure	17,050
	73,000		73,000

Additional Information: 

	31-03-2021 (₹)	31-03-2022 (₹)
Subscription in arrears	2,600	3,700
Advance Subscriptions	1,000	1,500
Outstanding expenses:
Rent	500	800
Salaries	1,200	350
Audit Fee	500	750
Sports Equipment less depreciation	25,000	24,000
Furniture less depreciation	30,000	27,900
Prepaid Insurance	-	150

Book value of furniture sold is ₹ 7,000. Entrance fees capitalized ₹ 4,000. On 1st April, 2021 there was no cash in hand but Bank Overdraft was for ₹ 15,000. On 31st March, 2022 cash in hand amounted to ₹ 850 and the rest was Bank balance.

Prepare the Receipts and Payments Account of the GB Club for the year ended 31st March, 2022.

Solution:

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Illustration 16:

The Income and Expenditure account of an association for the year ended 31 March 2022 is as under:

Particulars	(₹)	Particulars	(₹)
To, Salaries	1,20,000	By, Subscription	1,70,000
To, Printing and Stationery	6,000	By, Entrance fee	4,000
To, Telephone	1,500	By, Contribution for Dinner	36,000
To, Postage	500
To, General expenses	12,000
To, Interest and bank charges	5,500
To, Audit fees	2,500
To, Annual Dinner Expenses	25,000
To, Depreciation	7,000
To, Surplus	30,000
	2,10,000		2,10,000

The aforesaid Income and Expenditure account has been prepared after the following adjustments: 

	(₹)
Subscription outstanding as on 31st March 2021	16,000
Subscription outstanding as on 31st March 2022	18,000
Subscription received in advance as on 31st March 2021	18,000
Subscription received in advance as on 31st March 2021	8,400
Salaries outstanding as on 31st March 2021	6,000
Audit fees for 2020-21 paid during 2021-22	8,000
Audit fees for 2020-21 paid during 2021-22	2,000
Audit fee for 2021-22 not paid	2,500
The building owned by the association since 2004 costs	1,90,000
Equipment as on 31st March, 2021 valued at	52,000
At the end of the year after depreciation of ₹ 7,000, equipment amounted to	63,000
In 2020-21, the association raised a bank loan of which is still not paid	30,000
Cash in hand as on 31st March 2022	28,500
Cash in hand as on 31st March 2021	13,600
Capital Fund as on 31st March 2021	2,20,600

You are required to prepare Receipts and Payment Account of the association for the year ended 31st March 2022 and the Balance Sheet as at that date.

Solution:

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 Illustration 17

JB Club furnishes you the Receipts and Payments Account for the year ended 31.03.2022: 

Receipts	(₹)	Payments	(₹)
To, Cash in hand (1.4.2021)	40,000	By, Salary	20,000
To, Cash at Bank (1.4.2021)	1,00,000	By, Repair expenses	5,000
To, Donations	50,000	By, Furnitures	60,000
To, Subscriptions	1,20,000	By, Investments	60,000
To, Entrance fee -	10,000	By, Misc. Expenses	5,000
To, Interest on Investments	1,000	By, Insurance Premium	2,000
To, Interest from Banks,	4,000	By, Billiards table and other Sports Items	80,000
To, Sale of Old Newspaper	1,500	By, Stationery Expenses	1 ,500
To, Sale of Drama Tickets	10,500	By, Drama Expenses	5,000
		By, Cash in Hand (31.03.2022)	26,500
		By, Cash at Bank (31.03.2022)	72,000
	3,37,000		3,37,000

Additional information:

(a) Subscriptions in arrear for 2021-22 ₹ 9,000 and subscription in advance for the year 2022-23 ₹ 3,500.

(b) ₹ 400 was the insurance premium outstanding as on 31.03.2022.

(c) Miscellaneous expenses prepaid ₹ 900.

(d) 50% of donation is to be capitalized.

(e) Entrance fees to be treated as revenue income.

(f) 8% interest has accrued on investments for five months.

(g) Billiards table and other sports equipments costing ₹ 3,00,000 were purchased in the financial year 2020-21 and of which ₹ 80,000 was not paid 31.03.2021. There is no charge for Depreciation to, be considered. 

You are required to prepare Income and Expenditure Account for the year ended 31.03.2022 and Balance sheet of the Club as at 31.03.2022. 

Solution:

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 Illustration 18

OB Library Society showed the following position on 31st March, 2021: 

Balance Sheet as on 31st March, 2021 

Liabilities	(₹)	Assets	(₹)
Capital Fund	7,93,000	Electrical Fittings	1,50,000
Expenses Payable	7,000	Furniture	50,000
		Books	4,00,000
		Investments in Securities	1,50,000
		Cash at Bank	25,000
		Cash in Hand	25,000
	8,00,000		8,00,000

The Receipts and Payment Account for the year ended on 31st March, 2022 is given below:

Receipts	(₹)	(₹)	Payments	(₹)
To, Balance b/d			By, Electric Charges	7,200
Cash at Bank	25,000		By, Postage and Stationery	5,000
Cash in Hand	25,000	50,000	By, Telephone Charges	5,000
To, Entrance Fees		30,000	By, Books Purchased (Apr, 2021)	60,000
To, Membership Subscription		2,00,000	By, Outstanding Expenses Paid	7,000
To, Sale Proceeds of Old Papers		1,500	By, Rent	88,000
To, Hire of Lecture Hall		20,000	By, Investment in Securities	40,000
To, Interest on Securities		8,000	By, Salaries	66,000
			By, Balance c/d
			Cash at Bank	20,000
			Cash in Hand	11,300
		3,09,500		3,09,500

You are required to prepare Income and Expenditure Account for the year ended 31st March, 2022 and a Balance Sheet as at 31st March, 2022 after making the following adjustments:

(a) Membership subscription included ₹ 10,000 received in advance.

(b) Provide for outstanding rent ₹ 4,000 and salaries ₹ 3,000.

(c) Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be depreciated at the same rate.

(d) 75% of the entrance fees is to be capitalized.

(e) Interest on securities is to be calculated @ ₹ 5% p.a. including purchases made on 01.10.2021 for ₹ 40,000. 

Solution:

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 Illustration 19

Following is the summary of Receipts and Payments of RR Clinic for the year ended 31st March, 2022:

	(₹)
Opening Cash Balance	56,000
Donation Received (including 50,000 for Building Fund)	1,55,000
Payment to Creditors for Medicines Supply	2,10,000
Salaries	70,000
Purchase of Medical Equipments	1,05,000
Medical Camp Collections	87,500
Subscription Received	3,50,000
Interest on Investments @ 9% p.a.	63,000
Honorarium to Doctors	1,90,000
Telephone Expenses	6,000
Medical Camp Expenses	10,500
Miscellaneous Expenses	7,000

Additional Information: 

SI.		01.04.2021 (₹)	31.03.2022 (₹)
1	Subscription Due	10,500	15,400
2	Subscription Received in Advance	8,400	4,900
3	Stock of Medicine	70,000	1,05,000
4	Medical Equipments	1,47,000	2,14,200
5	Building	3,50,000	315,000
6	Creditor for Medicine Supply	63,000	91,000
7	Investments	7,00,000	7,00,000

You are required to prepare Receipts and Payments Account and Income and Expenditure Account for the year ended 31st March, 2022 and the Balance Sheet as on 31st March, 2022. 

Solution:

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 Illustration 20

The following information provided by the New Youth Club, Delhi for the first year ended 31st March, 20X2: 

(i) Donations Received for Building ₹ 25,00,000;

(ii) Other Incomes and Receipts were:

(₹ in ‘000) 

Particulars	Capital Income	Revenue Income	Actual Receipt
	(₹)	(₹)	(₹)
Entrance Fees		251	251
Life Membership Fees	105		105
Subscription		1,160	1,151
Play Ground Rent		120	110
Refreshment Account		115	115
Sundry Incomes		62	49

(iii) Expenditures and actual payments were:

(₹ in ‘000)

Particulars	Capital  Expenditure	Revenue  Expenditure	Actual Payment
	(₹)	(₹)	(₹)
Land	800		800
Books	236		202
Furniture	345		315
Honorarium and Salaries		165	131
Maintenance of Play Ground		52	50
Refreshment Account		79	79
Insurance Premium		12	15
Insurance Premium		70	65

Others:

Donation were utilized to the extent of ₹ 13 Lakh in construction of building, balance were unutilized. In order to keep in safe, 8% Government Securities were purchased on 31st December, 20X1 for ₹ 10.50 Lakh. Remaining amount was put in bank as term deposit on 31st March, 20X2. During the year 20X1-X2, Subscription received in advance ₹ 52,000 for the year 20X2-X3.

Depreciation to be charged on Building and Furniture @ 10% and on Books @ 15%.

You are required to prepare the Receipts & Payments Account, Income & Expenditure Account and Balance Sheet as on 31st March, 20X2.

Solution:

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 Illustration 21

The following summary of the Cash Book has been prepared by the treasurer of a club:

Receipts	Amount (₹)	Payments	Amount (₹)
To Balance b/d	4,740	By Wages – outdoor staff	13,380
To Subscriptions	29,720	By Restaurant Purchase	50,400
To Entrance Fees	3,200	By Rent – 18 months’ to July 30, 20X2	7,500
To Restaurant Receipts	5,6800	By Rates	2,700
To Games & Competition Receipts	13,640	By Secretary’s Salary	3,120
To Due to Secretary for Petty	80	By Lighting	7,200
Expenses		By Competition Prizes	4,000
		By Printing & Postage etc.	6,000
		By Placed in Fixed Deposit	8,000
		By Balance c/d	5,880
	1,08,180		1,08,180

On April 1, 20X1 the club’s assets were:- Furniture ₹ 48,000, Restaurant stock ₹ 2,600; Stock of prizes ₹ 800; ₹ 5,200 was owing for supplies to the restaurant.

On March, 31, 20X2, the Restaurant stocks were ₹ 3,000 and prizes in hand were ₹ 500, while the club owed ₹ 5,600 for restaurant supplies.

It was also found that subscriptions unpaid at March 31, 20X2, amounted to ₹ 1,000 and that the figure of ₹ 29,720 shown in the Cash Book included ₹ 700 in respect of previous year and ₹ 400 paid in advance for the following year.

Prepare an account showing the Profit or Loss made on the Restaurant and a General Income and Expenditure Account for the year ended 31.3.20X2, together with a Balance Sheet as at that date, after writing 10% off the Furniture.

Solution:

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 Illustration 22

The following are the items of Receipts and Payments of the BJ Club as summarized from the books of account maintained by the Secretary:

Receipts	(₹)	Payments	(₹)
Opening Balance 1.1.2022	4,200	Manager’s Salary	1,000
Entrance Fees: For 2021	1,000	Printing and Stationery	2,600
For 2022	10,000	Advertising	1,800
Subscriptions: For 2021	600	Fire Insurance	1,200
For 2022	15,000	Investments Purchased	20,000
Interest Received on Investments	3,000	Closing Balance 31.12.2022	7,600
Subscriptions 2023	400
	34,200		34,200

It was ascertained from enquiry that the following represented a fair picture of the Income and Expenditure of the Club for the year 2022 for audit purpose:

Expenditure	(₹)	(₹)	Income	(₹)
Manager’s Salary		1,500	Entrance Fees	10,500
Printing & Stationery	2,000		Subscription	15,600
Add: Accrued	400	2,400	Interest on Investments	4,000
Advertising (accrued Nil)		1,600
Audit Fees		500
Fire Insurance		1,000
Depreciation		4,940
Excess of Income over Expenditure		18,160
		30,100		30,100

You are required to prepare the Balance Sheet of the Club as on 31.12.2021 and 31.12.2022, it being given that the values of the Fixed Assets as on 31.12.2021 were: Building ₹ 44,000, Cricket Equipment ₹ 25,000 and Furniture ₹ 4,000. The rates of depreciation are Building 5%, Cricket Equipments 10%, Furniture 6%.

Your are entitled to make assumptions as may be justified.

Solution:

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Exercise

Theoretical Questions:

Multiple Choice Questions

1. In case of a Club, the excess of expenditure over income is called as :
   (a)  Surplus 
   (b)  Deficit 
   (c)  Capital Fund 
   (d)  Investment in Fixed Assets
   
   
2. Due to retrospective effect on revision of salary of employees, the arrears of salary relating to past years, payable in current year is
   (a) Prior - period item 
   (b) Extra - ordinary item 
   (c) Ordinary item requiring separate disclosure 
   (d) Contingent item
   
   
3. Income statement of a Charitable Institution is known as 
   (a)  Statement of profit and loss 
   (b)  Receipts and Payments Account 
   (c)  Income and Expenditure Account 
   (d)  Profit and Loss Account

Answer:

1

b

2

c

3

c

Numerical Questions 

Multiple Choice Questions

Subscription of  ₹ 6,25,000 had been shown in the Income and Expenditure Account prepared for the year ending 31st March, 2021. Additional information is as below:

Particulars	On 31st March, 2020 (₹)	On 31st March, 2021 (₹)
Subscription Outstanding	55,000	72,000
Subscription Received in Advance	31,000	37,000

The amount of subscription received during the year 2020-21would be :
(a) ₹ 6,36,000 
(b) ₹ 6,02,000
(c) ₹ 6,14,000 
(d) ₹ 6,48,000

Answer:

1

c

CMA book unsolved questions solution

1. The following is the Receipts and Payments Account of Galaxy Women’s Cricket Club for the year ended December 31, 2021:

Receipts	(₹)	Payments	(₹)
To Balance b/d:		By Ground Maintenance	5,250
Cash at bank	8,500	By Salaries	9,000
Cash in hand	3,000	By Gym Equipments	25,000
To Subscriptions	61,250	By Sports Expenses	11,750
To Life Membership Fees	7,500	By Coaches’ Remuneration	10,000
		By General Expenses	2,750
		By Travelling expenses	2,000
		By Balance c/d:
		Cash at bank	10,250
		Cash in hand	4,250
	80,250		80,250

Additional information: 

(a) Interest on savings bank account for ₹ 880 has not been entered in the Cash Book.

(b) 80% of the Life Membership Fees is to be capitalized.

(c) An old gym equipment (WDV ₹ 20,000) was exchanged at an agreed price of ₹ 12,500 for a new gym equipment costing ₹ 37,500. 

(d) The balances of some accounts are as under:

	31.12.2021	31.12.2020
Outstanding Salaries	750	1,500
Arrear Subscriptions	8,000	5,250
Advance Subscriptions	6,750	3,500
Prepaid Ground maintenance	2,250	3,000
Gym Equipments	57,500	45,000

You are required to prepare the Income and Expenditure Account of the club for the year ended on December 31, 2021.

Solution:

Galaxy Women’sCricketClub

Income & Expenditure Account

for the year ended Dec. 31, 2021

Dr.			Dr.
Expenditure	₹	Income	₹
To Ground Maintenance [WN : 1]	6,000	By Subscription [WN : 1]	60,750
To Salaries [WN : 2]	8,250	By Entrance Fees [7,500 x 20%]	1,500
To Sports Expenses	11,750	By Interest on Savings Bank	880
To Coach’s Remuneration	11,000
To General Expenses	2,750
To Travelling expenses	2,000
To Loss on Exchange of Gym Equipment [WN: 4]	7,500
To Depreciation on Equipment [WN : 4]	5,000
To Surplus	9,880
	63,130		63,130

WORKINGS:

1. Subscriptions for 2021

Subscriptions Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Arrear Subscriptions A/c	5,250	By Advance Subscriptions A/c	3,500
To Income & Expenditure A/c (B/Fig.)	60,750	By Bank A/c	61,250
To Advance Subscriptions A/c	6,750	By Arrear Subscriptions A/c	8,000
	72,750		72,750

2. Ground Maintenance for 2021

Ground Maintenance Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance b/f	3,000	By Income & Expenditure A/c	6,000
To Bank A/c (paid for 2011)	5,250	By Balance c/f	2,250
	8,250		8,250

3. Salaries for 2021

Salaries Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance A/s	9,000	By Balance b/f	1,500
To Balance c/f	750	By Income & Expenditure A/c	8,250
	9,750		9,750

4. Loss on Exchange of Equipment

	₹
WDV of Equipment Exchanged (given)	20,000
Less: Agreed price of exchange	12,500
Loss on exchange of Equipment	7,500

5. Depreciation on Gym Equipments

Gym Equipments Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance b/f	45,000	By Creditors for Equipment A/c (Agreed Price of Equipment exchanged)	12,500
To Creditors for Equipment A/c (New equipment purchased)	37,500	By Loss on Exchange A/c	7,500
		By Depreciation A/c (B/fig)	5,000
		By Balance c/f	57,500
	82,500		82,500

2.The following is the Receipts & Payments Account of Citizen Sports Club for the year ended December 31,2021:

Receipts	(₹)	Payments	(₹)
To Balance (1.1.2018)	2,40,000	By Upkeep of ground	2,10,000
To Subscriptions	8,70,000	By Secretary’s Salary	3,60,000
To Entrance Fees	50,000	By Wages of groundsmen	2,40,000
To Proceeds of Concerts	1,50,000	By Ground rent	15,000
To Interest on Investments	50,000	By Printing & Stationery	20,000
		By Sundry Expenses	17,500
		By Balance (31.12.2018)	4,97,500
	13,60,000		13,60,000

Additional Information:

(a) Subscriptions include arrear subscription brought over from previous year ₹ 50,000.

(b) Interest on Investments includes ₹ 10,000 in respect of interest accrued in the preceding period. 

(c) Upkeep of ground and Wages of groundsmen include ₹ 30,000 and ₹ 15,000 respectively applicable to the preceding year. 

(d) Other ledger balances at the commencement of the financial period were: Capital Fund ₹ 40,10,000; Surplus brought forward ₹ 8,90,000; Club Premises and Grounds (as per valuation) ₹ 30,00,000; Investments ₹ 10,00,000; Sports materials ₹ 2,45,000; Furniture ₹ 4,00,000. 

(e) Entrance fees are to be capitalised.

(f) Outstanding liabilities on 31.12.2021: Wages of groundsmen ₹ 20,000; Printing ₹ 10,000. 

(g) Interest accrued and outstanding on investments was ₹ 12,000. 

(h) Depreciation to be provided on Club Premises by 2%, Furniture by 5% and Sports Equipment by 33.33%

Prepare the Income & Expenditure Account for the year ended December 31, 2021 and Balance Sheet as on that date.

Solution:

Citizen Sports Club

Income & Expenditure Account

for the year ended Dec. 31, 2021

Dr.					Cr.
Expenditure	₹	₹	Income	₹	₹
To Upkeep of ground	2,10,000		By Subscriptions	8,70,000
Less: Outstanding on 31.12.2021	30,000	1,80,000	Less: Arrear on 31.12.21	50,000	8,20,000
To Secretary’s Salary		3,60,000	By Proceeds of Concerts		1,50,000
To Wages of groundsmen	2,40,000		By Interest on Investments	50,000
Less: Outstanding on 31.12.2021	(15,000)		Less: Accrued on 31.12.21	10,000
Add: Outstanding on 31.12.2022	20,000	2,45,000		40,000
To Ground rent		15,000	Add: Accrued on 31.12.2022	12,000	52,000
To Printing & Stationery	20,000
Add: Outstanding on 31.12.2022	10,000	30,000
To Sundry Expenses		17,500
To Depreciation:
Club Premises	60,000
Furniture	20,000
Sports Equipments	81,667	1,61,667
To Surplus		12,833
		10,22,000			10,22,000

Balance Sheet

as at Dec. 31, 2022

Liabilities	₹	₹	Assets	₹	₹
Capital Fund as on 31.12.2021	40,10,000		Club Premises and Grounds	30,00,000
Add: Entrance fees capitalised	50,000		Less: Depreciation	60,000	29,40,000
Add: Surplus of 2021	8,90,000		Furniture	4,00,000
Add: Surplus of 2022	12,833	49,62,833	Less: Depreciation	20,000	3,80,000
Outstanding Liabilities:			Sports materials	2,45,000
Wages of groundsmen	20,000		Less: Depreciation	81,667	1,63,333
Printing	10,000	30,000	Investments		10,00,000
			Outstanding interest on investments		12,000
			Cash & Bank		4,97,500
		49,92,833			49,92,833

3. The following is the Income and Expenditure Account of Moon Club for the year ending 31st March, 2022: 

Expenditure		(₹)	Income	(₹)
To Provisions used:			By Subscription	68,000
Opening Stock	20,000		By Sale of Provisions	3,26,000
Add : Purchases	2,80,000
	3,00,000
Less : Closing Stock	10,000	2,90,000
To Salaries & Wages		36,000
To General Expenses		10,000
To Depreciation on Equipment		2,000
To Surplus		56,000
		3,94,000		3,94,000

The following Balance Sheets are also provided:

Liabilities	31.3.22	31.3.21	Assets	31.3.22	31.3.21
Suppliers for provisions	16,000	20,000	Equipment  (Cost Less Depreciation)	20,000	50,000
Capital Fund	94,000	1,50,000	Stock of Provisions	20,000	10,000
			Arrear Subscription	10,000	20,000
			Cash at Bank & in hand	60,000	90,000
	1,10,000	1,70,000		1,10,000	1,70,000

 From the above details prepare the Receipt and Payments Account for the year ended 31.3.2022 of the club.

Solution:

Moon Club

Receipts & Payments Account

for the year ended Mar. 31, 2022

Receipts	₹	Payments	₹
To Balance b/f:		By Payment to Suppliers [WN: 2]	2,76,000
Cash at Bank & Cash in Hand (given)	60,000	By Salaries & Wages	36,000
To Subscriptions [WN: 4]	58,000	By General Expenses	10,000
To Sale of Provisions	3,26,000	By Equipments [WN: 3]	32,000
		By Balance c/f: Cash and Bank	90,000
	4,44,000		4,44,000

WORKINGS:

1. Payment to Suppliers for Provisions

Creditors for Provisions Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Bank A/c [B/Fig.]	2,76,000	By Balance b/f	16,000
To Balance c/f	20,000	By Provisions A/c [Purchase]	2,80,000
	2,96,000		2,96,000

2. Equipments purchased during 2021-22

Equipments Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance b/f	20,000	By Income & Expenditure A/c	2,000
To Bank A/c [B/Fig.]	32,000	By Balance c/f	50,000
	52,000		52,000

3. Subscriptions received during 2021-22

Subscriptions Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Arrear Subscriptions A/c	10,000	By Bank A/c [B/Fig.]	58,000
To Income & Expenditure A/c	68,000	By Arrear Subscriptions A/c	20,000
	78,000		78,000