Chapter 6

Accounting for Not-for-Profit Organisations

INTRODUCTION

The very name of the chapter may raise eyebrows, as they are captioned as “Not-for-Profit,” then what is the necessity of preparation for final accounts for such organisations. The main motive of any organizations (business) is to earn profit. Such profit or loss has to be ascertained by proper accounting procedure. But here, we have to prepare financial statements, even though their motive is not to earn profit. These NPOs are mainly voluntary in nature. Their motive is to promote art, culture, education, health and other social activities among humanity. Some types of recreation clubs, sports club and professional associations also belong to this category. These organisations get funds from others and fees from its members. They too have to maintain proper records of accounts. Even though profit may not be the motive, they have to get some surplus money (excess of income over expenditure) to promote their activities consistently. But here, a different set of records has to be maintained. The preparation of final accounts differs from other trading concerns. A proper and different accounting system has to be maintained in order to avoid misuse of money obtained from its members, other institutions and public. The main constituents of final accounts of NPOs are Receipts and Payments Account, Income and Expenditure Account and Balance Sheet. Special features of these accounts and their preparation are discussed in detail in this chapter.

OBJECTIVE 1: MEANING AND SALIENT FEATURES OF NPOs

Entities that are formed to promote any useful activities or to render any service to humanity are usually termed as NPO.

Examples: Charitable institutions (health, education, etc.), social service slubs, games clubs, religious institutions and professional associations (Medical Council, Bar Council and so on).

1.1 Salient Features of NPOs

1. The basic motives:
   1. To promote services to mankind
   2. Financial gain (making profit) should not be the main objective in forming such entities.
2. The sole aim of NPOs is to render different kinds of services relating to health, education, sports and games and recreation, targeting at a segment in the society.
3. Profit-making is not the aim of such organisations.
4. Source of income for such organisations is mainly from the members of such entities by way of entrance fees, subscriptions, donations and so on.
5. There is prohibition to declare any dividend to such of their members.
6. Their membership (ownership) can neither be transferred nor be sold to others.
7. These organisations, generally, cannot do trading activities.
8. Income should be mainly spent for promoting or rendering services only.

OBJECTIVE 2: MEANING AND FEATURES OF RECEIPTS AND PAYMENTS ACCOUNT

One may ask, if profit-making is not the main motive of these organisations then what is the necessity of preparing final accounts. In order to ascertain the members, the donors and the society, it is necessary to prepare final accounts, in particular, about their activities. Misuse or non-utilisation of income can be detected only by keeping proper accounting procedure. Proper accounting facilitates the task of further growth of such entities. So it has become a necessity to prepare such accounts. More or less the same accounting system is adopted as in the case of profit-making entities. The final accounts of a NPO consists of the following three parts:

1. Receipts and Payments Account
2. Income and Expenditure Account
3. Balance Sheet

2.1 Receipts and Payments Account

“The Receipts and Payments Account” is a summary of cash and bank transactions of a NPO for a specified accounting period.

2.2 Features of Receipts and Payments Account

1. It is a real account.
2. It shows a classified summary of cash receipts and cash payment. (It is similar in format to cash Book without discount and bank columns).
3. It begins with the opening balances of cash and bank.
4. It ends with the closing balances of cash and bank.
5. In between these two, all transactions (receipts and payments) are recorded.
6. On debit side, all receipts (whether capital or revenue, cash or bank) are to be recorded one after another, chronologically.
7. On credit side, all payments are to be recorded one after one.
8. All transactions whether it relates to past, present or future have to be recorded if it takes place now, i.e. only actual receipts and payments (cash and bank) are to be recorded.
9. As already noted, no distinction has to be made between capital and Revenue (nature transactions) receipts and payments.
10. To put it in a nutshell, this account merely summarises the actual cash and bank transactions (receipts and payments) that took place during the specific period (accounting period).
11. Accrued incomes and unpaid expenditures do not find place in this account.
12. Non-cash items are not recorded.
13. The end result of this account will reveal only cash/bank balance and nothing beyond that. It shows only the actual cash/bank transactions that took place in the accounting period.
14. The preparation of receipts and payments Account will only reveal the following: Opening (position of) Cash/Bank Balances and Closing (position of) Cash/Bank Balances, various receipts (income) during the accounting period and money spent on various items (payments).
15. No end results can be obtained from this account.

Model Category, Model Number and Illustration Numbers

Model No.	Model: Category Wise – Caption	Illustration No.
1	Preparation of Receipts and Payments Account from bare facts	1
1A	Preparation of Income and Expenditure Account: treatment of accounting methods for individual items	2–13
2	Preparation of Income and Expenditure Account from a given Receipts and Payments Account	14, 16–19
3	Preparation of Income and Expenditure Account from a given Receipts and Payments Account with additional information and Balance Sheet	14, 16 – 19
3A	Bank reconciliation adjustments	20
4	Preparation of Income and Expenditure Account and a Balance Sheet from a Trial Balance	21
5	Preparation of Balance Sheets	15, 15A
6	Preparation of Receipts and Payments Account from a given Income and Expenditure Account with additional information and Balance Sheet	22–26
7	Preparation of Restaurant/Bar Trading Account	27
8	Correction of wrong statements	28
9	Preparation of Receipts and Expenditure Account for professionals – individuals Preparation of Receipts and Expenditure Account for professional	29, 30
10	concerns – Partnership Firms	31,32

OBJECTIVE 3: PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT

 

Step 1:	Format is drawn first.
Step 2:	Opening balances of Cash in Hand and Cash at Bank should be entered on the debit side (receipts).
Step 3:	If in the beginning of the accounting period any Bank Overdraft, the same should be entered on the credit (payments) side (and not in the debit side).
Step 4:	All receipts (Cash and Bank), (Capital and Revenue), (relating to past, present or future) are to be recorded one after one on the debit side (Receipt Column).
Step 5:	All payments in cash/cheque (Capital/Revenue), (relating to past, present or future) have to be recorded in the credit side (Payments) one after one.
Step 6:	After ascertaining that all transactions are recorded, the total of the debit side (Receipts) and the total of the credit side (Payments) should have to be carried out.
Step 7:	Note the difference. That should be entered as last item on the (Payments) credit side as the closing balance (Cash/Bank).
Step 8:	There is always debit balance in the Cash Balance. But there may be credit balance in Bank Balance.

Important Note

• Now cash items (like depreciation) should not be entered.
• Outstanding income and expense should not be entered.
• Only actual cash receipts/payments have to be taken into account.

Format

 

Important Note

• Balance c/d usually will be the balancing figure
• Closing balance, if it is Cash in Hand is shown on payments side (Credit side)
• Closing balance, if it is Bank Overdraft, is shown on receipts side (Debit side) of Receipts and Payments Account.

Illustration: 1

From the following information, prepare Receipts and Payments Account of Rajasekaran Club, Delhi for the year ending on Dec 31, 2008:

 

	Rs
Cash as at Jan 1, 2008	2,500
Subscription received (including Rs 100 for 2007 and Rs 200 for 2009)	4,700
Upkeep of Fields	450
Admission Fees	100
Salaries	1,000
Drama Expenses	750
Life Membership Subscription	1,000
Newspapers Purchased	200
Books Purchased	500
Donations Received (Aug 1, 2008)	4,000
Subscription for Tournament received on Aug 1, 2008	3,000
Municipal Taxes	500
Charity Given	500
Sale of Old Newspapers	50
Sale of Old Bats	100
12% General Investments made on Aug 1, 2008	3,000
Tournament Expenses	2,000
Sale of Old Furniture (cost Rs 2,000)	500
Bats and Balls Purchased	1,000
Proceeds of Drama Tickets	2,500
Interest on 12% General Investment received	150
12% Tournament Fund Investments (on Aug 1, 2008)	6,000
Interest on 12% Tournament Fund and Investment received	300
Printing and Stationery	350
Furniture	2,000
Subscription received for Governor’s party	7,500
Depreciation: (Furniture)	200
(Books)	50

Solution

Keep in mind, the procedure explained in preparation of Receipts and Payments Account and enter the items accordingly.

 

Important Notes

• Find whether the transactions (item) relate to Receipt (Income) or Payment (Expense) and transfer them accordingly to Receipt or Payment side, irrespective of the nature whether or Capital.
• Non-cash items: depreciation should not be entered in this account.
• It records all receipts and payments whether they pertain to this accounting period or not, if it is received this year then it has to be recorded.
• In this case, receipts exceed payments and as such the difference amount is recorded as Balance c/d on payments side.
• If Payments exceed Receipts then the difference amount has to be recorded as Bank Overdraft on the receipt side.

OBJECTIVE 4: MEANING AND MAIN FEATURES OF INCOME AND EXPENDITURE ACCOUNT

4.1 Meaning

An Income and Expenditure Account is the (Final Account) Profit and Loss Account of NPOs. It is a nominal account that shows the classified summary of revenue incomes, revenue expenses and losses for the current accounting period, along with the (net result) balance of this account – surplus or deficit is to be transferred to the Balance Sheet.

4.2 Main Features of Income and Expenditure Account

1. It is a Nominal Account.
2. Items of income are recorded on the credit side (Income) of this account.
3. Items of expenses are recorded on the debit side (Expenditure) of this account.
4. It records only those incomes, expenses, profits and losses which are of revenue nature only. Capital receipts and capital expenditures are to be completely excluded.
5. It records only those incomes, expenses, profits and losses which pertain to current accounting period. That means, all transactions relating to previous accounting period and future accounting period are never recorded in this account.
6. It is prepared on an accrual basis:
   1. Any income which is due (to be received, not yet received in cash) but not received (accrued) has to be credited to Income and Expenditure Account. Further it has to be recorded on the Assets side of the current year’s Balance Sheet.
   2. If any income is received in advance, such income has to be deducted from the total income received. Further it has to be recorded on the Liabilities side of the current year’s Balance Sheet.
   3. Outstanding expenditures, expenses due but actually not paid till the end of the accounting period, have to be debited to Income and Expenditure Account. Further it has to be recorded on the Liabilities side of the current year’s Balance Sheet.
   4. Expenditure made in advance (i.e., expenses pertaining to next accounting year) has to be deducted from such total expenditures. Further it has to be recorded on the assets side of the current year’s Balance Sheet.
7. Non-cash (items) expenditures have to be entered on the debit side of income and expenditure account. (Depreciation, bad debts, incomes written off.)
8. Its balance at the end represents either Net Surplus (credit side total exceeds the debit side total – excess of income over expenditure) or Net Deficit (debit side total exceeds the credit side total – excess of expenditure over income). This has to be transferred to the Capital Fund in the Balance Sheet.

   Surplus is to be added to the Capital Fund.

   Deficit has to be deducted from the Capital Fund in the Balance Sheet.

9. This account is normally accompanied with Balance Sheet.
10. To put it in a nutshell, Income and Expenditure Account is very similar to Profit and Loss Account. So the basic principles in preparing income and expenditure are same as that of Profit and Loss Account.

Important Note

Even though transactions relating to capital receipts and expenditures are not included in this account, it is very important to note that profit or loss on sale of fixed assets is to be recorded. Such profit is to be recorded on the credit side and any such loss has to be recorded on the debit side of Income and Expenditure Account.

 

A Balance Sheet is to be accompanied after the preparation of Income and Expenditure Account.

Balance Sheet of NPOs is prepared as follows:

1. As usual, assets are to be recorded on the right-hand side (Credit side) and Liabilities are to be recorded on the left-hand side (Debit side).
2. Instead of Capital, “Capital Fund” finds a place on the Liabilities side of the Balance Sheet.
3. The value of “Capital Fund” is to be calculated at the beginning of accounting period by deducting the opening balance of liabilities form the opening balance of assets. Then “Surplus” is added to it or “Deficit” is deducted from it, i.e. Net Balance of Income and Expenditure Account.
4. Capitalised income will have to be entered one after one on the Liabilities side of the Balance Sheet.
5. Other specific funds have to be recorded.
6. Income received in advance to be entered on the Liabilities side.
7. Outstanding Expenses after adjustments and Bank Overdraft have to be recorded.

On assets side, the following have to be recorded:

1. Assets (after adjustments)
2. Stock of Consumable Materials (after adjustments)
3. Outstanding Income
4. Pre-paid Expenses
5. Closing Balance of Cash in Hand and Cash at Bank

OBJECTIVE 5: DISTINCTION BETWEEN RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND EXPENDITURE ACCOUNT

OBJECTIVE 6: ACCOUNTING TREATMENT OF SOME SPECIAL ITEMS

6.1 Subscription

6.1.1 Meaning

1. This is the amount paid by the members of such organisation to maintain their membership.
2. Subscriptions may be paid on a yearly basis, periodically.
3. It may be paid as a lump sum also. If it is paid so, it is termed as Life Membership Subscription.
4. “Subscription” is the vital and major source of income for any NPO.

6.1.2 Accounting Treatment

Category I: Periodical (yearly) subscriptions.

1. This category of subsection is treated as “Revenue Receipts” in total.
2. As it is entirely treated as revenue income, it is credited entirely in the Income and Expenditure Account, under the head “By Subscription.”
3. Since accrual basis of accounting is used, subscriptions related to the current accounting period alone must be treated as revenue income of that period.
4. Adjustments have to be made to arrive at the subscription income for the current accounting period by using the following format.

Format: Computation of Subscription Income for the Current Accounting Period

Particulars	Rs	Rs
Subscriptions received during the current year
Add:
(i) Advance subscriptions in the beginning of the year (or at the end of last year)	—	—
(ii) Outstanding subscriptions at the end of the current year	—	—
Less:
(i) Outstanding subscriptions in the beginning of current year	—	—
(ii) Advance subscriptions at the end of current year	—	—
		xx

The subscription so arrived has to be credited to Income and Expenditure Account. The same may be computed in the Account Form, by preparing a Subscription Account as follows:

 

Illustration: 2

Compute the income from subscription for the year 2008 from the following particulars.

Subscription received during the year 2008 is Rs 2,18,700

 

	Jan 1, 2008 Rs	Dec 31, 2008 Rs
Outstanding Subscriptions	12,700	9,300
Advance Subscriptions	4,400	8,600

Solution

The income from Subscription may be computed in any of the following two methods.

Method I: Statement Form

 

Step 1:	Draw the format
Step 2:	Subscriptions received during the accounting period, i.e. 2008, has to be recorded. (This is the basic figure.)
Step 3:	Since it is on an accrual basis, only those incomes which relate to current accounting period (i.e., 2008) have to be computed first and then credited to Income and Expenditure Account. For this, the following steps have to be followed.
Step 4:	Outstanding subscription at the end of the year (i.e., Dec 31, 2008) has to be added to the basic figure, even if it is not actually received yet.
Step 5:	Advance subscription received in the beginning of the year, i.e. Jan 1, 2008 (it may also be termed as at the end of the previous year, i.e. Dec 31, 2007), has to be added to the basic figure.
Step 6:	Similarly, outstanding subscription in the beginning of the year, i.e. Jan 1, 2008, is not related to this year 2008. So that amount has to be deducted.
Step 7:	Advance subscription at the end of the year (i.e., Dec 31, 2008) has to be deducted as that amount actually belongs to next year, i.e. 2009.
Step 8:	Net amount arrived after these adjustments is the subscription income for the year 2008.
Step 9:	Only this net figure has to be transferred and credited to Income and Expenditure Account for income from “Subscriptions.”

Note: If the income is related to this year (i.e., 2008), it has to be included in this year irrespective of the year in which it is received. Similarly, if it does not relate to this year, even if it is received this year, it has to be deducted. Incomes pertaining to this accounting period alone have to be taken into account after making the above adjustments.

 

Computation of Subscription Income

Particulars	Rs	Rs
Subscriptions received during 2008		2,18,700
Add: (i) Outstanding Subscription as on Dec 31, 2008	9,300
(ii) Advance Subsections as on Jan 1, 2008	4,400	13,700
		2,32,400
Less: (i) Outstanding Subscription as Jan 1, 2008	12,700
(ii) Advance Subscription as at Dec 31, 2008	8,600	21,300
Subscription Income for the year 2008		2,11,100
(to be credited to Income and Expenditure Account)

Method II

The same may be computed by preparing a subscription account as follows:

1. Format is drawn
2. Figures are entered accordingly.
3. Balancing figure is the subscription income to be transferred to Income and Expenditure Account.

Note: For students convenience, to arrive at the balancing figure, that Income and Expenditure Account is entered as a last item but according to strict accounting principles it is not so.

Illustration: 3

Prepare the subscription amount from the following items for the year ending on Mar 31, 2008.

1. Subscription in arrears on Mar 31, 2007: Rs 500
2. Subscription received in advance from Mar 31, 2007: Rs 1,100
3. Total subscription received during 2007–2008 (including Rs 400 for 2006–2007, Rs 900 for 2008–2009 and Rs 300 for 2009–2010): Rs 35,400
4. Subscription outstanding for 2007–2008: Rs 400

Solution

 

Step 1:	Accounting year has to be clearly written first. Here 2007–2008 is the accounting period.
Step 2:	If subscription in arrears for a period other than the accounting period is given, an adjustment has to be made as follows:

In this problem,

Subscription in arrears as on Mar 31, 2007 is given as Rs 500

Total Subscription received: Note that including Rs 400 for 2006–2007 is given.

So net outstanding subscription has to be computed and that amount alone has to be shown in “Outstanding Subscription” for the year 2006–2007 in Subscription Account.

Here it is Rs 100/– i.e. (Outstanding – Received) for 2006–2007

(Rs 500 – Rs 400) = Rs 100

 

Step 3:

Format is drawn and the particulars are transferred to Subscription Account as follows:

Step 4:

Rs 35,300 has to be transferred and credited to Income and Expenditure Account under the head “Subscription.”

Illustration: 4

From the following extracts of Receipts and Payments Account and additional information you are required to calculate the income from subscriptions for the year ending Dec 31, 2008 and show them in the Income and Expenditure Account and the Balance Sheet of a recreation club in Delhi.

 

Additional information

1. Subscription outstanding on Dec 31, 2007 – Rs 6000
2. Subscriptions outstanding on Dec 31, 2008 – Rs 5,000
3. Subscriptions received in advance on Dec 31, 2007 – Rs 6,000

Solution

• Study the problem
• Receipt and Payment A/c. extract is given
• Further information is also given
• In such cases, calculation of subscription income for 2008 has to be made as follows:

		Rs
1.	Subscription received during 2008 (this is taken from the Receipt and Payment A/c extract in the problem)	30,000
2.	Subscription received in advance on Dec 31, 2007 means it pertains to the year 2008 and hence added (given in additional information)	6000
		36,000
3.	Subscription outstanding as on Dec 31, 2008 has also to be added. But a light adjustment has to be worked out. Rs 5000 is given in additional information. But actual outstanding for the previous year has to be deducted Here for 2007: Rs 6,000 – 5,000 = Rs 1,000 Hence, for 2008: Rs 5,000 – 1,000 = Rs 4,000	4,000
4.	Subscription income to be included in Income and Expenditure Account	_____ 40,000

1. Extract of Income and Expenditure Account is to be presented in the format.
2. Finally, Balance Sheet extract is to be shown separately.

Illustration: 5

From the following, find out the amount of subscription to be included in the Income and Expenditure Account for the year ended Mar 31, 2008.

Subscriptions received during the year 2007–2008.

For the year ending 2006–2007: Rs 10,000

For the year ending 2007–2008: Rs 2,00,000

For the year ending 2008–2009: Rs 20,000

Subscriptions outstanding as on Mar 31, 2007 were Rs 25,000, out of which Rs 3,000 were considered irrecoverable. On the same date, subscriptions received in advance for 2007–2008 were Rs 10,000. Subscriptions still outstanding as on Mar 31, 2008 amounted to Rs 50,000.

Solution

For this type of problem, outstanding subscriptions for the accounting period (i.e., 2007–2008) have to be calculated first.

 

Computation of Outstanding Subscriptions for 2007–2008

	Rs
Stage I:
• Subscriptions outstanding on Mar 31, 2007 (i.e., previous year)	25,000
• (From this irrecoverable amount has to be deducted)
Less: Written off	3,000
	22,000
• (Subscriptions received in year 2007–2008 has to be deducted)	10,000
Less: Received in 2007–2008
Subscriptions still outstanding as on Mar 31, i.e. 2006–2007 year	12,000
Stage II:
• Total subscriptions outstanding as on Mar 31, 2008 (given at the end of the problem)	50,000
• [Amount arrived at Stage I, i.e. Subscriptions still outstanding for the year ending Mar 31, 2007 (i.e., previous year) has to be deducted]
Less: Still outstanding for the year ending Mar 31, 2007	12,000
Outstanding subscriptions for the accounting period 2007–2008	38,000
Stage III:
Now, the amount of subscriptions to be included in the Income and Expenditure Account has to be calculated
• Subscriptions received for 2007–2008	2,00,000
• Add: Subscriptions received in advance in 2006–2007 for the year 2007–2008	10,000
	2,10,000
• Add: Subscriptions outstanding for the year 2007–2008	38,000
(Refer Stage II)
Amount to be credited to Income and Expenditure Account under the head “Subscriptions”	2,48,000

Illustration: 6

From the following extracts of Receipts and Payments Account and the additional information, you are required to compute the income from subscriptions for the year ending on Dec 31, 2008 and show the subscriptions items in the Income and Expenditure Account and the Balance Sheet as on Dec 31, 2008.

 

Additional Information

Subscriptions outstanding as on Dec 31, 2007: Rs 13,000

Subscriptions received in advance as Dec 31, 2007: Rs 14,500

(including Rs 2,500 for 2008)

There are 1,600 members each paying an annual subscription of Rs 100.

Solution

This is a different type of problem.

Note: Here, in additional information one important item about the total number of members and annual subscription amount is given.

Step I

• In such cases, the total amount of subscriptions is calculated and that amount can be straight away credited into Income and Expenditure Account under the head “Subscriptions.”

  Total Number of Members × Annual Subscriptions

  1,600 × Rs 100 = Rs 1,60,000

• Draw the format of Income and Expenditure Account and credit this amount straight away.

Step 2: Computation of Subscriptions Outstanding as on Dec 31, 2008

• Draw “Subscription Account” ledger
• Enter all the items pertaining to “Subscriptions”
• Balancing figure is the amount outstanding as on Dec 31, 2008

Step 3: Finally, Balance Sheet has to be drawn

 

Note: These figures can easily be transferred from the Subscription Account to Balance Sheet.

Illustration: 7

There are 500 members in a club, each paying a subscription of Rs 100. On Mar 31, 2007, subscription in arrears totalled Rs 1,000. Subscriptions received during the year ended Mar 31, 2008 amounted to Rs 45,000 including Rs 750 for the year 2006–2007 and Rs 2,000 for the year 2008–2009.

You are required to calculate the amount of subscriptions in arrears as on Mar 31, 2008 by preparing Subscriptions Account.

Solution

• This is a different type.
• We have to calculate Subscriptions in Arrears for the accounting period 2007–2008.
• Subscription Account has to be opened and the respective items have to be recorded as follows.

Notes:

• Important point to be noted is that while recording subscriptions received during the year, entire amount has to be recorded without any adjustments.
• So, subscriptions outstanding on Mar 31, 2008 includes subscriptions (Rs 1,000 – Rs 750) Rs 250 not received for the year 2006–2007.
• Subscriptions in arrears (Outstanding Subscriptions) arise mainly due to the reasons that members of such entities may leave such entities without proper intimation. To recover such unpaid subscriptions from such members is an ordeal task.
• So, a latest trend in accounting circle is that to threat them as an asset is discouraged.
• To simply declare item as bad debts and to write off from the accounts must be carefully followed.
• As such students are advised to note whether any specific instructions or information is given in the problem and solve the problem taking into account such instructions.
• So, the practice of treating as bad debts and writing off automatically should be dispensed with. Problems should be solved as per the instructions given in the problem.

6.2 Category II: Life Membership

In some not-for-profit entities, members may make a lump sum payment, i.e. life membership, instead of periodical payment as subscription. Usually, such a large sum is not treated entirely as revenue income. It is usually treated as deferred revenue receipts and transferred to Life Membership Fund Account.

An amount representing the normal annual subscription is treated as revenue receipts and credited to Income and Expenditure Account and the balance appears on the liabilities side of the Balances Sheet till the amount is exhausted or till the membership ceases, whichever is earlier. Such amount to be treated as normal revenue receipt is determined by the entity. So, students have to follow the instructions given in the problem.

Illustration: 8

 

Additional information:

Life Membership Fees is for 10 years

Solution

• Life Membership Fees is given as Rs 10, 000.
• An instruction is given in additional information, i.e. fee is for 10 years
• It is crystal clear that it is for 10 years only. That means 1/10th of the fees, to be treated as Revenue Receipt.
• Rs 10,000/10 years = Rs 1,000 per year
• Rs 1,000 has to be credited to Income and Expenditure Account under the head “Life Membership Fees.”
• The remaining amount, i.e. Rs 10,000 – Rs 1,000 = Rs 9,000 is to be recorded on the Liabilities side of the Balance Sheet.
• This has to be repeated for every year till the amount is exhausted.

6.3 Treatment of Fund Income (and Fund Expenses)

1. Usually, items of revenue income are credited to Income and Expenditure Account and items of (revenue) expenses are debited to Income and Expenditure Account.
2. But for “Specific Funds,” accounting treatment differs:
   1. Income from specific fund is not credited to Income and Expenditure Account. Instead, it is added to that specific fund in the Balance Sheet. Examples for specific fund, Prize Fund, Tournament Fund and Relief Fund. In case, if any income arises from a specific fund, such income is added directly to such specific fund, which finds place on the Liabilities side of the Balance Sheet.
   2. Expenses incurred on specific funds, such expenses are also not transferred to Income and Expenditure Account. But they are directly taken to that specific fund which appears on the Liabilities side of the Balance Sheet and such expenses are deducted from the concerned specific fund. But, in case, if no specific fund exists but expenses arise, then such expenses are debited to Income and Expenditure Account.

Illustration: 9

Show how will you deal with the following items while preparing for the final accounts of a NPO for the year ending on Mar 31, 2008 in each of the following cases.

1. Prizes awarded: Rs 5,000, Prizes Fund at Mar 31, 2007: Rs 25,000
2. Prizes awarded: Rs 5,000. Prizes Fund as on Mar 31, 2007: Rs 25,000. Donations for prizes received during 2007–2008: Rs 7,500, Interest @ 10% received on Prize Fund Investments as at Mar 31, 2007 on Rs 25,000 is Rs 2,500
3. Prizes awarded: Rs 5,000

Solution

• In the first two cases (a) and (b), prizes and prize fund particulars are given in the problem.
• Prize Fund – Specific Fund.
• As such, this item cannot be transferred directly to Income and Expenditure Account.
• Balance Sheet has to be drawn on the Liabilities side.
• Opening Balance of specific fund is taken as basis.
• Any income has to be added to this fund.
• Any expenses incurred relating to the specific fund has to be deducted.

Case (a)

 

Case (b)

 

Important Note (Specific Fund) (Prize Fund Investments is an asset. Appears on the Asset side of Balance Sheet).

Case (c)

• In this case no specific fund, i.e. Prize Fund exists.
• Only expenses on prizes exist as Rs 5,000.
• So, it is directly debited to Income and Expenditure Account.
• Preparation of Balance Sheet does not arise.

Illustration: 10

Show how you will deal with the following items while preparing the final accounts for the year ending Mar 31, 2008.

Case (a)

Expenditure on construction of a pavilion is Rs 5,00,000. The construction work is in progress and has not yet completed. Capital Fund as on Mar 31, 2007 is Rs 12,00,000.

Case (b)

Expenditure on construction of a pavilion: Rs 5,00,000. The construction work is in progress and has not yet completed. Pavilion fund as on Mar 31, 2007 is Rs 7,00,000. Donation for pavilion received on Apr 30, 2007 is Rs 9,00,000. Capital Fund as on Mar 31, 2007 is Rs 12,00,000.

Solution:

Case (a)

• Capital Fund in the beginning of the year is given.
• Expenditure on construction of a project, i.e. pavilion is given.
• Since no other details are furnished, opening balance of the capital fund is to be recorded on the Liabilities side of the Balance Sheet and the Expenditure has to be treated as asset and recorded on the Assets side of the Balance Sheet as Work in Progress.

Case (b)

• Capital Fund is given. In addition, Pavilion Fund is also given. As such, they have to be recorded separately under different head “Capital Fund” and “Pavilion Fund.”
• The donations received for a “specific purpose” cannot be treated as revenue income. It has to be capitalised. It has to be added to the respective specific fund and finds place in the Balance Sheet directly.

Notes:

1. Total amount spent on the Specific Fund (or Work in Progress) has to be treated as asset.
2. If any estimate cost is given in the problem, no entry has to be made for such estimated cost.

(Expenditure on construction → Work-in-Progress → transferred to Capital Fund)

6.4 Legacy

1. Generally, it is a gift.
2. It may be in cash or property.
3. It is not treated as revenue income.
4. It is not transferred to Income and Expenditure Account.
5. It is treated as “Capital Receipt” and is recorded in the liabilities side of the Balance Sheet.
6. It is generally given through will of a person (deceased) to a NPO.

6.5 Donations

1. This is also a sort of gift given by existing person, firm or a company to a NPO.
2. Donations may be classified as Specific Donations and General Donations.

6.5.1 Specific Donations

1. If the donations received is for a specific purpose (e.g. building, equipment, schemes, and so on), such amount is capitalised and recorded in the Liabilities side of a Balance Sheet.
2. It is immaterial whether the amount is small or large.

6.5.2 General Donations

1. Usually, if donations are received every year (i.e., recurring nature but not related to any specific purpose), such donations are to be treated as Revenue Receipts or income.
2. As such, it is credited to Income and Expenditure Account.
3. Generally, such donations are smaller in value.

Important Note

However, students are advised to follow the instructions given in the problem for classification. If the question is silent (i.e., no instructions are given), students have to follow the above procedure.

6.6 Endowment Fund

According to Eric. L. Kohler, it is a fund arising through a bequest or gift and such income is earmarked for a specific purpose.

It is to be treated as a Capital Receipt. As such it has to be recorded on the Liabilities side of the Balance Sheet.

6.7 Entrance Fees

• It is also termed as Admission Fees.
• It has to be paid by the member only once. As such, it has to be treated as Capital Receipt and it has to be recorded in the Liabilities side of the Balance Sheet.
• Generally, entrance fees are treated either as Capital or Revenue Receipts, as per by laws of NPOs.

Important Note

• As per Accounting Standard (AS)-9, ENTRANCE FEES should be capitalized.

   

This is the authorised accounting principle, now in force.

• However, students are advised to adhere the instructions given in the problem and act accordingly.
• If there are no specific instructions given in the problem, it is advisable to make a note, while solving problems.
• If any portion of such fees is to be treated as Revenue Receipt, then such amount is to be shown on the Income side (credited) of Income and Expenditure Account and the remaining portion is to be capitalised and entered in the Liabilities side of the Balance Sheet.

6.8 Aid from Government and Other Institutions

1. General Aids are treated as Revenue Receipts. They are transferred and credited to Income and Expenditure Account.
2. Special or Specific Aids are treated as Capital Receipts. They are transferred to the Liabilities side of the Balance Sheet and added to the Capital Fund.
   • To put in a nut shell, any income if it is of capital nature, i.e. Capital Receipt, it has to be straightaway transferred to Liabilities side of the Balance Sheet. Such Capital Receipts should not be transferred to Income and Expenditure.

So far, we have discussed various items of income that are of capital nature (Capital Receipts). Now we have to see how capital expenditures are to be treated.

6.9 Capital Expenditures

Money spent on the purchase of any assets (durable for a lengthy period) may be called as capital expenditures.

Examples

• Purchase of furnitures
• Purchase of land
• Purchase of buildings
• Purchase of books
• Purchase of equipments
• Money spent on investments
• These capital expenditures are to be recorded on the assets side of the Balance Sheet.
• But the following adjustment has to be made.

Depreciation amount has to be deducted and only then such amount has to be transferred to the Balance Sheet. However, do not forget to transfer the depreciation amount to Income and Expenditure Account.

6.10 Current Years’ Expenditure

6.10.1 Consumable Items

Examples: stationery, sports material, medicines, and so on. Accounting Treatment:

• A stock account for each consumable items has to be prepared separately.
• It is prepared to ascertain the actual amount of consumption of the item during the accounting year.
• That amount has to be debited to Income and Expenditure Account.
• To ascertain credit purchases (mostly missing in the question), Creditors Account has to be prepared.

Illustration: 11

How will you deal with the following items while preparing the Income and Expenditure Account for the year ending on Mar 31, 2008 and a Balance Sheet as on that date.

Case (a)

 

	As on Apr 1, 2007	As on Mar 31, 2008
	Rs	Rs
Creditors for Sports Materials	3,000	1,500
Stock of Sport Materials	5,000	500

During 2007–2008, the payment made to these creditors was Rs 20,750. There was no cash purchase.

Case (b)

 

	As on Apr 1, 2007	As on Mar 31, 2008
	Rs	Rs
Creditors for Sports Materials	4,000	9,000
Stock of Sport Materials	10,000	25,000

During 2007–2008, the payment made to these creditors amounted to Rs 35,000 and cash payments amounted to Rs 10,000.

Solution:

Consumption of sports material is of revenue nature.

Step 1: As creditors are given in the problem first, Creditors for Sports Materials account has to be prepared to ascertain credit purchases made during the year.

• For this, amount outstanding on the opening date (beginning of the year) has to be credited in the account. Purchases made during the year have to be debited as Bank A/c. Amount standing at the end Mar 31, 2008 to be debited to this account. The balancing figure in the account depicts as stock of sports materials, i.e. credit purchases.

 

Step 2: Then Stock of Sports Materials Account has to be prepared. Opening Stock of materials as on Apr 1, 2007 Rs 5,000 has to be debited as Balance b/d. Creditors for sports materials amount has to be transferred from the above A/c, i.e. Rs 18,250 has to be debited. Then Stock of Materials as on Mar 31, 2008 has to be credited to this account as Closing Balance c/d. The balancing amount appearing in this account is the amount spent on sports materials consumed.

 

• The amount for sports materials consumed, i.e. Rs 22,750 has to be transferred and debited to Income and Expenditure Account.

Step 3: An Extract of Income and Expenditure A/c for the Year Ending on Mar 31, 2008

Finally, the Balance Sheet has to be drawn up.

Step 4:

• Figures standing on Mar 31, 2008 have to be shown in the Balance Sheet.
• As such, Creditors for Sports Materials Rs 1,500 on Mar 31, 2008 has to be recorded on the Liabilities side of the Balance Sheet.
• Stock of Sports Materials on Mar 31, 2008 Rs 500 has to be shown on the Assets side of the Balance Sheet.

In this problem, an additional information, i.e. cash purchases is given. In such cases, only one additional adjustment has to be made in the Stock of Sports Materials Account as follows:

Case (b)

In that account, this cash purchases amount Rs 10,000 has to be debited as “To Bank/Cash Account” and then the balancing figure is arrived. All the other procedures remain the same as in the above case (a).

Step 1

 

Step 2

 

Note: Cash purchases entered in this account.

Step 3

 

Step 4

 

Illustration: 12

From the following information, compute the amount of stationery to be debited to Income and Expenditure Account for 2008.

 

	Rs
Stock of Stationery on Jan 1, 2008	5,000
Creditors for stationery on Jan 1, 2008	2,500
Advance paid for stationery carried forward from 2007	600
Amount paid for stationery during 2008	15,500
Stock on stationery on Dec 31, 2008	1,500
Creditors for stationery for 2008	4,400
Advance paid for stationery on Dec 31, 2008	500

Solution:

The same type of problem may be solved by adopting “Statement Form” to ascertain the amount of stationery consumed during the year.

• Stock at the beginning of the year is taken as basis:
  1. Payments made for the year 2008 is added.
  2. Items relating to 2007 have to be deducted.
  3. Items relating to 2008 have to be added.
  4. Finally, value of closing stock as on Dec 31, 2008 has to be deducted.
  5. The amount arrived after all these adjustments is the amount of stationery actually used in 2008, which has to be debited to Income and Expenditure Account.

Statement showing the calculation of the amount of stationery consumed during the year 2008

 

		Rs
	Stock of Stationery on Jan 1, 2008	5,000
	Add: Payments made for stationery in 2008	15,500
		20,500
	Less: Payments made from creditors of 2007	2,500
	(since this belongs to last year, deducted)
		18,000
	Add: Payments made in 2007 but belonging to 2008	600
		18,600
	Add: Creditors for stationery for the year 2008	4,400
		23,000
	Less: Payments made in advance at the end of 2008	500
		22,500
	Less: Stock of stationery on Dec 31, 2008	1,500
	Amount of stationery actually used in 2008	21,000

The amount thus obtained has to be transferred and debited to Income and Expenditure Account.

Balance Sheet as on Dec 31, 2008 shows

Creditors for stationery for 2008 – Liability

Advance paid at the end – Asset

Closing Stock at Dec 31, 2008 – Asset

6.10.2 Expenses – Salary

Illustration: 13

In 2008, the actual salaries paid amounted to Rs 17,800. Ascertain the amount chargeable to Income and Expenditure Account for the year ending on Dec 31, 2008 from the following additional information.

 

		Rs
	Pre-paid salaries on Dec 31, 2007	1,500
	Pre-paid salaries on Dec 31, 2008	300
	Outstanding salaries on Dec 31, 2007	700
	Outstanding salaries on Dec 31, 2008	1,200

Solution

• As usual, total salaries paid in the accounting year is taken as base.
• With this, expenses relating to 2008 have to be added and expenses not relating to 2008 have to be deducted.

Calculation of current year’s salaries

 

		Rs
	Total salaries paid in 2008	17,800
	Add: Pre-paid salaries on Dec 31, 2007
	(this amount pertains to 2008)	1,500
		19,300
	Less: Pre-paid salaries on Dec 31, 2008
	(this belongs to 2009)	300
		19,000
	Less: Outstanding salaries on Dec 31, 2007	700
		18,300
	Add: Outstanding salaries on Dec 31, 2008	1,200
	(this belongs to 2008)	_____
	Amount spent on salaries during the year 2008	19,500

This amount has to be transferred and debited to Income and Expenditure Account under the head “Salaries.” The same procedure has to be adopted for other expenses also like wages, rent, amount spent on consumable materials, and so on.

6.10.3 Sale of Fixed Assets

1. Profit or loss arising from the sale of fixed assets has to be shown in Income and Expenditure Account.
2. If it is profit, it is credited and in case of loss it has to be debited to Income and Expenditure Account.
3. Sale value has to be adjusted in units book value of the asset to ascertain profit or loss Book Value – Sale Value = Loss
   1. Sale Value – Book Value = Profit
   2. (i.e.) If sale value is higher than book value, it results in profit.
   3. If sale value is lower than book value, it result in loss.
4. Book value of assets sold should be deducted from the respective fixed assets account and shown in the Balance Sheet.

6.10.4 Sale of Sports Material

It is of regular nature and income arising on such sale of old sports materials is always credited to Income and Expenditure Account. (In this case, book value of sports material is not taken into account and it is treated as Nil.)

6.10.5 Sale of Old Newspapers and Magazines

In this case, sale of such old newspapers, magazines, periodicals (not books) is always credited to Income and Expenditure Account. Purchase of newspapers and periodicals are revenue expenditure and has to be debited to Income and Expenditure Account. But it is to be remembered that purchase of books is of capital nature.

6.10.6 Honorarium

Payment in the form of honorarium has to be treated as revenue nature and it has to be debited to Income and Expenditure Account.

6.10.7 Revenue Expenses

Any expenses incurred in the day-to-day performance and is of recurring nature is treated as revenue expenditure.

If the expenses relate to

1. day-to-day activity
2. recurring nature they are revenue expenditures and have to be debited to Income and Expenditure Account.

Examples: Rent, printing, subscription to newspapers and periodicals, insurance advertisements, interests, repair, depreciation, etc.

(Note: Most of the complicated items were discussed by way of separate illustrations, and other ordinary items are explained in course of preparation of Final Accounts).

 

OBJECTIVE 7: PREPARATION OF INCOME AND EXPENDITURE ACCOUNT FROM RECEIPTS AND PAYMENTS ACCOUNT

Steps

1. Study well the Receipts and Payments Account.
2. Classify the items into Revenue and Capital.
3. Only such items that relate to revenue nature have to be recorded in Income and Expenditure Account. (Items relating to capital receipts and expenditure are to be excluded.)
4. Look at the Debit side of Receipts and Payments Account. Items shown in this side are all incomes.

   Items relating to revenue nature alone have to be transferred to Credit side of Income and Expenditure Account.

5. Opening Cash and Bank balances are not to be recorded in Income and Expenditure Account. Leave that item untouched.
6. All Revenue Receipts, after the following adjustments, have to be recorded one after another on the Credit side of the Income and Expenditure Account.

   Adjustments

   1. Revenue Receipts during the current year                     : ………
   2. Add:

       

      (i) Income received in advance in the beginning of the year (or sometimes it is also shown as on the end of the previous year)	: ………
      (ii) Outstanding income at the end of the current year	: ………

       

   3. Less:

       

      (iii) Advance income at the end of the current year	: ………
      (ii) Outstanding income in the beginning of the current year	: ………

       

   4. Revenue Income for the current year: (A + B − C)         :

   For each revenue receipts such adjustment has to be made and then credited to Income and Expenditure Account.

7. Then go to the Credit side of Receipts and Payments Account. Identify the items relating to revenue nature. Transfer them one by one from this Credit side of Receipts and Payments Account to the Debit side of the Income and Expenditure Account, after making the following adjustments.
   1. Revenue Payments during the current year             : ………
   2. Add:

       

      (i) Pre-paid expenses in the beginning of the current year (or at the end of last year)
      	: xxxx
      (ii) Outstanding expenses at the end of the current year	: xxxx	…..

       

   3. Less:

       

      (i) Outstanding in the beginning of the current year	: xxxx
      (ii) Pre-paid expenses at the end of the current year	: xxxx	…..

       

   4. Revenue Expenses for the current year (A + B − C)     : xxxx    

   for each revenue expense, (if necessary) adjustments as above have to be made and then the Net Amount (D) has to be transferred to the Debit side of Income and Expenditure Account.

8. Closing cash and bank balances should not be transferred to Income and Expenditure Account.
9. From the additional information provided, depreciation has to be calculated and that amount has to be debited to Income and Expenditure Account.
10. Now add both sides (i.e., debit and credit) find the difference amount (i.e., difference between the total of debit side and the total on credit side).

If the total of credit side exceeds the total of debit side, enter that difference amount on debit side. This is surplus or excess of income over expenditure and close the account.

If the total of debit side exceeds the total of credit side, enter the difference amount on credit side. This is deficit or excess of expenditure over income and close the account.

Important Note

Some important points to be noted while preparing the Income and Expenditure.

1. In case of sale of fixed assets, profit or loss incurred should be recorded in the Income and Expenditure Account. If it is profit, such amount to be credited and if is loss, it should be debited to Income and Expenditure Account.
2. Collections for any particulars event:

   Net Surplus (i.e., collection amount – amount spent) is to be treated as revenue receipts and credited to Income and Expenditure Account. In some cases, entire collections are shown on income side and entire expenses for such specific events are shown on the expenditure side of Income and Expenditure Account.

3. Payments has to be increased by cheques issued but not presented for payment at the end of the year. If it is so at the beginning of the year, it should be decreased.
4. Receipts have to be increased by cheques deposited but not yet collected at the end. If it is so at the beginning of the year, it has to be decreased.
5. It is of vital importance that revenue receipts/payments pertaining to the current accounting period alone has to be recorded in this account.

The above steps are shown in the following (diagram) simple format for easy comprehension:

 

1. Opening balances and closing balances are not to be recorded in Income & and Expenditure Account.
2. Capital Receipts and Payments (marked as ***) should not be recorded in Income and Expenditure Account.
3. All the other Revenue revenue receipts and expenses have to be transferred to Income and Expenditure Account but with adjustments to ascertain the amount pertaining to Current Accounting Period.

Illustration 14:

From the following Receipts and Payments Account of a social club and from the information, you are required to prepare an Income and Expenditure Account, for the year ended 31st December, 2008

 

Information

• The club has 100 members each paying an annual subscription of Rs 25, subscription outstanding on Dec 31, 2007 were Rs 600.
• On Dec 31, 2008 salaries outstanding amounted to Rs 250. Salaries paid in 2008 included Rs 500 for the year 2007.
• On Jan 1, 2008, the club owned building valued at Rs 50,000, furniture Rs 5,000 and books Rs 4,000.
• Provide depreciation on furniture @ 10% p.a.

Solution:

In the problem, the total members in the club and annual subscription for each member are given in the additional information. In such case, subscription to be included in the Income and Expenditure Account is calculated as Total Members × Annual Subscription = 100 × Rs 25

 

Only this Rs 2,500 has to be recorded and no adjustment is necessary for this type of problem in the preparation of Income and Expenditure Account.

1. Further, as per information, depreciation @ 10% p.a. on furniture has to be worked out, i.e. 10% of Rs 5,000 = Rs 500 is to be treated as expenditure.

   (It is better to prepare all workings in advance. Experts in this field never agree to show such working notes in the beginning of the solution. They exhibit working notes only at the end of solution, after recording all accounts, though the figures to be shown for respective items can be arrived at only after working notes. In this edition, in order to make the subject easy for students, working notes are shown in the beginning itself. As this edition is intended mainly for the students, experts in the field may kindly excuse the author for deviating the established procedure.)

2. After this, go to the main structure of the problem – Receipts and Payments Account.
3. To Balance b/d on Receipts side – ignore it.
4. Subscriptions – figure arrived at working notes: Rs 2,500 to be credited.
5. Rent Received: Rs 1,200 to be credited.
6. Profit from Entertainment – Rs 950 to be credited.
7. Sale of Newspapers – Rs 100 to be credited.

   Thus, the above “Receipt Items” have to be transferred and recorded on the credit side of Income and Expenditure Account.

    

8. Now, go to the payments side of the problem.               Rs

    

   Salaries: Rs 2,400 (given in the account)	:	2,400
   Add: Outstanding = Rs 250 (Refer information)	:	250
   	:	2,650
   Less: Salaries for 2007: Rs 500 (shown in information)	:	500
   Amount spent on salaries for 2008	:	2,150

    

9. Now, transfer this to expenditure side.
   1. General Expenses – Rs 800 – to be debited
   2. Electric Charges – Rs 700 – to be debited
   3. Newspaper Expenses – Rs 500 to be debited
   4. Depreciation – Rs 500 – Ref.: working notes to be debited
   5. After entering all items, the debit side and credit side are totaled. In this case, surplus is arrived at Rs 100.

Note: Balance Sheet has also to be accompanied for any Income and Expenditure (so, the next stage is preparation of Balance Sheet).

 

Objective 8: PREPARATION OF OPENING AND CLOSING BALANCE SHEETS

A Balance Sheet is the statement of assets and liabilities of an entity at a particular date, usually closing date of that accounting period. For preparing final accounts of NPOs, usually two Balance Sheets have to be prepared to ascertain the financial position. One should be prepared at the beginning of the current accounting period and the other (i.e., Another Balance sheet) at the end of the current accounting period. The first one, prepared at the beginning of the accounting period is termed as “Opening Balance Sheet.” The second one, prepared at the end of the accounting period is termed as “Closing Balance Sheet.”

8.1 Preparation of “Opening Balance Sheet”

 

Step 1:	Take Receipts and Payments Account given in the problem as a base.
Step 2:	First item appearing on the receipts side is “Balance b/d” It might also have been shown as cash in hand and cash at bank. This is an asset at the beginning of the year. So, this amount has to be transferred and posted to the Assets side of the Balance Sheet.
Step 3:	The opening balance of assets of items (sometimes have to be taken from receipts and payments account and at times from additional information given in the problem), items relating to previous accounting period, have to be entered one by one on the Assets side of the Balance Sheet, with necessary adjustments.
Step 4:	After this, Opening Balances of liabilities are to be transferred and recorded on the Liabilities side of the Balance Sheet.
Step 5:	After recording all items, both sides are totaled. Excess of “Assets Side” over “Liabilities Side” (Balancing figure) has to be recorded as “Capital Fund.”

8.2 Preparation of “Closing Balance Sheet”

Step 1:	“Capital Fund” is arrived at the preparation of Opening Balance Sheet has to be recorded first on the Liabilities side of the Balance Sheet.
Step 2:	Refer the Income and Expenditure Account prepared by you. “Surplus” to be added to this capital Fund. “Deficit” to be deducted from this Capital Fund.
Step 3:	After this, capitalised incomes, e.g. entrance fees, life membership fees, legacies, specific donations, specific funds (with necessary additions or deductions) have to be recorded on the Liabilities side.
Step 4:	Incomes received in advance to be recorded.
Step 5:	Outstanding expenses to be recorded.
Step 6:	Other current liabilities – Bank Overdraft and Creditors to be recorded.
Step 7:	After recording all relevant items on the Liabilities side (as described above), items relating to assets have to be recorded one by one on the Assets side of the Balance Sheet as described below. Fixed Assets after adjustments have to be shown on the Assets side.

Example: Furniture

 

	Opening Balance	: xxxx
	Add: Additions during the year	: ........
	Less: Sales during the year	: ........
	Less: Depreciation	: xxxx
	Value to be taken to Balance Sheet	: xxxx

Likewise, each item relating to fixed assets have to be entered on the Assets side, after necessary adjustments.

 

Step 8:	Investments (e.g., specific fund investments, government securities, fixed deposits, and so on.) have to be shown on the Assets side.
Step 9:	Current Assets such as outstanding subscriptions, accrued interest, accrued rent, any outstanding income has to be recorded.
Step 10:	Closing Balance given in the Receipts and Payments Account – (Cash Balance) has to be recorded.

Important Notes

• Income received for current year, expenses paid for current year will not appear in Balance Sheet.
• It is advisable to compare the items on Debit side of Receipts and Payments Account with income side of (Credit) Income and Expenditure Account. The items on Credit side of Receipts and Payments Accounts with Debit side of Income and Expenditure Account to ascertain the correct amount which relates to the current accounting period.

Illustration: 15

Taking the same information as given in Illustration 14, prepare Opening and Closing Balance Sheets.

Solution

1. Refer the Receipts and Payments Account. The first on the Receipts side Balance b/d should be transferred to the Assets side of the Balance Sheet and recorded as “Cash.”
2. Refer the information (c) and note that the value of building is shown as Rs 50,000. This also has to be transferred to Balance Sheet and recorded as “Building 50,000.”
3. In the same manner, furniture and book value also have to be recorded on the Assets side of the Opening Balance Sheet one by one.
4. Subscriptions outstanding on Dec 31, 2007: Rs 600 was given in information (a). This also has to be recorded on the Assets side of Opening Balance Sheet.
5. In the information (b), salaries paid in 2008 included Rs 500 for the year 2007. This is liability and has to be recorded on the Liabilities side of the Balance Sheet.
6. Both sides are totaled. Balancing figure on the liabilities side is recorded as “Capital Fund.” Thus, capital fund is arrived at

Note: Assets and liabilities as on the beginning of the accounting year, i.e. Jan 1, 2008 shall be shown in the Opening Balance Sheet.

Now, moving to the second part of the question, Closing Balance Sheet, i.e. Balance Sheet at the end of the accounting year, i.e. as on Dec 31, 2008 has to be prepared.

1. Assets and liabilities as on Dec 31, 2008 have to be recorded after making adjustments, to prepare Closing Balance Sheet.
2. First, the Closing Balance, i.e. Cash (in Hand or at Bank) shown at last item on the payment side, in the Receipts and Payments Account, has to be recorded on the assets side of the Balance Sheet as “Cash,” i.e. Rs 500.
3. Building value has to be recorded. In this case, (no addition, no sale, no depreciation) Rs 50,000 is shown.

	4. Furniture: Opening Balance	Rs 5,000
	Less: Depreciation @ 10%	Rs 500
	Value of furniture to be transferred	Rs 4,500
	5. Books: Opening Balance	Rs 4,000
	Add: Purchases	Rs 1,500
		Rs 5,500

Subscriptions outstanding, after the following adjustments have to be recorded on the Assets side of the Closing Balance Sheet.

Subscription Outstanding

 

			Rs
For 2007	:
Rs 600		Rs 500	=100
↓		↓
(given in information (a))	–	(Refer Receipts and Payment Account)
Add: For the year 2008	:
Rs 2,500		Rs 2,000
↓		↓
(Rs 100 × Rs 25) − (Refer Receipts and Payments Account)
			=500
Subscriptions Outstanding for 2008:			600

1. After recording assets, items relating to liabilities have to be recorded one after one. “Capital Fund” from Opening Balance Sheet has to be transferred here and with that “Surplus” from Income and Expenditure Account has also to be transferred and added to Capital Fund.
2. Then current liabilities, “Salaries Outstanding” Rs 250 (shown in information) and subscriptions received in advance Rs 400 (shown in Receipts and Payments Account) have to be recorded on the Liabilities side of the Closing Balance Sheet.

Illustration: 15A

The secretary of a social club provides you with the following Receipts and Payments Account and the Income and Expenditure Account for the year ended Mar 31, 2009.

 

The club had the following assets on Mar 31, 2008:

 

	Investments	Rs 80,000
	Furniture	Rs 20,000
	Reference Books	Rs 10,000

You are required to prepare the Balance Sheets of the club as on Mar 31, 2008 and Mar 31, 2009.

 

–B. Com (Modified)

Solution:

 

Step 1:	Entrance Fees entirely capitalised. Reason this item does not appear in the debit side of given Income and Expenditure Account. So this among Rs 8,400 has to be recorded in the Closing Balance Sheet and added to Capital Fund.
Step 2:	Interest income accrued but not received has to be ascertained.
	Interest income as shown in Income and Expenditure Account is Rs 3,200 but interest received as per the Receipts and Payments Account shows Rs 3,000. The difference (Rs 3,200 – 3,000) denotes accrued interest.
Step 3:	Outstanding Tuition Fees is to be calculated.
	Tuition Fees as shown in Income and Expenditure Account is Rs 22,000. Break-up figure shows Tuition Fees received for 2008–2009 is Rs 20,000 and for 2009–2010 received is Rs 2,000, i.e. Rs 2,000 has been received in advance. Comparing these, it has to be decided that Rs 2,000 is still outstanding for 2008–2009. So this amount has to be record in Income and Expenditure Account.
Step 4:	Actual salaries paid as shown in Receipts and Payments A/c is Rs 26,000. But in income and expenditure, i.e. actual amount spent on salaries is Rs 24,000. This difference (Rs 26,000 – 24,000) Rs 2000 is to be treated as salary paid in advance as no other information is given.
Step 5:	Preparation of Opening Balance Sheet.

 

Step 6: Preparation of Closing Balance Sheet

 

 

Preparation of Income and Expenditure Account and Balance Sheet from a given Receipts and Payments Account and additional information.

Illustration: 16

From the following information and Receipts and Payments Account of a club, prepare Income and Expenditure Account for the year ending Dec 31, 2008 and a Balance Sheet on that date.

 

Additional Information

1. On Dec 31, 2007, the club possessed books worth Rs 25,000 and furniture worth Rs 10,000. Provide depreciation on these assets @ 10% including the purchases during the year.
2. Subscription in arrears at the beginning of the year amounted to Rs 500 and at the end of end of the year Rs 800 was outstanding.
3. The club paid three months rents in advance both in the beginning and at the end of the year.

Solution

Note: Students are asked to go through the steps explained in detail in preparation of Income and Expenditure Account and Balance Sheet as shown in Illustrations number 14 and 15 (again and again)

Besides that the following working notes facilitate to prepare the final accounts.

Rent: In the additional information, it was given that the club paid three months rents in advance.

Rent shown in Receipts and Payments Account: Rs 2,400

 

This is for a year
So, 1 month’s rent	Rs 2400/12 = Rs 200
2 months rent	Rs 200 × 2 = Rs 400

This amount, i.e. Rs 400 has to be added as pre-paid in the beginning and again Rs 420 has to be deducted as pre-paid at the end of the year.

Interest

• Interest on FD Rs 20,000 @ 10%
• It is for 6 months as the date is given as July 1, 2008
  1. For 6 months interest = 20,000 × 10/100 × 6/12 = Rs 1,000
  2. On Receipts side “Interest on deposits = Rs 500” was shown
  3. Interest Due = Rs 1,000 – 500 = Rs 500

Until the students learn thoroughly the techniques involved in preparation of Final Accounts of NPOs, it is better to prepare the Opening Balance Sheet and then (final) Closing Balance Sheet.

 

 

Illustration: 17

Prepare Income and Expenditure Account for the year ending Dec 31, 2008 and a Balance Sheet on that date from the following Receipts and Payments Account and the Balance Sheet.

 

Solution

• In this sum, Opening Balance Sheet is given. So no need to prepare again.
• Following the steps involved in the preparation of Income and Expenditure Account and Closing Balance Sheet (refer Illustration 14 and Illustration 15), first Income and Expenditure Account and their Balance Sheet as on Dec 31, 2008 has to be prepared as follows.
• Sometimes questions may appear like this, i.e. Receipts and Payments Account and Balance Sheet are given to prepare other final accounts.
• At times, additional information also may be given in the question along with Opening Balance Sheet.
• Steps involved in the preparation of accounts is same for any problem, but only thing varies is the adjustments to be made.

Sometimes questions may also be asked by providing extracts of Cash Book (Receipt and Payments) with additional information. Students need not confuse over it. As mentioned earlier, steps involved in the preparation of Income and Expenditure Account and Balance Sheet are same as explained earlier in Illustration 14 and Illustration 15. Some more calculations have to be made to arrive at certain missing figures.

 

Illustration: 18

From the following information of a club, prepare Income and Expenditure Account for year ending Mar 31, 2008 and Balance Sheet as on that date.

		Rs
	Assets on Apr 1, 2007
	Cash at Bank	5,000
	Stock of balls, bats, etc.	3,000
	Printing and Stationery (stock)	500
	Subscription Due	1,000

Information

1. Surplus on account of tournaments and donations should be kept in reserve for a permanent pavilion.
2. Subscription due on Mar 31, 2008 Rs 1,500.
3. Write-off 50% of balls, Bats Account and Printing and Stationery Account.
4. Treat Admission Fees as of Revenue Nature.

Solution

 

1.

In information (a) it is instructed to keep in reserve for a Permanent Pavilion. So the following calculations

Step 1: A: Surplus on account of tournament

 

		Rs
	Subscription received for tournament	1,800
	(refer Receipts side)
	Less: Expenses regarding tournament	1,000
	(refer Payments side)
	Surplus on account of tournament	800
Step 2: B: Donations		16,000
	(refer Receipts side in the problem)

As per the instructions, these two A + B will have to be kept in reserve. This means Rs 16,000 + Rs 800 = Rs 16,800 will have to be kept as reserve from a permanent pavilion. (So, these items need not be shown in Income and Expenditure Account. But this total amount has to be recorded in the Closing Balance Sheet as on Dec 31, 2008.)

Step 3

 

2.

From the Cash Book, it can be seen that an item at the end of payments side appears as “Deposit in Bank.” So, Closing Balance has to be calculated as follows:

 

		Rs
	Opening Balance	5,000
	(Ref. Assets as on Apr 1, 2007)
	Add: Cash deposited	23,000
		28,000
	(Ref. Last items on Payments side)
	Less: Cash withdrawn from Bank	5,000
	(Ref. Receipts side in the problem)
	Closing Balance of Cash at Bank	23,000

Step 4

 

Note: As it is shown separately as assets on Apr 1, 2007 in the problem itself, all such items are to be transferred to the assets side of Opening Balance Sheet and Capital Fund is computed.

Now, we have to go to the main part of preparation of Income and Expenditure Account and Closing Balance Sheet.

Step 5

 

Step 6

 

Illustration: 19

Prepare Income and Expenditure Account for the year ending on Mar 31, 2009 and Balance Sheet on that date from the following:

 

Information

 

Particulars	Apr 1, 2008	Mar 31, 2009
	Rs	Rs
Sports Materials	5,000	6,000
Furniture	70,000	–
10% Prize Fund Investments (face value Rs 20,000)	19,000	–
Creditors for Sports Materials	1,500	3,000
Subscriptions in arrears	5,000	–
Subscription in advance	2,000	–
Prize fund	20,000	–
Rent paid in advance	–	1,500
Outstanding Rent	1,500	–
Outstanding Miscellaneous Expenses	2,500	4,500
Miscellaneous Expenses paid in Advance	1,000	2,000

Additional Information

1. There are 800 members, each paying an annual subscription of Rs 100.
2. 50% of Entrance Fees is to be capitalised.
3. Book value of Sports materials sold was Rs 4,000.
4. Depreciation on Furniture is to be provided @ 10%.

(C.A. – Modified)

Solution:

Before going to the main account, we have to prepare various accounts, separately, to ascertain the actual amount for each such time for the accounting year, i.e. Apr 1, 2008 to Mar 31, 2009. Only after this, the Income and Expenditure Account and the Balance Sheet can be prepared.

Step 1

 

Step 2

 

Step 3

 

Step 4

 

Step 5

 

Step 6

 

Step 7

 

Step 8

 

Step 9

 

Illustration: 20

 

Information

 

	Apr 1, 2007	Mar 31, 2008
	Rs	Rs
Unpresented cheque, being payment for Rent	200	100
Interest on fixed deposit of Rs 10,000
not entered in Pass Book	–	1,000
Entry in respect of bank charges was not
passed through the Cash Book	–	100
A member deposited subscription for 2008–2009,
direct into bank, not passed through the Cash Book	–	50
Cheques deposited for subscription but
not yet cleared by the bank	2,000	1,000

Required: Prepare Income and Expenditure Account for the year ending Mar 31, 2008 and Balance Sheet on that date.

Solution:

In this problem, summary of bank transactions is shown in Receipts and Payments.

Further information reveals that value of transactions may differ between Cash Book and Pass Book. So, Bank Reconciliation statement has to be prepared from the beginning of the year and at the end of the year to ascertain balance as per Cash Book.

Step 1

1. Bank Reconciliation Statement as on Mar 31, 2007 has to be prepared first.
   1. For this, balance as per Pass Book has to be taken as base. This is shown on the receipts side of the problem as Rs 5,000.
   2. Then from information, on this date, i.e. Apr 1, 2007 (or Mar 31, 2007), unpresented cheque for rent reveals as Rs 200. This amount has to be deducted from the balance as per Pass Book.
   3. One more information – cheques deposited but not yet cleared by the bank Rs 2,000 – has to be added.
   4. The net amount after the above adjustments is balance as per Cash Book.

Bank Reconciliation Statement as on Mar 31, 2007

	Particulars	Rs
1.	Balance as per Pass Book	5,000
	(shown on Receipts side of the problem)
2.	Less: Cheque issued for Rent (unpresented)	200
	(shown in information (i))
3.	Add: Cheque deposited for subscription (shown in information (v))	4,800
4.	Balance as per Cash Book	2,000
	(1 − 2 + 3 = 4)	6,800*1

Step 2

 

Step 3

 

Step 4

Now, Bank Reconciliation Statement at the end of the year has to be prepared to ascertain Closing Balance of Cash at Bank as per Pass Book.

 

Step 5

 

Step 6

Illustration: 21

The following is the Trial Balance of a Public School on Mar 31, 2005

Depreciation of Building @ 2%, furniture @ 10% and Books @ 20%. The investments were made against various funds commonly.

Prepare Income and Expenditure Account for the year ending Mar 31, 2005 and the Balance Sheet on that date.

 

– [B. Com (Hons) Delhi 2004]

Solution:

In this problem, Trial Balance is given. So, the following procedure has to be adopted step by step as discussed below:

 

Step 1:	It is very much important to note that in case, Trial Balance is given, debit balances items have to be transferred to Income and Expenditure Account and recorded on Debit side only. Items relating to Nominal Accounts alone have to be transferred, with adjustments.
Step 2:	Items appearing on credit balances (credit side in the problem) have to be transferred to Income and Expenditure Account and recorded on the Credit side. Only nominal accounts with credit balances will have to be transferred, with adjustments.
Step 3:	Both sides are totaled. Surplus or Deficit will have to be transferred to Capital Fund in the Balance Sheet.
Step 4:	Opening Balance Sheet need not be prepared. “Capital Fund” amount is given in Trial Balance itself. It may appear in different forms, General Fund, Prize Fund, Tournament Fund, Endowment Fund, and so on.
Step 5:	All the other items (not relating to Nominal Accounts) will straightaway be recorded in the Closing Balance Sheet.
Step 6:	Account with credit balances (non-nominal accounts) will be transferred to Balance Sheet and recorded on the “Liabilities side.”
Step 7:	Non-nominal accounts with debit balances will be transferred to Balance Sheet and recorded on the “Assets side.”
Step 8:	Accrued items will also be shown in Balance Sheet.
Step 9:	Generally, some “specific funds” appear in Trial Balance. Such funds are different forms of Capital Fund. Such specific funds are recorded in the Balance Sheet.
Step 10:	Income arises from a Specific Fund Investment, such income is not credited to Income and Expenditure Account. In this case it is added to the fund in the Balance Sheet.
Step 11:	Expenses incurred relating to that specific fund, they are not transferred to Income and Expenditure Account but deducted from the fund in the Balance Sheet.
(Note:	If there is no such specific fund, then in such cases, expenses are debited to Income and Expenditure Account.)
Step 12:	Now, Income and Expenditure Account has to be prepared keeping in mind the steps discussed so far.

 

Note: Only Nominal Accounts are recorded.

As Opening Balance is not needed and prepared, only Closing Balance Sheet is prepared.

 

Note: As the investments were made against various funds commonly, here the interest received Rs 77,000 is apportioned and added to the respective funds on the basis of fund.

 

invested, i.e. 2,00,000	3,00,000	2,00,000
↓	↓	↓
(Profit Fund)	(Tournament)	(General Reserve)
2	3	2

for Rs 77,000 = Rs 22,000: Rs 33,000: Rs 22,000 :

OBJECTIVE 9: PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT FROM INCOME AND EXPENDITURE ACCOUNT

Step 1:

Item: Opening Cash and Bank Balance: Particulars for this item is not found in Income and Expenditure. So, to prepare Receipts and Payments Account the amount has to be ascertained. It may be obtained either from the Opening Balance Sheet or Additional Information given in the problem. Such opening cash and bank balance are to be debited to Receipts and Payments Account. In case for any Bank Overdraft it has to be credited (credit side) to Receipts and Payments Account.

Step 2:

Item: Income: Items appearing on the income side of Income and Expenditure Account relate to revenue nature only. Further, they pertain to the current accounting period only. So necessary adjustments have to be made to arrive at the figure to be recorded in Receipts and Payments Accounts for each item. (Just the reverse procedure has to be followed. What is followed in the preparation of Income and Expenditure Account from Receipts and Payments Account). Incomes relating to past, current or future periods are immaterial. But whatever is received whether they relate to any year has to be recorded and the following adjustment has to be made.

 

	Rs	Rs
A: Income (Revenue) as per Income and Expenditure A/c		…..
B: Add:   (i) Outstanding income in the beginning of the year	…..
(ii) Advance income at the end of current year	…..	…..
C: Less:   (i) Outstanding income at the end of the year	…..
(ii) Advance income in the beginning of current year	…..	…..
D: Receipts received during the current year	…..	…..

This type of adjustment has to be carried on for every item shown in Receipts and Payments Account.

 

Step 3:

Item: Expenses: Items appearing on the Expenditure side of Income and Expenditure Account are of revenue nature only. As they confine to current accounting period only, adjustments have to be made to include all such amounts, whether they relate to past, present or future, if they received in the current accounting period. For this the following adjustment has to be made.

 

A: Expenses (Revenue) as per Income and Expenditure A/c	=	…..
B: Add:   (i) Outstanding Expenses in the beginning of current year	…..
(ii) Pre-paid Expenses at the end of current year	…..	…..
C: Less:   (i) Outstanding Expenses at the end of current year	…..
(ii) Pre-paid Expenses in the beginning of current year	…..	…..
D: Payments (Revenue) during the current year	=	…..

Step 4: Item: Capital Receipts:

All Capital Receipts have to be ascertained. This can be obtained from Opening Balance Sheet and additional information given in the problem. Such Capital Receipts (i.e., fixed assets, special funds, etc.) are entered on the Debit side of Receipts and Payments Account.

 

Step 5:	Item: Capital Expenditures: Items relating to capital expenses have to be ascertained and recorded on the Credit side of Receipts and Payments Account.
Step 6:	Item: Depreciation Provision for doubtful debts (non-cash items) surplus or deficit, accrued items in the preparation of Receipts and Payments A/c.
Step 7:	Item: Purchase of fixed assets: To ascertain the amount spent on the purchase of an asset, compare the value of the asset on two dates (opening and closing) after considering depreciation, the difference is the amount spent on purchase of an asset. This too has to be adjusted.
Step 8:	Item: Closing Balance of cash and bank is to be calculated. The difference between the total of debit side and total of credit side has to be found out.

If the total of debit side exceeds the total of credit side show the cash balance (if the bank balance is given) or the bank balance (if the cash balance is given) on the Credit side of the Receipts and Payments Account. If the total of credit side exceeds the total of debit side, Bank Overdraft is shown on the Debit side of Receipts and Payments Account.

Illustration: 22

From the following information, extracted from Income and Expenditure Account, prepare a statement showing subscriptions received in 2007–2008 as per Receipts and Payments Account.

 

	Rs
(i) Income as per Income and Expenditure A/c	90,000
(ii) Subscriptions Advance Subscriptions received in 2006–2007	5,000
(iii) Subscriptions outstanding at the end of 2007–2008	10,500
(including Rs 500 for 2006–2007)
(iv) Advance Subscriptions received for 2008–2009	3,000
(a) Subscription written off in 2007–2008	1,000
(v) Subscriptions receivable on Apr 1, 2007	7,500
(vi) Subscriptions collected for 2007–2008 by	1,500
the Treasurer but not deposited

Solution

 

		Rs	Rs
Step 1:	A subscription income as per Income and Expenditure Account for 2007–2008		90,000
Step 2:	B. Add: (i) Outstanding subscriptions in the beginning	7,500
	(ii) Advance subscriptions	3,000	10,500
Step 3:	C. Less: (i) Subscriptions outstanding as on 2007–2008 (10,500 − 500)	10,000	1,00,500
	(ii) Advance subscriptions in the beginning (2006–2007)	5,000
	(iii) Subscriptions written off:	1,000
	(iv) Subscriptions collected but not deposited	1,500
		17,500	17,500
Step 4:	D. Subscriptions received as per Receipts and Payments A/c in 2007–2008		83,000

 

Illustration: 23

Calculate the total amount of salary paid in cash in 2008, from the following Income and Expenditure Account extract, to be included in Receipts and payments Account for the year ending Dec 31, 2008.

 

	Rs
Salary paid as per Income and Expenditure A/c for 2008	95,000
Outstanding Salary on Dec 31, 2008	15,000
Advance Salaries paid in 2007	7,500
Outstanding Salary on Jan 1, 2008	9,000
Advance Salary paid in 2008	16,500

Solution:

Refer the procedure explained and computation of “Salary” has to be made as follows:

Statement showing calculation of Salaries Paid in 2008 to be Included in Receipts and Payments Account for the Year Ending Dec 31, 2008.

 

		Rs	Rs
Step 1:	A Salaries as per Income and Expenditure A/c		95,000
Step 2:	B. Add: (i) Outstanding Salary in the beginning (i.e.) Jan 1, 2008	9,000
	(ii) Advance Salary paid in 2008	16,500	25,500
Step 3:	C. Less: (i) Outstanding Salary at the end (i.e.) Dec 31, 2008	15,000	1,20,500
	(ii) Advance Salaries paid in 2007	7,500	22,500
Step 4:	D. Salaries paid in 2008 to be included in Receipts and Payments A/c		98,000

Illustration: 24

In extract of Income and Expenditure Account for the year ending 2008 is shown below:

 

	Rs
(i) Expenditures stationery as per Income and Expenditure Account for 2008	75,000
(ii) Stock of stationery on Jan 1, 2008	15,000
(iii) Creditors for stationery on Jan 1, 2008	30,000
(iv) Creditors for stationery on Dec 31, 2008	12,000
(v) Advance payments for stationery in 2008	2,500
(vi) Stock of stationery on Dec 31, 2008	5,500
(vii) Advance payments for stationery on Jan 1, 2008	1,000

Calculate amount spent on stationeries to be included in Receipts and Payments Account for the year ending on Dec 31, 2008.

Solution:

Statement Showing Calculation of Total Amount Spent on Stationeries in Receipt and Payments A/c for the Year Ending on Dec 31, 2008.

 

		Rs	Rs
Step 1:	Expenditure on stationery as per Income and Expenditure A/c		75,000
Step 2:	Add: (i) Advance payment for stationery in 2008	2,500
	(ii) Creditors for stationery on Jan 1, 2008 (paid in 2008)	30,000
	(iii) Stock of stationery on Dec 31, 2008	5,500	38,000
			1,13,000
Step 3:	Less: (i) Stock of stationery on Jan 1, 2008	15,000
	(ii) Creditors for stationery on Dec 31, 2008	12,000
	(iii) Advance payments on stationery on Jan 1, 2008	1,000
			28,000
Amount spent on stationery for 2008 to be			85,000
included in Receipts and Payments Accounts

Illustration: 25

You are required to prepare Receipts and Payments Account from the following Income and Expenditure A/c for the year 2008.

Information

 

	Cash Balance as on Jan 1, 2008	Rs 3,000
	Cash Balance as on Dec 31, 2008	Rs 25,000
	Bank Balance as on Jan 1, 2008	Rs 2,000

Solution:

Note:

Remember the procedure discussed in the preparation of Receipts and Payments Account from Income and Expenditure Account, as discussed earlier.

Care should be taken to include all transactions whether they belong to capital natural or revenue nature.

Care should be taken while working out the balancing figure.

 

Notes:

1. In Income and Expenditure A/c only amount relating to revenue nature is recorded whereas in Receipts and Payments A/c the difference whether revenue or capital nature is ignored. So entire amount has to be shown. Here Entrance Fees 40% capitalised. So remaining 60% (being revenue nature as per instructions given in the problem) recorded in the question.

    

   60% of Entrance Fees	= Rs 12,000
   100% of Entrance Fees	= Rs 12,000 × 100/60
   	= Rs 20,000

    

2. Life Membership Fees:

    

   40% is revenue nature

   60% is capitalised as per instructions

   40% of Life Membership Fees	= Rs 4,000
   100% of Life Membership Fees	= Rs 4,000 × 100/60
   	= Rs 10,000

    

3. All capital items have to be recorded in Receipts and Payments Account.

   As furniture was purchased on the very first day of the accounting year its cost has to be recorded.

   As Depreciation @ 10% amounted to Rs 3,000

   Cost of Furniture      = 100/10 × Rs 3000 = Rs 30,000

   As building exists for a long time, its value is ignored for the current accounting period.

4. This balancing figure is arrived at totalling both Receipts side and Payments side of the account.

   (Sometimes this balancing figure may be debited, i.e. Receipts side. Such balance has to be written as Bank OverDraft).

Illustration: 26

The Income and Expenditure Account of the Chennai Club for the year ending at Mar 31, 2008 is as follows:

The account has been prepared after the following adjustments.

 

	Mar 31, 2007	Mar 31, 2008
	Rs	Rs
Subscription Outstanding	10,000	12,000
Subscription received in Advance	9,000	8,000
Salaries Outstanding	4,000	6,000
Audit Fee Outstanding	1,000	2,000
Land and Buildings	1,50,000	1,50,000
Sports Equipments	40,000	54,000
		(after 10% Depreciation)
Loan	50,000	50,000
Cash in Hand	–	20,000

You are required to prepare Receipts and Payments Account of the Chennai Club for the year 2007–2008 and the Balance Sheet as on Mar 31, 2008.

Solution:

Notes:

1. This problem is just a reverse to the previous ones.
2. All the items, which actually occurs during the Accounting Period (irrespective of the year it related), should be recorded.
3. All the missing information have to be computed by opening separate account.

Step 1:	Subscription Account of the actual Subscription Amount Collected (balancing figure).
Step 2:	Salaries Account to ascertain the amount spent on salaries (balancing figure).
Step 3:	Sports Equipment Account to calculate the how much was purchased (balancing figure).
Step 4:	Opening Balance Sheet (i.e) as on 31st Mar 2007 is prepared to compute Capital Fund (balancing figure).
Step 5:	Receipts and Payments Account is to be prepared. The balancing figure on the receipts side is the Opening Balance of cash, i.e. Cash in Hand as on Mar 31, 2007. (This figure has to be transferred to Opening Balance Sheet.)
Step 6:	Finally, Balance Sheet as on Mar 31, 2008 has to be prepared.

9.1 Preparation of Various Accounts

 

 

 

 

So far, we have discussed accounting treatment of various items relating to Not-for-Profit entities.

1. At times even some NPOs indulge in trading activities, e.g. a bar/restaurant run by a club drug/chemist shop by a hospital
2. In such cases, Trading Account for each of the trading activities has to be prepared to ascertain profit or loss.
3. Such profit/loss has to be transferred to Income and Expenditure Account.
4. Trading Account is prepared in the same manner as in case of commercial establishments.
5. In case if the figures for credit purchases or credit sales are missing in the questions, then a separate Total Creditors Account or Total Debtors Account has to be prepared to ascertain Credit Purchases and Credit Sales.
6. Finally, Balance Sheet is prepared in usual manner.

Illustration: 27

Bharat Club provides you the following information – Stock in Restaurant on Mar 31, 2007 Rs 3,900 and on Mar 31, 2008, Rs 4,500. Restaurant Takings Rs 3,61,600. Restaurant Purchases Rs 2,04,800 Wages (including Rs 50,000 for restaurant) Rs 92,300 fuel Rs 17,700. China Glass Cutlery on Mar 31, 2007 Rs 2,500. Depreciation @ 20% is to be provided on China Glass Cutlery.

Required: Show how you will deal with the above items while preparing Restaurant Trading Account, Income and Expenditure Account and Balance Sheet.

Solution:

First, Trading Account has to be prepared

1. Items relating to Restaurant Trading Account alone are to be included. In this case, wages are shown as Rs 92,300. It includes Rs 50,000 for the restaurant. So, wages for the restaurant alone has to be taken into account.
2. Income and Expenditure A/c is prepared.
3. Finally, Balance Sheet is prepared.

Note:

Opening Stock, as usual is entered on the debit side, followed by all expenses relating to the restaurant. Similarly, incomes (receipts) are entered on the credit side with closing stock. Difference between debit side and credit side is profit, here and is recorded as surplus. (Reverse the procedure if loss occurs and record it as deficit.)

 

When Wrong Statements are Given

Illustration: 28

The following is the so-called Income and Expenditure Account of Pearl City Club prepared by an account aspirant. It is submitted to you for audit.

 

Additional Information

1. On Dec 31, 2007 building stood at Rs 10,000 and it is required to write off depreciation at 5%.
2. Telephone rent outstanding on Dec 31, 2008 was Rs 125.
3. Subscription in arrear amounted to Rs 100 for 2008. Do you approve this? If not pass your comments on this. Prepare corrected proper final accounts based on the information given in this problem.

Solution:

This is a different type of problem, which can be best explained through illustration. This account relates to NPO. Account is prepared by a novice.

1. The very caption Income and Expenditure Account as on Dec 31, 2008 is not correct. Reason: Income and Expenditure Account is to be recorded always as for the year ending Dec 31, 2008 and not as shown in the question.

   Corrected statement: Income and Expenditure Account for the year ending Dec 31, 2008.

2. Income and Expenditure A/c never starts with balance amount and never ends with the balance amount.

   Such items are recorded here.

   So they have to be deleted and a fresh Income and Expenditure has to be prepared.

3. Here items on expenditure are shown on the debit side and items on incomes are shown on the credit side.

   This is not correct.

   So they have to be recorded vice versa and a correct new Income and Expenditure A/c has to be prepared.

4. Items are to be recorded on accrual basis. Here it is not shown properly. They have to be shown in this account with proper adjustments.
5. Non-cash items – depreciation – is completely ignored here. So it has to be recorded properly.
6. To ascertain cash balance at the end of the year, Receipts and Payments A/c has to be prepared.
7. To compute Capital Fund in the beginning of the year, a Balance Sheet has to be prepared.
8. To ascertain surplus/deficit and to correct the mistakes committed here, a fresh Income and Expenditure Account has to be prepared.
9. To know the exact position of the club, a Balance Sheet at the end of the year has to be prepared.

Following are the revised final accounts:

Stage I: Preparation of Opening Balance Sheet

 

(i.e., informations (items) relating to this date are recorded here).

Stage II: Preparation of Receipts and Payments Account

 

Stage III: Preparation of Income and Expenditure Account

 

Stage IV: Closing Balance Sheet has to be prepared

 

Illustration: 29

Correction of wrong statements

Modern (India) Citizens Club was registered in a city and the accountant prepared the following Receipts and Payments Account for the year ended on Mar 31, 2008 and showed a deficit of Rs 14,520:

Information

 

	Apr 1, 2007 Rs	Mar 31, 2008 Rs
Cash in Hand	450	–
Bank Balance as per Pass Book	24,690	10,440
Cheque issued not presented for Sundry Expenses	270	90
Subscriptions Due	3,600	2,940
Premises at Cost	87,000	1,17,000
Accumulated Depreciation on Premises	5,64,000	–
Car at Cost	36,570	46,800
Accumulated Depreciation – Car	30,870	–
Bar Stock	2,130	2,610
Creditors for Bar Purchases	1,770	1,290

1. Cash overspent represents honorarium to secretary not withdrawn due to cash deficit and his annual honorarium is Rs 12,000.
2. Depreciation on premises and car is to be provided at 5% and 20% on written down value.

Required: Prepare the correct Receipts and Payments Account, Income and Expenditure Account for the year 2007–2008 and Balance Sheet as Mar 31, 2008.

 

[l.C.W.A (Inter) – Modified]

Solution: In order to prepare the correct Receipts and Payments Account, all the following workings have to be made as follows:

Step 1

 

Note:

Students should note that adjustment for depreciation is made in the Opening Balance Sheet itself because in the information as at Apr 1, 2007 shows accumulated depreciation, i.e. in the beginning of the accounting period itself. (Depreciation on Premises 5% and on Car @ 20% is calculated later).

Step 2

 

Step 3

 

Step 4

 

Step 5

 

 

	Rs
Original Cost as on Apr 1, 2007	87,000
Less: Accumulated Depreciation (on Apr 1, 2007)	56,400
Add: Purchases during the year	30,600
	30,000
Less: Depreciation @ 5%.	60,600
Cost of Premises to be shown in the Balance Sheet as on Mar 31, 2008	3,030
	57,570

Step 6

 

 

	Rs
Original Cost (as on Apr 1, 2007)	36,570
Less: Accumulated Depreciation as on Apr 1, 2007	30,870
	5,700
Profit = Sale Price – Cost
Rs 9,000 – 5,700	3,300
(Given) (Worked out)
Profit on Sale of Car	3,300

Step 7

 

 

Purchase Price = (Rs 37,800 + Rs 9,000)	46,800
Less: Depreciation @20%	9,630
	37,440

 And now, main answers to question:

 

1. Items recorded here are mostly transferred from the given problem, additional information as on Apr 1, 2007.
2. Honorarium to Secretary Rs 12,000 given in additional information cash over spent Rs 1,000 is deducted.
3. Sundry Expenses: figure shown in Receipt and Payment Account is adjusted with information on Apr 1, 2007 and Mar 31, 2008.

OBJECTIVE 10: PREPARATION OF RECEIPTS AND EXPENDITURE ACCOUNT FOR PROFESSIONALS

10.1 General Features

• Professional people (doctors, accounts, solicitors adopt a different system of accounting, which is termed as Receipts and Expenditure Account. (The very name indicates that it is neither Receipts and Payments Account nor Income and Expenditure A/c.)
• Professionals maintain Cash Book and Stock Register.
• Income is computed on cash basis and Expenditure is computed on accrual basis, i.e. mercantile principles.
• Professionals generally prefer to prepare the following three accounts:
  1. Income and Expenditure Account: To find the surplus generated from their professional activities during an accounting period.
  2. Receipts and Expenditure Account: To allocate such surplus among them.
  3. Balance Sheet: To show financial position at the end of an accounting period.

10.2 Steps in the Preparation of Accounts of Professional Firm

Step 1:	First, the Income and Expenditure Account is to be prepared in the usual manner, in addition, the following have to be recorded:
(i)	In the beginning, value of incomplete work is to be shown on expenditure side.
(ii)	Value of incomplete work at the end has to be recorded as the last item on income side.
(iii)	All fees and charges for completed work have to be recorded properly.
Step 2:	“Surplus” from income and expenditure has to be transferred to “Receipts and Expenditure Account” and credited (i.e., enter on the Credit side of Receipt and Expenditure Account).
Step 3:	Items relating to “Provision for Outstanding Fees and Charges” for the completed works and for the value of incomplete work – at the end of the year is to be recorded on the Expenditure side of Receipts and Expenditure as the first item (debited to Receipt and Expenditure A/c).
Step 4:	Similarly, items relating to “Provision for Outstanding Fees and Charges” for completed work and for the value of incomplete work at the beginning of the year is to be recorded on the Receipts (income) side of the account as a last item (credited to Receipts and Expenditure Account).
Step 5:	In case of partnership firms, make credit to partners for their share, if any.
Step 6:	Finally, “Surplus” is apportioned among the partners in the agreed ratio.

 

Important Note

• Professional people keep mainly two records: Cash Book and Stock Register
• Outstanding income is ignored, generally.
• But outstanding expenses are taken into account.
• That’s the reason why this account is termed as Receipts and Expenditure Account.
• In Receipts and Expenditure Account, income is determined on cash basis and expenditure is determined on accrual basis, i.e. mercantile principle.

Illustration: 29

Dr. Kashyap is a neuro surgeon. The Receipts and Payments Account for the year 2008 is as follows:

Information

His position stood at Jan 1, 2008 is as follows:

Equipment: Rs 2,00,000; Medicines: Rs 30,000

Fees outstanding Rs 5,000; Books: Rs 40,000

Provide 10% Depreciation on Equipments and 20% on Books.

Further Information

Fees still outstanding (at the end): Rs 10,000

Salaries Still Payable (at the end): Rs 6,000

Stock of Medicines:                      Rs 4,000

You are required to prepare

1. Receipts and Expenditure Account
2. Balance Sheet

Solution

 

Note 1: Working notes for depreciation

 

	Rs
(i) Equipment	2,00,000	(shown in information)
Add: Purchase	40,000	(from payment side)
	2,40,000
Less: Sale	40,000	(Cost Value)
	2,00,000
Depreciation at 10%	20,000
(ii) Books	40,000	(from information)
Add: Purchases	20,000	(from payment side)
	60,000
Depreciation at 20%	12,000

Note 2: As outstanding income is not included in principle, for practice it is added on Receipts side and the same amount is recorded as reserve on Expenditure side of this account.

Note 3: But outstanding expenses are recorded as visual. So salaries outstanding is shown without any further adjustments (same procedure as adopted for Income and Expenditure Account).

 

Illustration: 30

Dr. V.P.B. Singh is a doctor by profession. The receipts and payments for the year 2008 is as follows:

Information as on Jan 1, 2008

 

Equipment           :	Rs 2,00,000; Medicines	: Rs 30,000
Fees Outstanding :	Rs 5,000; Books	: Rs 20,000

 Provide Depreciation @10% on Equipment and 20% on Books.

Further information at the end of the year

 

Salaries still payable	:	Rs 5,500 (to attendants)
Fees Outstanding	:	Rs 12,000
Stock of Medicines	:	Rs 5,000

Required: Receipts and Expenditure Account for the year ending on Dec 31, 2008 and Balance Sheet on that date.

Solution

• Receipts and Expenditure Account has to be prepared for an individual but professional.
• Same procedure adopted in the previous illustration has to be followed.
• As this is not a partnership firm of professionals, no need to apportion capitals and net profit.
• Further, in this type of problem, there are no particulars relating to incomplete work, work in progress.
• So, straight away, Receipt and Expenditure Account may be prepared.
• As capital has to be fund out, opening Balance Sheet has also to be prepared.
• Finally, Balance Sheet as on Dec 31, 2008 is prepared.

Professional Concerns

Illustration: 31 (Partnership firm)

X and Y are in partnership practicing as chartered accountants under the name EXY & Co. sharing profits and losses. They close their accounts on Mar 31 every year. The following was their Balance Sheet as on Mar 31, 2007.

 

The following is the summary of their cash bank transactions for the year ending Mar 31, 2008:

	Further Information	Rs
1.	Audit fees Receivable
	X’s Clients	35,000
	Y’s Clients	45,000
2.	Audit fees collected in Advance
	Y’s Clients	15,000
3.	Outstanding Liability for Salary on Mar 31, 2008	17,000
4.	Depreciation to be provided on	10%
	Furniture	10%
	Office Machinery	10%
	Library Books	20%
	Car

5.

It has been agreed that 60% of audit fees and 50% of fees for other services should be transferred to Income and Expenditure Account in respect of each partner’s account, the balance being credited directly to the capital accounts, you are required to prepare Income and Expenditure Account for the year ended Mar 31, 2008 and a Balance Sheet as on Mar 31, 2008.

 

[C.A. (Modified)]

Solution

Note:

1. This account has to be prepared for professionals who form partnership firms.
2. Their professional fees, after all adjustments, have to be apportioned in the ratio given, i.e. 60% to Income and Expenditure Account and 40% to capital accounts.
3. Fees for other services have also to be computed and 50% to be transferred to Income and Expenditure Account and the balance 50% to capital accounts.
4. After computing these, capital account has to be prepared.
5. Income and Expenditure Account is to be prepared and the Net Surplus should be transferred to Capital Account.
6. Finally, Balance Sheet is prepared.

These important points have to be kept in mind and computation is carried step by step as follows:

Important Note: As profit/ loss ratio among the partners is not mentioned in the question, Net Surplus has to be apportioned among the partners equally.

Step 1

 

Computation of Audit Fees

Particulars	Rs	Rs
Collection (given in question) (Receipt)	3,90,000	2,65,000
Add: Outstanding on Mar 31, 2008 (given in information)	35,000	45,000
Add: Received Last Year (from question : in advance)	15,000	—
Less: Outstanding on Mar 31, 2007 (from Balance Sheet)	4,40,000	3,10,000
	40,000	30,000
Less: Received in advance on Mar 31, 2008 (from information)	4,00,000	2,80,000
	−	15,000
Add: Provisions (Opening Balance)	4,00,000	2,65,000
	40,000	30,000
Less: Provisions (Closing Balance)	4,40,000	2,95,000
	35,000	45,000
	4,05,000	2,50,000
*160% to be transferred to Income and Expenditure Account	2,43,000	1,50,000
*240% to be transferred to Capital Account of Partners	1,62,000	1,00,000

Step 2

Computation of fees for other services

 

		Rs	Rs
	Collections (from receipts and payments A/c)	55,000	35,000
1.	Less: 50% there of to be transferred to Income and	27,500	17,500
	Expenditure A/c
2.	Balance 50% taken to capital Account	27,500	17,500

Step 3

 

Step 4

 

Step 5

 

Illustration: 32

M/s Sagar and Boond are a firm of solicitors whose partners Anand and Ashok share profits in equal shares after charging a management fee of 5% there of to Anand. For the year ended on Mar 31, 2008, the books maintained by the firm reveal the following particulars.

The following additional information is also available.

1. Capital accounts of partners, at the beginning of the year, were of equal amounts.
2. Included in the bills of costs sent to clients are sundry disbursements like postage, telephone charges, etc. debited in the books of office expenses account. At the end of the year, items on the debit side of clients Disbursements Account amounting to Rs 3,200 had not been charged to clients in bills of costs. If Rs 200 was received and credited to their accounts in the year.

Required: Prepare Receipts and Expenditure Account of the firm for the year ended on Mar 31, 2008 and a Balance Sheet on that date.

Solution

• First, Receipts and Expenditure Account is prepared.
• This is for a firm of two partners. Their share is of equal amounts (i.e., Rs 33,000 – 16,500 for Anand and Rs 16,500 for Ashok). As such their Share in Surplus (Net Profit) is also to be divided equally among item, calculated from Income and Expenditure Account.
• Here, work in progress on Mar 31, 2008 (i.e., at the end) is shown in particulars. It has to be credited in Receipt and Expenditure Account.

Note: Management fee for Anand is calculated as:

Total receipts: Rs 1,55,200 before entering this and Net Profit, total expenses = Rs 89,400. Profit before Anands fee = Rs 1,55,200 – 89,400 = Rs 68,800. 5% of this is Rs 3,440.

 

• Meaning: Entities that are formed to promote any useful activities or to render any service to humanity are termed as NPOs
• Basic Motives: (i) To promote services to marking, (ii) To make financial gain should not be its main all in.
• Salient Features: Different kinds of services: no profit responsibility, funds from its members, ownership can neither be sold nor transferred, prohibition to declare any dividend, no trading activities and no need to prepare Trading and Profit and Loss Account.
• Final accounts of NPOs consist of three parts: (i) Receipts and Payments A/c, (ii) Income and Expenditure A/c and (iii) Balance Sheet.
• (i) Receipts and Payments A/c – Main features: a summary of cash receipts and cash payments – a real A/c – all transactions (capital and revenue) whether it belongs to past or future are recorded if such transactions occurred during the accounting period – but non-cash items, accrued incomes and unpaid, i.e. outstanding expenses not recorded – begins with opening balances of cash and bank – ends with closing balances of cash and bank – ends with closing balance of cash and bank and in between these all cash receipts and payments recorded. No specific end results.
• Why it is prepared? To ascertain the position of cash and bank balance of the concern in the beginning and at the end of the accounting period; sources of money received and money spent on different items.
• Preparation of Receipts and Payments A/c: Draw the format – first – opening balance of cash and bank on debit side (in case of bank O/D enter it in the credit side) – all receipts in cash (bank) cheque (both capital and revenue – belonging to past, present and future) are to be recorded in the debit side – all payments in the credit side – no need to record outstanding income and expense – both sides totaled – difference on the credit side – closing balance – difference on the debit side – closing Bank O/D.
• (ii) Income and Expenditure A/c – a Profit and Loss A/c of NPO – nominal account – items of income (items appearing in the Debit side of Receipts and Payment A/c) are recorded in the Credit side and items of expenses (appearing on Payments side of Receipts and Payments A/c are recorded on the Debit side of this account and certain adjustments have to be made – capital receipts and capital expenditure ignored – but profit/loss on sale of such items appear in this account (profit – debit side, loss – credit side) items relating to current accounting period alone recorded – past or future excluded by adjustments – accrual basis non-cash items to be shown – (ref – accounting treatment explained with illustrations in the main part of the chapter. Both sides totaled – balance may be debit (excess of expenditure over income) or credit (excess of income over expenditure – this has to be adjusted with Capital Fund in the Balances Sheet, i.e. surplus (debit balance) or debit (credit balance) to be added or deducted from Capital Fund in the Balance Sheet – accompanied by Balance Sheet – ends with such surplus or deficit.
• Distinction between Income and Expenditure Account and Receipts and Payment Account – ref – tabular presentation.
• (iii) Balance Sheet: Format – usual – recording the assets on the right-hand side and the liabilities on the left-hand side – in this type – no capital – instead capital fund or general fund or accumulated fund or endowment word substituted – but generally capital fund represents net assets of NPOs – in addition specific funds find place – capitalised items added – creditors for purchases of supplies, Bank O/D, outstanding expenses relating to the accounting date and incomes received in advance are the major items shown. Regarding the assets side – all assets are shown with adjustment adding assets purchased, deducting (book value) of assets sold and depreciation – stock of consumable materials with adjustments are recorded – closing balances of cash in hand and at bank – all outstanding incomes, finally pre-paid expenses at the end of the year are shown. For NPOs, two balance sheets are prepared one at the beginning of the accounting year and the other at the end of the accounting period.
• Special items and their accounting treatment, i.e. legacy donations, entrance fees, sale of fixed assets, endowment fund, honorarium, life membership fees, sale of newspapers, sports materials, etc. are desorbed in detail with illustrations – refer main part of this chapter. General and special funds – funds in NPOs categorised unrestricted funds, restricted funds, property funds, endowment funds, annuity funds and loan funds in such funds, income and expenses of the special funds is not taken to Income and Expenditure A/c, such income is credited to the special fund in the balance sheet and expense is deducted from the fund. Accounting treatment for all other individual items – refer main part – illustrated with suitable examples.
• Problems are classified into ten categories and solving such problems are explained in minute details – step by step – stage by stage with apt illustrations.

Deficit Account: Excess of expenditures over income, i.e. the balance of account in Income and Expenditure Account. This has to be deducted from the Capital Fund in the Balance Sheet.

Donation: The amount given to an NPO by any person without getting any benefit from an NPO.

Endowment Fund or Capital Fund: This fund represents the net assets of the NPOs. The term “Capital Fund” is used instead of “Capital in the Balance Sheet.” This is also known as General Fund or Accumulated Fund.

Income and Expenditure Account: It is otherwise called as the Profit and Loss Account of NPOs.

Legacy: A capital receipt gifted to NPOs in cash or property as per the will of a deceased person.

Life Membership fees: Members of an NPO by paying a single substantial payment to attain membership (instead of paying annual subscription) can enjoy the facilities of NPO for life time. Such payment is Life Membership Fees, usually capitalised.

Not-for-Profit Organisations (NPO): Voluntary organisations or agencies or institutions founded to promote art, culture education, recreation, sports and other social and charitable purposes without profit motive.

Receipts and Expenditure Account: In this account, income is determined on cash basis and expenditure on accrual basis, suitable for professional concerns.

Receipt and Payment Account: A summary of cash/bank transactions of a NPO for a specified accounting period.

Subscription Fees: Amount paid by members of NPO periodically at regular intervals.

Surplus: Excess of income over expenditure, i.e. the balance of account in Income and Expenditure Account. This has to be transferred and added to Capital Fund in the Balance Sheet.

Trial Balance: A list of all accounts in the general ledger with their balances.

 

Anthony R.N. and J.S. Reece, “Accounting Principles,” Richard D. Irwin, Inc.

Gupta, Nirmal, “Financial Accounting,” Sahitya Bhawan, Agra.

Gupta R.L. “Advanced Financial Accounting,” M. Radhaswamy and Sultan Chand & Sons, New Delhi (2002).

Gupta R.L. and M. Radhasamy, “Advanced Accounting,” Vol. I, Sultan Chand & Co., New Delhi, 2002.

Horngree, Sundem, Elliott, “Introduction to Financial Accounting,” Pearson Education, New Delhi, 2005.

Iyengar S.P. “Studies in Advanced Accountancy,” Sultan Chand & Sons, New Delhi, 2005.

Jain S.P. and K.L. Narang, “Financial Accounting,” Kalyani Publishers, New Delhi, 2004.

Kieso D.E. and J.J. Weygardt, “Intermediate Accounting,” John Wiley, New York, 1969.

Maheswari S.N. and S.K. Maheswari, “Financial Accounting,” Vikas publishing House, New Delhi, 2006.

Metcalf R.W. and P.L. Titard, “Principles of Accounting,” W B Saunders, Philadelphia, 1976.

Monga J.R., “Financial Accounting: Concepts and Applications,” Mayoor Paper Backs, New Delhi, 2007–08.

Sehgal, Ashok and Deepak Sehgal, “Advanced Accounting Part I, Taxmann Applied Services, New Delhi, 2004.

Shukla M.C., T.S. Grewal and S.C. Gupta, “Advanced Accounts,” Vol. I, Sultan Chand & Co., New Delhi, 2008.

Tulsian P.C., “Financial Accounting,” Pearson Education, New Delhi, 2004.

 

I Multiple Choice Questions

1. The Receipts and Payments Account generally shows:
   1. Surplus
   2. A Credit Balance
   3. A Debit Balance
   4. Deficit
2. Treatment for Special Donations received:
   1. Should be treated as Revenue Receipt
   2. Should be treated based on its volume
   3. Should be credited as special account (head) and recorded in the Balance Sheet.
   4. None of the above
3. Income and Expenditure Accounts show a balance of
   1. Surplus or Deficit
   2. Cash in hand at the end
   3. Net Profit/Loss
   4. Capital Fund
4. Rent Paid in Advance during the accounting year is
   1. An Expense
   2. An Income
   3. An Asset
   4. A Liability
5. Subscription received in advance during an accounting year is
   1. An Income
   2. An Asset
   3. A Liability
   4. An Expense
6. Salaries outstanding at the end should be
   1. Shown on the assets side of the Balance Sheet
   2. Added to salaries and shown on expenditure side of the Income and Expenditure Account
   3. Shown only on Receipts and Payments Account
   4. None of the above
7. Depreciation is to be computed in general
   1. Only on the assets purchased during the year
   2. On assets which were throughout the year
   3. On (a) and (b) above
   4. None of the above
8. A second hand computer with system was purchased for Rs 5000. It was given for service and the amount charged for service was Rs 250. Installation charge Rs 100 was paid to the technician. Capitalised value to be recorded will be
   1. Rs 5,250
   2. Rs 5,100
   3. Rs 5,350
   4. Rs 5,000
9. At the beginning of accounting year the following particulars are extracted value of Assets Rs 25,000, Liabilities Rs 5000, Debit Balance of Income and Expenditure Account Rs 2,500. Then Capital Fund will be
   1. Rs 32,500
   2. Rs 22,500
   3. Rs 27,500
   4. Rs 20,000
10. Rent paid in the accounting year Rs 6,000. Rent paid in advance at the end of the year Rs 500. Rent outstanding but not yet paid for the year Rs 1,000.

    The amount to be debited to Income and Expenditure Account is

    1. Rs 6,500
    2. Rs 5,500
    3. Rs 6,000
    4. Rs 7,000

Answers:

1. (c)
2. (c)
3. (a)
4. (c)
5. (c)
6. (b)
7. (b)
8. (c)
9. (b)
10. (a)

II State whether the following statements are True or False

1. Receipts and Payments Account is a summary of cash transactions during an accounting period.
2. Receipts and Payments Accounts only items relating to revenue in nature.
3. Receipts and payments records items which relate to current accounting period only.
4. Non-cash items are shown in Receipts and Payments Account.
5. Closing Balance in Receipts and Payments Account represents either Surplus or Deficit.
6. Opening Balance is recorded in Income and Expenditure Account.
7. Income and Expenditure Account is a Nominal Account.
8. Income and Expenditure Account is a summarized cash book.
9. Income and Expenditure Account records only items of revenue in nature.
10. NPOs undertake trading activities also.
11. Amount spent for the purchase of books by a public library is of revenue nature.
12. Entrance fee is always to be capitalised.
13. Donations received for specific purposes is of revenue nature.
14. Outstanding incomes need not be adjusted, if accounts are kept on an accrual basis.
15. All assets will be shown in Income and Expenditure Account as income.
16. Donations will appear on the liabilities side of a Balance Sheet.
17. Life membership fees have always to be treated as of revenue nature.
18. Fixed Deposit has always to be capitalised.
19. Balancing figure in the preparation of Balance Sheet at the beginning of the year represents surplus of deficit.
20. Expenses paid for current year will appear in the Balance Sheet.
21. Pre-paid expenses is an asset.
22. Outstanding income is a liability.
23. While preparing final accounts of a professional firm, value of work in progress is not to be taken into account.
24. Balance of surplus is allocated among the partners in an agreed ratio.

Answers:

 

1. True	2. False	3. False	4. False	5. False
6. False	7. True	8. False	9. True	10. False
11. False	12. True	13. False	14. False	15. False
16. True	17. False	18. True	19. False	20. False
21. True	22. False	23. False	24. True

 

III Fill in the blanks with appropriate word(s)

1. The primary motive of NPO is to _______.
2. The net result of the activities of Not-for-profit is termed as or _______.
3. The Receipt and Payment Account is _______ Account.
4. The Receipt and Payment Account starts with the opening Balance of _______ and _______.
5. The Receipt and Payment Account ending with the Closing Balance of _______ and _______.
6. The Receipt and Payment Account does not record _______ items.
7. The Receipt and Payment Account records both _______ and _______ nature items.
8. An Income and Expenditure Account is _______ to Account like Profit and Loss Account.
9. An Income and Expenditure Account records only those items which are of _______ nature.
10. In an Income and Expenditure Accounts the balance at the end represents either _______ on _______.
11. The Net Surplus or Net Deficit arrived at an Income and Expenditure Account is transferred to the capital fund in _______.
12. Outstanding Expenses at the end of current year is treated as _______ end recorded in the balance sheet.
13. Income Received in Advance during an accounting period is treated as _______ and recorded in the balance sheet.
14. Likewise expenses spent in advance is _______.
15. Outstanding Income is _______.
16. Specific Donations are treated as _______ in preparation of Income and Expenditure Account.
17. Receipts as per pass book should be _______ by cheque deposited but not collected at the end of the year.
18. Life Membership Subscription is classified as _______ and so does not find place in Income and Expenditure Account.
19. Expenses paid for current year and incomes received for current year shall not be recorded in the _______.
20. Final accounts prepared for professionals is termed as _______ Account and not Income and Expenditure Account.
21. Provision for outstanding fees and charges at the end of the year is _______ in Receipts and Expenditure Account.
22. If income is Rs 25,700 and deficit debited to capital fund is Rs 9,300 expenditure is _______.
23. Entrance fees received is Rs 9,000. 40% should be capitalised. Amount to be recorded in Income and Expenditure is Rs _______.
24. Value of Books at the beginning of an accounting year is Rs 20,000. Books Purchased during the year is Rs 5,000. If its value is depreciated @ 10%, it is Rs _______.
25. Sports materials at the beginning of an accounting year is Rs 9,000. Purchased during the year Rs 6,000. Stock of sports materials at the end of the year is Rs 2,500, value of sports materials to be entered in Income and Expenditure Account is Rs _______.

Answers:

1. Render Service
2. Surplus or Deficit
3. Real
4. Cash and Bank
5. Cash and Bank
6. Non-Cash
7. Capital and Revenue
8. Nominal
9. Revenue
10. Surplus or Deficit
11. Balance Sheet
12. Liability
13. Liability
14. Asset
15. Asset
16. Capital
17. Receipt
18. Capital
19. Balance Sheet
20. Receipt and Expenditure
21. Expenditure
22. Rs 35,000
23. Rs 5,400
24. Rs 2,000 (Put a note as: Depreciation is allowed for the asset which remains throughout the year)
25. Rs 12,500

IV Very Short Answer Questions

1. What do you mean by NPO?
2. Give four examples (entries) for NPO.
3. Define Receipts and Payments Account.
4. How transactions are classified for preparing final accounts for NPO?
5. Give two examples for capital nature transactions.
6. Define Income and Expenditure Account.
7. Explain Net Surplus and Net Deficit in Income and Expenditure account.
8. Explain the terms capital fund.
9. Explain the term legacy.
10. What is the difference between membership subscription and life membership subscription?

1. Enlist the salient features of NPOs with few examples.
2. Explain the features of Receipt and Payment Account.
3. Enlist the differences between Receipt and Payment Account and Cash Book.
4. Explain the salient features of Income and Expenditure Account.
5. Distinguish between Receipt and Payment Account and Income and Expenditure Account.
6. Explain the Accounting Treatment for Subscription, i.e. items to be added and deducted.
7. Explain the term income and how will it be calculated?
8. Explain the term expenditure and how will it be calculated?
9. What is meant by Accounting Standard? Explain Accounting Standard (AS) – 9 relating to entrance fees.

1. List the salient features of the NPOs with suitable examples.
2. Explain the various steps involved in the preparation of Income and Expenditure Account from Receipts and Payments Account.
3. Enlist the important stages to be followed while preparing Opening Balance Sheet and Closing Balance Sheet on the basis of information from Receipts and Payments Account and Income and Expenditure Account.
4. Enumerate the features of Receipts and Payments Account.
5. Explain the steps to be followed in the preparation of Receipts and Payments Account from Income and Expenditure Account.
6. Explain the important points to be followed in the preparation of Receipts and Payments Account from Income and Expenditure Account.
7. Explain the salient features of Receipts and Expenditure Account to be prepared for professionals.
8. Discuss the salient features in the preparation of Restaurant Trading Account.

 

1. In 2008, the subscriptions received by the Golden Club, Jajpur were Rs 30,750 including Rs 250 for 2007 and Rs 500 for the year 2009 at the end of 2008. Subscriptions outstanding for 2008 were Rs 1,000. The subscriptions due but not received at the end of the previous year, i.e. Dec 31, 2007 were Rs 300 while subscriptions received in advance on the same date were Rs 750. Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year ending Dec 31, 2008.

Answer: Rs 31,450

2. From the above information draw an extract of Balance Sheet on Dec 31, 2008.

Answer:

Balance Sheet: Liabilities: Subscriptions received in advance Rs 500

Assets: Subscriptions outstanding Rs 1,000

3. From the following extracts of Receipts and Payments Account and additional information, you are required to calculate the income from subscriptions for the year ending Dec 31, 2008.

 

Additional Information

1. Subscriptions Outstanding on Dec 31, 2007: Rs 7,000
2. Subscriptions Outstanding on Dec 31, 2008: Rs 6,000
3. Subscriptions Received in Advance on Dec 31, 2007: Rs 5,000

Answer: Rs 32,000

4. From the above sum, prepare the Balance Sheet as on Dec 31, 2008.

Answer:

Balance Sheet: Liabilities: Subscriptions received in advance Rs 5,000

Assets: Subscriptions outstanding Rs 6,000

5. From the following calculate the amount of subscriptions to be included in the Income and Expenditure account for the year ended Mar 31, 2008.

   For the year ending 2006–2007: Rs 15,000

For the year ending 2007–2008: Rs 2,00,000

For the year ending 2008–2009: Rs 25,000

Subscriptions outstanding as on Mar 31, 2007 were Rs 40,000 out of which Rs 3,000 were considered irrecoverable. On the same date, subscriptions received in advance for 2007–2008 were Rs 20,000, Subscriptions still outstanding as on Mar 31, 2008 amounted to Rs 50,000.

Answer:

Subscriptions Account: Amount to be included in the Income & Expenditure Account = Rs 2,48,000

6. There are 500 members of a club, each paying annual subscription of Rs 100. On Mar 31, 2007, subscription in arrears amounted to Rs 7,500 subscriptions received during the year ended Mar 31, 2008 amounted to Rs 48,000 including Rs 3,000 for the year 2006–2007 and Rs 8,000 for the year 2007–2008 calculate the amount of subscription in arrears as on Mar 31, 2008 by preparing the subscriptions accounts.

Answer: Rs 14,500

7. Calculate the income from subscription for the year 2008 from the following particulars of a club:

 

		Jan 1, 2008 Rs	Dec 12, 2008 Rs
	Outstanding Subscription	14,500	11,000
	Advance Subscription	3,200	6,000
	Subscription received during 2008: Rs 2,20,500

Answer: Rs 2,14,200

8. Prepare Income and Expenditure Account for the year ending on Dec 31, 2008 and the Balance Sheet on that date from the following particulars.

 

Information

The club has 50 members each paying an annual subscription of Rs 100. Subscriptions outstanding on Dec 31, 2008 were Rs 1,600.

Answer:

Income & Expenditure A/c: Subscriptions (Income): Rs 5,000

Balance Sheet: Liabilities: Subscriptions received in advance Rs 750

Assets: Outstanding Subscriptions Rs 1,600

9. How will you deal with the following items while preparing the final accounts for the year 2008 of a NPO?

1. Subscription received during 2008 for the year 2007: Rs 8,000; for 2008: Rs 70,000; for 2009: Rs 7,500.
2. Subscription received in advance on Dec 31, 2007: Rs 5,000
3. Subscription outstanding as on Dec 31, 2007: Rs 9,000
4. Subscription outstanding for the year 2008: Rs 6,000

Answer:

Income & Expenditure A/c: Subscriptions (Income): Rs 81,000

Balance Sheet: Liabilities: Subscriptions received in advance Rs 7,500

Assets: Outstanding Subscriptions Rs 6,000

10. Prepare Subscription Account from the following items for the year ending on Mar 31, 2008.

1. Subscription in arrears on Mar 31, 2007: Rs 750
2. Subscription received in advance on Mar 31, 2008: Rs 1,500
3. Total Subscription received during 2007–2008 (including Rs 900 for 2006–2007, Rs 1,000 for 2007– 2008, and Rs 400 for 2008–2009) : Rs 47,600.
4. Subscription outstanding for 2007–2008: Rs 700.

Answer: Rs 47,800

11. From the following extract of Receipts and Payments Account and the Additional Information, prepare Income and Expenditure Account for the year ending on Dec 31, 2008 and the Balance Sheet on that date.

 

Additional Information

   Subscription outstanding as on Dec 31, 2007: Rs 11,000

Subscription received in advance as on Dec 31, 2007: Rs 5,400

(including Rs 1,400 for 2008).

There are 1,000 memberships each paying an annual subscription of Rs 100.

Answer:

Income & Expenditure A/c: Subscriptions (Income): Rs 1,00,000

Balance Sheet: Liabilities: Subscriptions received in advance Rs 11,500

Assets: Outstanding Subscriptions Rs 11,000

12. Prepare the final accounts of a sports club with the following particulars for the year ended Mar 31, 2008.

     Prizes awarded: Rs 4,000

     Prize fund as on Mar 3l, 2007: Rs 25,000

     Donations for prizes received during 2007–2008: Rs 6,000

     10% Prize Fund Investments as on Mar 31, 2007: Rs 38,000

     Interest received on Prize Fund Investments: Rs 3,800

Answer:    Balance Sheet: Liability: Prize Fund: Rs 30,800

13. How will you deal with the following particulars while preparing the final account for the year ending on Mar 31, 2009?

     Expenditure on construction of a pavilion Rs 5,00,000, pavilion fund as at Mar 31, 2008: Rs 7,50,000

     Donations to Pavilion fund received on May 31, 2008: Rs 10,00,000.

     Capital funds as on Mar 31, 2008: Rs 9,75,000

Answer:

Balance Sheet: Liabilities

1. Capital Fund: Rs 14,75,000
2. Pavilion Fund: Rs 12,50,00

14. How will you deal with the following while preparing the final accounts for the year ending on Mar 31, 2008. Sports equipments as on Mar 31, 2007 Rs 1,50,000 Equipments (book value on Apr 1, 2007 Rs 40,000) sold at a loss of 25% on Sep 1, 2007 provide 10% depreciation on equipments. Equipments costing Rs 2,00,000 were purchased on Dec 31, 2007.

Answer:

Equipment Account: Rs 2,94,000; Total: Rs 3,50,000

15. Prepare Income and Expenditure Account for the year ending on Mar 31, 2009 and the Balance Sheet on that date with the following items:

1. Life membership fees received during the year Rs 37,500
2. Tournament Fund:

   Balance as on Apr 1, 2008: Rs 7,500

   Donations Received for Tournament during the year Rs 51,600

Answer:

Balance Sheet: Liability:

1. Life Membership Fee: Rs 37,500 (to be added to Capital Fund)
2. Tournament Fund: Rs 15,900

16. Prepare the Office Machinery Account for the year ending on Mar 31, 2009.

     Office Machinery as on Mar 31, 2008: Rs 80,000

     Office Machinery (having book value as Apr 1, 2008 of Rs 30,000) sold at a loss of 25% on Sep 1, 2008

     Machinery is to be depreciated at 10% p.a.

     Machinery costing Rs 75,000 was purchased on Jan 1, 2009

Answer:

Machinery Account: Rs 1,18,125; Total: Rs 1,55,000

17. Prepare final accounts from the following particulars for the year ending on Mar 31, 2009.

 

		As on Apr 1, 2008 Rs	As on Mar 31, 2009 Rs
	Creditors for Sports Materials	3,000	7,500
	Stock of Sports Materials	9,000	18,000

During the year 2008–2009, the payments made to these creditors amounted to Rs 30,000 and cash purchases were Rs 10,000.

Answer:

1. Creditors for Sports Materials Account: Rs 34,500
2. Stock of Sports Materials Account: Rs 35,500
3. Income & Expenditure Account: Sports Materials Consumed: Rs 35,500
4. Balance Sheet: Liabilities: Creditors for Sports Materials: Rs 7,500

    Assets: Stock – Sports Materials: Rs 18,000

18. Salaries paid by a club during 2008 amounted to Rs 24,000. With the following further information prepare Income and Expenditure Account.

 

		Dec 31, 2007 Rs	Dec 31, 2008 Rs
	Pre-paid Salary	2,000	3,500
	Unpaid Salary	5,000	2,000

Answer:

Income & Expenditure A/c: Salaries (Expenditure): Rs 19,500

19. How will you deal with the following items while preparing the final accounts for the year 2008?

 

		Dec 31, 2007 Rs	Dec 31, 2008 Rs
	Outstanding Locker Rent	800	1,200
	Advance Locker Rent	750	900
	Locker Rent Received during the year 2008: Rs 4,800

Answer:

Income & Expenditure A/c: Salaries (Expenditure): Rs 19,500

20. Calculate the amount of stationery posted to Income and Expenditure Account for the year ending on Dec 31, 2008.

 

		Jan 1, 2008 Rs	Dec 31, 2008 Rs
	Stock of Stationery	500	200
	Creditors for Stationery	400	250
	Advance Paid for Stationery	100	150
	Amount Paid for Stationery during the year 2008: Rs 2,200.

Answer:

Income & Expenditure A/c: Stationary (Expenditure): Rs 2,300

21. Compute the amount of stationery to be shown in the Income and Expenditure Account for the year ending at Dec 31, 2008.

 

		Rs
	Stock of Stationery as on Jan 1, 2008	4,500
	Unpaid during the year ending	500
	Unpaid during the year ending on Dec 31, 2008	1,700
	Pre-paid during the year ending on Dec 31, 2007	1,000
	Pre-paid during the year ending on Dec 31, 2008	1,300
	Payments to stationery during the year 2008	20,550

Answer:

Income & Expenditure A/c: Stationary (Expenditure): Rs 25,950

22. Explain the treatment for entrance fees with the following items while preparing the final accounts for the year ending on Mar 31, 2009.

Entrance fees received during the year 2008–2009: Rs 3,50,000. 60% of the entrance fees is to be capitalised.

Answer:

Balance Sheet: Liability: Rs 2,10,000

Income & Expenditure: Income: Rs 1,40,000

23. Explain the Accounting Treatment for the following items for the year ending on Mar 31, 2009.

 

	Particulars	Debit Rs	Credit Rs
	Tournament Fund	–	8,000
	Tournament Fund Investment	8,000
	Income from Tournament Fund	–	1,600
	Investment
	Tournament Expenses	1,000	–

Answer:

Balance Sheet: Liabilities: Rs 8,600

Assets: Rs 8,000

24. Prepare Restaurant Trading Accounts.

Stock in Restaurant on Mar 31, 2008: Rs 6,000 and on Mar 31, 2009: Rs 11,000. Restaurant purchases Rs 4,50,000. Restaurant takings Rs 7,80,000. Wages (including Rs 75,000 for the Restaurant) Rs 1,20,000. Fuel Rs 27,500. Cooking utensils on Mar 31, 2008: Rs 10,000. Depreciate cooking vessels @10%.

Answer:

Restaurant Trading Account:

Surplus: Rs 2,31,500

      (Note: In this problem, cost of boarding expenses of general staff is not given)

25. From the following particulars prepare the Income and Expenditure Account for the year ending at Dec 31, 2008.

 

		Rs
	Subscriptions received during the year	9,000
	Subscriptions outstanding at Dec 31, 2008	1,700
	Subscriptions received in advance at Dec 31, 2008	200
	Life membership fees	2,500
	Donations received	3,000
	Interest received	250
	Printing, postage and stationery	750
	Office Expenses	1,200
	Investments purchased	4,000
	Outstanding office expenses at Dec 31, 2008	600

Answer:

Income & Expenditure A/c: Surplus: Rs 11,200

Hint: Life Membership Fee & Investment: Capitalised

26. Prepare Receipts and Payments Account of Leo Club, Delhi for the year ending on Dec 31, 2008.

 

		Rs
	Cash at Jan 1, 2008	3,275
	Subscriptions received (including Rs 200 for the year 2007 and Rs 250 for the year 2009)	9,725
	Salaries	1,000
	Life Membership subscription	500
	Newspapers purchased	300
	Books purchased	1,000
	Donations received	2,000
	Taxes Paid	250
	Sale of Old Newspaper	50
	Sale of Old Sports Materials	100
	10% Tournament Fund Investments (invested on Sep 30, 2008)	5,000
	Subscription for Tournament Received (on Sep 30, 2008)	5,000
	Tournament Expenses	700
	Sale of Old Machine
	Sports Materials purchased	1,000
	Interest on Tournament Fund Investment	125
	Printing and Stationery	200
	Furniture	500

Answer: Receipts & Payments A/c: Balance c/d Closing Balance: Rs 11,580 Total: Rs 21,530

27. Prepare Income and Expenditure Account for the year ending on Dec 31, 2008

 

		Rs
	Subscriptions received (including Rs 5,000 for 2007 and Rs 4,000 for 2009)	65,000
	Sports Equipment purchased	20,000
	Printing and Stationery	3,200
	Salary paid (including Rs 100 for 2007)	12,000
	Donations received	5,000
	Rent Paid	6,000
	Salary outstanding for 2008	700
	Tournament Expenses	2,300
	Entrance Fees (60% to be capitalised)	8,000
	Entertainment Expenses	1,800
	Subscriptions due but not received for 2008	7,500

Answer: Income & Expenditure A/c: Surplus: Rs 46,700 Total: Rs 71,700

28. Summary of Cash Book: Prepare Income and Expenditure Account

Subscriptions due for the year are Rs 1,500 and received in advance for year 2009 are Rs 700. The written down value of scooter sold Rs 4,000. Depreciate the value of scooter @ 10%.

Answer:    Income & Expenditure A/c: Surplus: Rs 13,950Total: Rs 20,100

 

1. From the following particulars you are required to prepare Income and Expenditure Account of Kolkata Golf Club for the year ending on Dec 31, 2008 and the Balance Sheet as on Dec 31, 2008.

 

		Rs
	Subscriptions received for 2008	21,000
	Entrance fees received for 2008	1,500
	Subscriptions for 2007, estimated Rs 300 has been realised	560
	Subscriptions and entrances fees received for 2009	3,100
	Subscriptions for 2008 due Rs 4,000 but to be taken at	2,000
	Locker Rent received for 2008	3,200
	Green fees received for 2008	1,000
	Expenses for 2008 paid	6,000
	Expenses unpaid	460
	Liabilities for 2007 paid (estimated at Rs 1,400)	1,200
	Audit fees for 2008 not paid	400
	Profit on service account (met)	4,600
	Interest on loan paid	640
	Loan Taken	8,000
	Balance of Capital Expenditure	50,000
	Capital Expenditure written of	2,400
	Surplus for 2007	4,240
	Capital Expenditure in 2008	600
	Cash in Hand	5,000

 

(B.Com Kolkata — Modified)

Answer:

1. Excess of Income over Expenditure: Rs 23,860
2. Balance Sheet: Rs 55,200

Hint: Entrance fees Revenue item outstanding subscription: Rs 2,000

2. From the following Receipts and Payments Account of Stars Cricket Club, prepare Income and Expenditure Account for the year ending Dec 31, 2008 and the Balance Sheet as on that date.

In addition to the above, the following further details are available from the accounts of the club:

1. The assets on Jan 1, 2008 include club building Rs 30,000; investments Rs 12,000; furniture Rs 4,000. The literalities on Jan 1, 2008 include an account styled Cricket Prizes Fund Account Rs 10,000.
2. Of interest on investments, Rs 300 pertains to last year and Rs 640 is still owing.
3. Stock of refreshments at the end of the year was valued at Rs 110.
4. The Cricket Prize Fund was not separately invested. It was decided to set apart every year Rs 400 from the interest income of the club to be utilised for the purpose of awarding a gold medal to the best cricketer of the year.

[B.Com (Hons) Delhi 2004 — Modified]

Answer:

1. Excess of Income over Expenditure Rs 9,750
2. Capital Fund Rs 41,820, Balance Sheet Rs 52,500
3. Balance Sheet as on Dec 31, 2008: Rs 74,720

[As book value of furniture (sold) is not given in the question, either profit on sale nor loss on sale was recorded in the entire and expenditure account. The entire sale value was adjusted in the final Balance Sheet]

3. The following is the Trial Balance of a pubic school on Mar 31, 2009.

Depreciate Building @ 2% furniture @ 10% and Books @ 20%. The investments were made against various funds commonly.

Prepare Income and Expenditure Account for the year ending Mar 31, 2009 and the Balance Sheet as on that date.

 

[B. Com (Hons) Delhi 2004 – Modified]

Answer:

1. Excess of Income over Expenditure (Surplus) Rs 3,31,500
2. Balance Sheet Rs 1,626,500

Hints:

1. Interest on Investments was distributed on the basis of funds: Prize Fund Tournament: General Reserve Fund @ 1:1.5:1 (or) 2:3:2.
2. Interest on General Reserve Fund alone is credited to Income and Expenditure Account.

4. Mr. Prani and Mr. Proper are in partnership as proprietors of a boarding school, sharing profits Mr. Praini Rs 3/5 and Mr. Proper Rs 2/5. The Trial Balance extracted from their Books as on Mar 31, 2009 which coincident with the end of the last terms of the year was as follows:

Additional Information

1. On Mar 31, 2009 stocks of food and fuel were Rs 1680 and Rs 420.
2. On Mar 31, 2009, amounts owing for food and laundry Rs 1,260 and Rs 840.
3. Fees, other than extras are payable in advance and accounts are sent out at the beginning of each farm each account includes extras for the previous terms. At Mar 31, 2009, all amounts due had been received with the exception of Rs 1,176 (not yet accounted, of which Rs 476 was bad). The extras for the last term, not yet filled Rs 4,200.
4. No interest is to be credited on capital accounts.
5. Mr Pran who owns the premises is to be credited with Rs 5,600 for the use of the premises.
6. Repairs include Rs 560 for the purpose of a steel cupboard, which is to be capitalised under furniture and fittings.
7. Depreciations on furniture and fittings are to be provided at the rate of 5% p.a. on the cost at the end of the year.
8. Mr. Sweet, the senior Master is entitled to 5% of the profit after charging such commission.

Prepare the revenue account for the year ended Mar 31, 2009 and the Balance sheet on that date:

(B.Com – Madras modified)

Answer:

1. Income and Expenditure A/c: Pran Rs 16,800
2. Balance Sheet Rs 53,200 Proper Rs 11,200

5. From the following Trial Balance of the People’s Education Society as at Mar 31, 2009, prepare an Income and Expenditure Account for the year ending at Mar 31, 2009 and a Balance Sheet on that date:

Additional Information

1. Depreciation is to be provided at 5% on buildings, 10% on furniture and fixtures and 90% on vehicles.
2. Additional rent received in advance amounts to Rs 7,500 while there is an amount of Rs 10,000 outstanding under this head.
3. One month’s salary is outstanding.

(I.C.W.A – Modified)

   Answer:

1. Income and Expenditure Account: Surplus Rs 19,250
2. Balance Sheet: Rs 5,99,250

6. The following particulars relate to the cosmopolitan club for the year ended Dec 31, 2008. You are required to prepare Income and Expenditure Account for the year ended Dec 31, 2008 and a Balance Sheet as on Dec 31, 2008.

The assets and literalities on Jan 1, 2008 were as follows: Utensils: Rs 1,600, furniture Rs 5,000, consumable stores: Rs 700, Creditors: Rs 2,400.

On Dec 31, 2008 value of consumable stores was Rs 1,400 creditors amounted to Rs 1,100, the subscriptions outstanding were Rs 150; and the interest accrued on fixed deposit was Rs 50.

[B. Com (Madras) – Adapted]

Answer:

1. Excess of income over expenditure Rs 4,950
2. Balance Sheet Rs 15,900

Hint:

1. Capital fund Rs 9,700
2. Balance Sheets as on Jan 1, 2008 Rs 12,100

7. The following balances is obtained from the books of Jaipur Cricket as on Mar 31, 2008 and on Mar 31, 2009.

 

		Mar 31, 2008 Rs	Mar 31, 2009 Rs
	Building	1,60,000	1,71,000
	Furniture	80,000	61,200
	Advance Subscription	3,000	2,000
	Pre-paid Expenses	1,600	2,000
	Outstanding Expenses	6,000	2,400
	Arrears of Subscriptions	6,000	10,000
	Sports Equipments	48,000	43,200
	Investments	—	24,000
	Books	30,000	32,400
	Cash	32,000	34,200

Consider the following information relevant to the year 2008–2009:

1. Deprecation provided during the year:

   Building	:	Rs 9,000
   Furniture	:	Rs 6,800
   Sports Equipment	:	Rs 10,800
   Books	:	Rs 3,600

2. Some old furniture standing in the books for Rs 12,000 on Mar 31, 2008 was sold for Rs 8,000.
3. The club had 300 members on Mar 31, 2009. No fresh member was admitted during the year but 10 members left the club on Oct 1, 2008.
4. Subscription payable: Rs 30 per month.
5. Entrance fees received Rs 10,000 has been capitalised and you are required to prepare the Receipts and Payments Account and Income and Expenditure Account for the year ended Mar 31, 2009.

[B. com (Hons), Delhi – Modified]

Answer:

1. Receipts and Payments A/c: Rs 1,54,200; (Expenses) (balancing figure Rs 64,600)
2. Balance Sheet

Hint:

1. Two Balance Sheets: capital fund: 3,48,600 as on Mar 31, 2008; and on Mar 31, 2009 Rs 3,73,600
2. Building A/c: Purchases Rs 20,000
3. Sports Equipment A/c: Purchases Rs 600
4. Furniture A/c: Sales Rs 8,000
5. Loss on sale: Rs 4,000
6. Book A/c Cash: Rs 6,000 and Surplus: Rs 15,000
7. Subscriptions on accrual basis (for first 6 months)

   310 × Rs 30 × 6 = 55,800 (for last 6 months)

   300 × Rs 30 × 6 = 54,000 (for last 6 months)

                            1,09,800

8. From the following trial balance and other information given below, prepare Income and Expenditure Account for the year ended Dec 31, 2008 and a Balance Sheet as on Dec 31, 2008.

Fees yet to be received for the year are Rs 5,000; Salaries yet to be paid Rs 6,000, Furniture costing Rs 7,500 was purchased on July 1, 2008. The book value of the furniture sold was Rs 10,000, on Jan 1, 2008. Depreciation is to be charged @10% p.a. on furniture 15% p.a. on library Books and 5% p.a. on building.

[B.Com. (Hons) Delhi 2005 – Modified]

Answer

1. Excess of income over expenditure: Rs 56,625
2. Balance Sheet as on Dec 31, 2008: Rs 2,78,125

Hints:	B.V. on Dec 31, 2008	Rs 20,000
	Less Sold B.V. Rs 10,000	Rs 10,000
	Depreciation on Rs 2,500 for 1 year	Rs 250
	Depreciation on Rs 7,500 for 6 months	Rs 375
	(Purchased on July 1, 2008)	Rs 625

 

9. The following is the Receipts and Payments Account of an Amusement Club, Mumbai Receipts and Payments NC for the year ended Dec 31, 2008

Current Assets and Liabilities:

 

		Dec 31, 2008 Rs	Dec 31, 2008 Rs
	Subscriptions in arrears	400	900
	Subscriptions in advance	600	1,200
	Furniture	4,000	1,200

 

Depreciation was 10% p.a on the furniture left after selling a part of it.

50% of legacies may be capitalised. Prepare Income and Expenditure Account for the year ending on Dec 31, 2008 and the Balance Sheet on that date.

[B.Com (Hons) Delhi – Modified]

Answer

1. Excess of Expenditure over Income: Rs 1,360
2. Balance Sheet as on Dec 31, 2008: Rs 32,760

Hints

1. Subscriptions A/c Rs 19,500 (Subscriptions in arrears as on Dec 31, 2008 Rs 9,001 are inclusive of Rs 1,001 – still arrears for 2007).
2. Furniture A/c Loss Rs 100 (Dep. Value of furniture left is Rs 2,160 (90% of cost) cost of furniture Rs 2,400.
3. Balance Sheet as on Dec 31, 2007. Rs 10,520, Capital Fund: Rs 9,920.

10. Prepare Income and Expenditure for the year ending Mar 31, 2009 and a Balance Sheet on that date from the following details of Rock City Tennis Club, Tiruchirapalli.

 

Information

1. The Club has 60 members and the subscription rate is Rs 400 per year.
2. On Mar 31, 2009, Rs 1,000 owing for tennis ball and the rates paid includes Rs 1,200 relating to the following year.
3. Equipment is to be depreciated at 10% p.a. on cost including new equipment purchased.
4. On Apr 1, 2008 the club had the following absents.

			Rs
	Freehold Club House	:	50,000
	Cash at Balance	:	18,000
	Equipment	:	27,000
	Cash in Hand	:	520

Answer

1. Surplus Rs 20,520
2. Balance Sheet as on Mar 31, 2009: Rs 1,11,440

Hints

1. Capital fund Rs 89,920
2. Balance Sheet as on Mar 31, 2008: Rs 96,920

11. Prepare Receipts and Payments Account for the year ending Mar 31, 2009 and the Balance Sheet on that date from the following.

 

	Other Information	Mar 31, 2008 Rs	Mar 31, 2009 Rs
	Cash in Hand and at Bank		11,850
	Shares and Debentures	1,40,000	1,40,000
	(Face Value of Rs 1,50,000)
	Subscription Outstanding	3,500	5,000
	Subscription received in advance	600	800
	Salaries Outstanding	250	500
	Properties	1,50,000	1,48,125
	Furniture	1,000	990
	Investments	500	500
	Books	1,750	1,950
	Stationery Expenses Due	100	150
	Stock of Stationery	500	400

 

(B.Com – Modified)

Answer

1. Receipts and Payments Account Cash in Hand and at Bank Rs 7,900
2. Balance Sheet as on Mar 31, 2009: Rs 36,750
3. Capital fund: Rs 3,04,200

Hints

			Rs
	1. Subscription A/c (B.F)	:	11,200
	2. Salaries A/c (B.F)	:	14,500
	3. Stock of Stationery	:	2,400 (Purchase)
	4. Creditors for Stationery	:	2,350
	5. Books NC (Purchase)	:	250
	6. Furniture A/c (Purchase)	:	50

 

12. From the following particulars relating to R.M. Charitable Hospital, prepare (1) Receipts and Payments Account for the year ended Dec 31, 2008, and the Balance Sheet as on that date.

 

Additional Information	Dec 31, 2007 Rs	Dec 31, 2008 Rs
Subscriptions Due	240	320
Subscriptions Received in Advance	128	200
Electricity and Water Bills Unpaid	184	230
Stock of Medicines	15,640	19,500
Estimated Value of Equipment	23,200	27,800
Furniture and Fixtures (Cost less Depreciation)	42,000	37,800
Land	—	20,000
Interest Accrued on Investment in 11%		—
Debentures costing Rs 2,05,000 (Face value Rs 1,00,000)	7,500	7,500
Cash in Hand	680	320
Cash at Bank	18,000	—

 

[B.Com (Hons) Delhi – Modified]

Answer

1. Receipts and Payments A/c Bank      : Rs     3,668
2. Balance Sheet as on Dec 31, 2008     : Rs 3,21,908

Hints

				Rs
	(i)	Subscriptions A/c Subscription received	:	1,11,992
	(ii)	Electricity and Water NC	:	904
	(iii)	Equipment NC Cash Purchases	:	11,100
	(iv)	Balance Sheet as on Dec 31, 2007	:	3,11,948

 

13. The Income and Expenditure Account of Chennai Club for the year ended Mar 31, 2009 is as follows:

The Income and Expenditure Account has been prepared after the following adjustments.

		Rs
	Subscriptions outstanding on Mar 31, 2008	6,000
	Subscriptions received in advance on Mar 3, 2008	4,500
	Subscription outstanding on Mar 3, 2009	4,000
	Subscription received in advance on Mar 31, 2009	7,000

Salaries outstanding at the beginning of the year and at the end of the year were Rs 2,000 and Rs 1,500, respectively.

Audit fees for the year has not been paid. Previous years audit fees Rs 750 was paid during the year.

The clubs assets on Mar 31, 2008 were as follows:

Freehold land Rs 50,000; sports equipments Rs 13,000.

At the end of the year, after the depreciations the equipments amounted to Rs 13,500. Bank loan of Rs 5,000 as on Mar 31, 2008 was still due at the end of current year. On Mar 31, 2009, Cash at Bank amounted to Rs 34,850.

You are required to prepare the Receipts and Payments Account for the year ended Mar 31, 2009 and the Balance Sheet on that date.

(C.A. Inter – Modified)

Answer

1. Receipts and Payments Account Balance b/d: Rs 2,250
2. Balance Sheet as Mar 31, 2009: Rs 1,02,350

Hints	Capital fund	Rs   59,000
	Sports Equipment Purchased	Rs   1,750
	Subscriptions	Rs   69,500

 

14. Following is the Income and Expenditure Account of Hyderabad Club for the year ended on Mar 31, 2009.

The above account is prepared after the adjustments from:

 

	Mar 31, 2008 Rs	Mar 31, 2009 Rs
Building	2,00,000	1,95,000
Sports Ground	2,00,000	2,00,000
Sports Equipment	12,000	18,000
Furniture	10,000	—
Fixed Deposits	16,000	16,000
Bank A/c – savings	—	50,000
Subscriptions Outstanding	10,000	4,000
Subscriptions received in advance	6,000	2,000
Stock of Stationery	500	1,000
Audit Fee Outstanding	400	500
Salaries Outstanding	1,000	2,000
Affiliation fee paid in Advance	—	500

Cash on hand on Mar 31, 2008 was Rs 2,500. New Furniture of Rs 18,000 has been purchased on credit but not entered in books. Depreciate the furniture @ 5%.

Prepare Receipts and Payments Account for the year ended on Mar 31, 2009 and the Balance Sheet on that date.

(ICWA – Modified)

Answer

Receipts and Payments A/c Cash Balance : Rs 500

Balance Sheet as on Mar 31, 2009           : Rs 5,02,100

Hints

Subscriptions: Rs 92,000, Salaries: Rs 30,500

Stationery: Rs 3,000, Capital Fund: Rs 4,43,600

15. The following is the Receipts and Payments Account of a club for the year ended Mar 31, 2009.

Additional Information

 

	Apr 1, 2009 Rs	Mar 31, 2009 Rs
Subscriptions Due	2,400	1,960
Unperfected Cheque being payment on printing	180	60
Club Premises at cost	58,000	—
Depreciation on Club Premises	37,600	—
Two Wheeler at cost	24,380	—
Depreciation on Two Wheeler	20,580	—
Value of Bar Stock	1,420	1,740
Amount due for Bar Purchases	1,180	860

Cost overspent represents amount of honorarium to the treasurer not drawn due to shortage of funds. But the total salary payable to him for the year was already included in Rs 9,600.

Depreciation is to be provided @ 5% p.a. on the written down value of the premises and @ 15% p.a. on two wheeler for the whole year.

You are required to adjust Bank Balance according to Cash Book and prepare an Income and Expenditure Account for the year ended Mar 31, 2009 and the Balance Sheet on that date.

(PE Examination – Modified)

Answer

(i) Surplus Rs 12,180 (ii) Balance Sheet Rs 56,500

Hints

1. Printing and Stationery: Expenses as per Cash Book Rs 820
2. Bank Balance as per Cash Book on Apr 1, 2008: Rs 16,280
3. Balance as per Cash Book on Mar 31, 2008: Rs 6,900
4. Capital fund Rs 43,420

16. Moon Club provides the following information: Stock in Restaurant on Mar 31, 2008 Rs 7,800, and on Mar 31, 2009 Rs 9,000; Restaurant taking Rs 7,22,200; Restaurant Purchases Rs 4,09,600 wages (including Rs 1,00,000 for Restaurant) Rs 1,84,600 fuel: Rs 35,400; China Glass Cutlery Rs 5,000, Depreciation @ 20% is to be provided on China Glass cutlery. The cost of boarding expenses of the staff is estimated or Rs 55,000 of which Rs 40,000 is to be charged to the restaurant.

Prepare Restaurant Trading Account and Income and Expenditure Account for the year ended Mar 31, 2009.

Answer: Restaurant Trading Account Rs, 1,93,400

(Surplus – transfer to Income and Expenditure Account Profit)

17. How will you deal with the following items while preparing the Restaurant Trading Account and Income and Expenditure Account of a club for the year ending on Mar 31, 2009.

 

		Apr 1, 2008 Rs	Mar 31, 2009 Rs
	Stock of provisions	1,500	19,000
	Dues from members for provisions	1,500	2,000
	Creditors to provisions	5,000	2,500

Creditors to Provisions

Information: Payments made to creditors for provisions: Rs 52,500; Collection from credit members for Provisions Rs 44,500; cash sales being 10% of total sales. Cash purchases being 1/1 1 of the total purchases, wages, fund, etc. Rs 2,500.

Answer: Restaurant Trading Account Profit Rs 10,000

Hints

1. Dues from Members for Provision A/c Rs 45,000
2. Total Sales of provisions Rs 50,000
3. Total Purchases of Provisions Rs 56,000
4. Creditors for Provisions A/c Rs 5,000

18. The following is summary of the cash book for the year ending Mar 31, 2009

On Apr 1, 2008 the clubs assets were furniture Rs 96,000; restaurant stock Rs 5,200, stock of prizes Rs 1,600, Rs 10,400 was owing for supplies to the restaurant on Mar 31, 2009, the restaurant stock Rs 6,000, prizes in hand were Rs 1,000, while the club owed Rs 11,200 for restaurant supplies. It was also found that subscriptions unpaid at Mar 31, 2009 amounted to Rs 2,000, and that the figure of Rs 59,440 shown in the cash took included Rs 1,400, in respect of previous year and Rs 800 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 Mar 31, 2009 together with a Balance Sheet as on that date, after writing 10% off the furniture.

[B.Com (Hons) – Kolkata – Modified]

Answer:

1. Restaurant Trading A/c – Gross Profit: Rs 12,800
2. Income and Expenditure A/c surplus: Rs 6,320
3. Balance Sheet as on Mar 31, 2009: Rs 1,25,660
4. Balance Sheet as on Mar 31, 2008: Accumulated Fund: Rs 1,00,780

19. Vasant sport and social clubs financial year on Mar 31. The assets and liabilities of the club at dates stated as follows:

 

		As on Mar 31, 2008 Rs	As on Mar 31, 2009 Rs
	Equipment	50,000	56,000
	Subscription in Arrears	4,000	3,600
	Subscription in Advance	2,600	2,200
	Creditors for Bar Stocks	7,000	8,600
	Bar Stocks	16,000	12,000
	Electricity Owning	2,010	2,800
	Lottery Fund	1,000	—
	Bank Balance	14,460	—

 

	In the year to Mar 31, 2009 the cash receipts
	Subscriptions (including Rs 1,200 of arrears from previous year)	42,000
	Bar Trading	82,000
	Annual Dinner/Dance Sale of Tickets	48,000
	Sale of Lottery Tickets	3,600

 

	In the same period the following payments have been made
	Affiliation Fees (for four years)	2,000
	Purchase of Equipment	16,000
	Bar Stocks	41,000
	Barman’s Wages	15,000
	Catering (dinner/dance)	28,800
	Hair of Baud	6,000
	Lottery Prizes	1,200
	Rent of Hall	30,000
	Printing and Postage	4,000
	Electricity	11,620
	Honorary Secretary’s Expenses	2,440
	Repairs to Equipment	6,000

Note: Subscription arrears of previous year written off Rs 800

Prepare:

(1) Bar Trading Account (2) Income and Expenditure Account for the year ending Mar 31, 2009 and (3) Balance Sheet as on that date.

[B. Com (Hons) Delhi – Modified]

Answer:

1. Bar Trading Account: Profit: Rs 20,400
2. Income and Expenditure A/c Surplus: Rs 10,340
3. Balance Sheet as on Mar 31, 2009: Rs 99,100
4. Balance Sheet as on Mar 31, 2008 Capital Fund Rs 71,760

20. Following is the summary of bank transactions of a club during the year 2008.

 

Additional Information

	Jan 1, 2008   Rs	Dec 31, 2008   Rs
Unperfected cheque, being payment for rent	200	100
Interest on fixed deposit of Rs 20,000 not entered in the Pass Book	–	1,200
Entry in respect of bank charges was not passed through the cash book	–	60
A member deposited subscription for 2009, direct into bank, not passed through cash book	–	40
Cheque deposited for subscription but not yet cleared by the bank.	1,600	1,200

You are required to prepare Income and Expenditure Account for the year ending Dec 31, 2008 and Balance Sheet as on that date.

Answer

1. Income and Expenditure A/c – Surplus: Rs 3,740
2. Balance Sheet as on Dec 31, 2008: Rs 32,000

Hints

1. Capital Fund: Rs 25,600
2. Bank Reconciliation Statement (in the beginning and at the end of the year) has to be prepared opening cash at bank as per cash book Rs 5,400, closing cash at bank Rs 7,860.

21. An amusement club in a city prepared the following Receipts and Payment Account for the year ended on Dec 31, 2008 which showed a deficit of Rs 7,260:

	Rs	Rs
Receipts:
Subscriptions	31,065
Fair Receipts	3,600
Variety Show Receipts	6,405
Interest	345
Bar Collections	11,175
Cash Spent more	500
		53,090
Payments:
Premises	15,000
Honorarium to Secretary	6,000
Rent	1,200
Rates and Taxes	1,890
Printing and Stationery	705
Sundry Expenses	2,675
Wages	1,260
Fair Expenses	3,585
Bank Purchases and Payments	8,655
Repairs	480
New Moped (Less: Proceeds of old moped of Rs 4,500.00)	18,900	60,350
Deficit		7,260
	Jan 1, 2008 Rs	Dec 31, 2008 Rs
Cash in Hand	225	–
Bank Balance as per Pass book	12,345	5,220
Cheque issued not presented for Sundry Expenses	135	45
Subscriptions Due	1,800	1,470
Premises at Cost	43,500	58,500
Accumulated Depreciation on Premises	28,200	–
Moped at Cost	18,285	23,400
Accumulated Depreciation Moped	15,435	–
Bar Stock	1,065	1,305
Creditors for Bar Purchases	885	645

1. Cash overspent represents honorarium to secretary not withdrawn due to cash deficit and his annual honorarium is Rs 6,000.
2. Depreciations on premises and moped are to be provided at 5% and 20% on written down value.

Prepare the correct Receipts and Payments A/c, Income and Expenditure A/c and Balance Sheet (for Dec 31, 2008).

(ICWA – 1979)

Answer: Income and Expenditure A/c Surplus: Rs 50,910 Balance Sheet as on Dec 31, 2008, Rs 55,455 (total) Capital Fund: Rs 32,565

22. Following is the receipts and payments of a club prepared by an accounting aspirant.

 

Additional Information

Club had on Jan 1, 2008, furniture Rs 400, investments at 5% Rs 6,000, sports material Rs 1,480.

On Dec 31, 2008, subscription outstanding Rs 60, subscription pre-paid Rs 20, stock of sports material Rs 400. Prepare the correct Receipts and Payments Account, Income and Expenditure Account and Balance Sheet.

Answer

1. Receipts and Payment A/c, Rs 21,560 (Total)
2. Income and Expenditure A/c, Deficit Rs 800
3. Balance Sheet as on Dec 31, 2008, Rs 27,220 (Total)
4. Balance Sheet as on Jan 1, 2008, Capital Fund Rs 20

23. The Income and Expenditure Account of a club is given below (perhaps prepared by one who does not thoroughly knows the accounting principles).

 

Additional Information

1. On Dec 31, 2007, building stood at Rs 40,000, and it is required to write off depreciation at 5% p.a.
2. Telephone rent outstanding on Dec 31, 2008: Rs 500.
3. Subscription in arrears on account of 2008: Rs 400.

You are called upon to give your comments on this. Then you are required to prepare the revised final accounts of the items shown in the problem.

Answer: Comments

1. Income and Expenditure is to be captioned always as for the year ending Dec 1, 2008 and not as as on Dec 31, 2008.
2. Expenditure is shown on credit side. It should be on debit side.
3. Income is shown on debit side. It should be credited.
4. Income and Expenditure Account never starts with the balance in the beginning and never closes with the balance at the end.
5. Expenses are not recorded correctly.
6. Depreciation. Neglected in total.

These mistakes should be corrected, and recorded properly.

Final Accounts

1. Receipts and Payment A/c total : Rs 15,180 – By Balance Cash – Rs 4,860.
2. Capital Fund: Rs 1,24,200.
3. Income and Expenditure A/c : Surplus, Rs 400
4. Closing Balance Sheet : Rs 1,24,420 (as on Dec 31, 2008)

24. From the following so-called Balance Sheet, you are required to correct the mistakes and make proper final accounts of the social club for the year ending Dec 31, 2008.

 

Answer

1. Receipts and Payments A/c Closing Balance: Rs 8,600
2. Income and Expenditure A/c Surplus: Rs 5,100
3. Balance Sheet as on Dec 31, 2008: Rs 15,600 total
4. Capital Fund: Rs 8,600

25. From the figures given below prepare an Income and Expenditure Account for 2008.

Subscriptions for 2008 still receivable were Rs 700 interest due on savings certificates Rs 100 and rent unpaid but due was Rs 60.

(B.Com, Madras)
(Only year changed)

Answer: Excess of income over expenditure Rs 1,400

26. Given below is the Receipts and Payments Account of the Indian Gymkhana for the year ended Dec 31, 2008.

Subscriptions outstanding for 2008: Rs 300; salaries outstanding for Dec 2008: Rs 200.

Prepare an Income and Expenditure for the period and the Balance Sheet as on Dec 31, 2008.

(B.Com Madras – Modified)

Answer: Excess of income over expenditure Rs 770 Balance sheet Total: Rs 64,170

27. The following are the items of Receipts and Payment of the Bengal Club as summarised from the books of account maintained by the secretary.

It was ascertained from enquiry that the following represented a fair picture of Income and Expenditure of the club for the year 2008 for audit purpose.

Value of fixed assets as on Dec 31, 2007 were building Rs 44,000; cricket equipments Rs 25,000 and furniture Rs 4,000. The rates of depreciation are on building 5%, cricket equipments 10% and furniture 6%. You are required to prepare the Balance Sheets of the club as on Dec 31, 2007 and Dec 31, 2008.

[B.Com (Hons)]
(Kolkatta University Modified)

Answer

		Rs
	(i) Balance Sheet as on Dec 31, 2007 = total	:   78,800
	Capital Fund	:   78,000
	(ii) Balance Sheet as on Dec 31, 2008= total	:   97,960

 

28. Prepare Receipts and Payments Account for the year ending Mar 31, 2009 and the Balance Sheet on that date from the following:

 

Dr.

Cr.

Other Information	Mar 31, 2008 (Rs)	Mar 31, 2009 (Rs)
Cash in Hand and at Bank	–	11,850
Shares and Debentures (Face value of Rs 1,50,000)	1,40,000	1,40,000
Subscription Outstanding	3,500	5,000
Subscription Received in Advance	600	800
Salaries Outstanding	250	500
Furniture	1,000	990
Investments	500	500
Properties	1,50,000	1,48,125
Books	1,750	1,950
Stationery Expenses Due	100	150
Stock of Stationery	500	400

Answer

1. Receipts and Payments Account Balance b/d Rs 11,850
2. Balance Sheet as on Mar 31, 2009 Rs 3,08,815 (Total)

	Hints		Rs
	(i)	Balance Sheet as on Mar 31, 2008,	3,05,150 (Total)
		Capital Fund	3,04,200
	(ii)	Subscription A/c – Bank A/c	11,200
	(iii)	Salaries A/c – Bank A/c	14,500
	(iv)	Stock of Stationery A/c – Purchases	2,400
	(v)	Creditors for Stationery Ac – Bank A/c	2,350
	(vi)	Books A/c Purchases	250
	(vii)	Furniture A/c Bank A/c	100

 

29. The following is the Income and Expenditure Account of the Pals Tennis Club for the year ended Mar 31, 2009.

The following further information is made available:

 

		Balances	Balances
		As on Mar 31, 2008	As on Mar 31, 2009
		Rs	Rs
(i)	Sundry Assets	88,000	–
	Bank Balance	9,600	–
	Subscriptions in arrear	9,500	7,000
	Subscription received in advance	2,800	5,200
	4% Investments (Face value Rs 30,000)	24,000	24,000
(ii)	Expenses Outstanding
	Salaries	1,200	2,400
	Rent	1,800	3,600
	Rates and Taxes	Nil	1,200
	Tennis Court Maintenance	1,560	640
(iii)	Outstanding for Purchase of Sports Materials	2,800	5,900
(iv)	Prize Fund	9,200	6,500
(v)	The book value, as on Apr 1, 2008 of Sports Goods sold in the year was		8,000
(vi)	Prize fund is separately maintained.		5,600
	All receipts are credited to it directly and expenditure is met out of the fund directly.
	During the year, credits to the account amounted to
(vii)	Interest received in the year was only for two quarters
(viii)	The club was admitted as a member of all India Lawn
	Tennis Federation on Oct 1, 2008 when it paid subscription fi ll Sep 30, 2009.
(ix)	Advertisement charges on brochure yet to be collected		900
(x)	A fi xed deposit was made on Mar 31, 2009 for		50,000

You are required to prepare the Receipts and Payments A/c for the year ended on Mar 31, 2009 and the Balance Sheet as on that date.

(B.Com. Delhi – Modified)

		Rs
	Answer: Receipts and Payments A/c balance Rs 1590 and total	1,99,650
	Balance Sheet as on Mar 31, 2009	1,72,890
	Balance Sheet as on Mar 31, 2008 capital fund	1,11,740

 

30. From the following Receipts and Payments Account of Bangalore Club, prepare Income and Expenditure Account for the year ended Dec 31, 2008 and its Balance Sheet on that date.

Information

1. Subscriptions in arrears for 2008 Rs 1,800 and subscription in advance for 2009 Rs 700.
2. Insurance premium outstanding Rs 80.
3. Miscellaneous expenses pre-paid Rs 180.
4. 50% of Donation is to be capitals.
5. Entrance Fees are to be treated as revenue income.
6. 8% interest has accrued on investment for five months.
7. Billiard Table costing Rs 60,000 was purchased during last year and Rs 44,000 were paid for it.

[C.A. (Foundation) – Modified]

	Answer	Rs
	(i) Income and Expenditure A/c: Excess of income over expenditure	28,300
	(ii) Balance Sheet as on Dec 31, 2008	1,06,080
		(Total)
	(iii) Balance Sheet as on Jan 1, 2008 Capital fund	72,000

 

31. The following information was obtained from the books of Chennai Club as on Mar 31, 2009 at the end of the first year of the club. You are required to prepare

1. Receipts and Payments Account.
2. Income and Expenditure A/c for the year ended Mar 31, 2009.
3. The Balance Sheet as on Mar 31, 2009 on mercantile basis.

1. Donations received for Building and Library Room.
2. Other revenue income and actual receipts.

	Revenue Income Rs.	Actual Receipts Rs.
Entrance Fees	8,500	8,500
Subscription	10,000	9,500
Locker Rents	300	300
Sundry Income	800	530
Refreshment Account	–	8,000
Other Revenue Expenditure and Actual Payments: Land (Cost Rs 5,000)	–	5,000
Furniture (Cost Rs 73,000)	–	65,000
Salaries	2,500	2,400
Maintenance of Play Grounds	1,000	500
Rent	4,000	4,000
Refreshment Account	–	4,000

Donations to the extent of Rs 12,500 were utilised for the purchase of library books, balance was still to be utilised. In order to keep it saber, 9% Govt. Bonds were purchased on Mar 31, 2009 for Rs 80,000. Remaining amount was put in the bank on Mar 31, 2009 under the term deposit. Depreciation @10% p.a. was to be provided for the whole year on furniture and library books.

[C.A. (foundation) – Modified]

Answer

1. Receipts and Payments A/c for the year ending on Mar 31, 2009 Balance c/d bank overdraft Rs 54,070
2. Income and Expenditure A/c Surplus Rs 7,550
3. Balance Sheets as at Mar 31, 2009 Rs 1,70,220 (Total)

32. From the following prepare the Income and Expenditure for the year ended Dec 31, 2008 and a balance sheet as on that date:

The club has 250 members each paying an annual subscription of Rs 100. Rs 500 is still in arrears for subscriptions for 2007. Ten members had paid their subscriptions for 2008 as well.

Salaries paid included Rs 1,000 for 2007 and Rs 1,500 for 2009. Outstanding salaries for 2008 amounted to Rs 2,000.

On Jan 1, 2008, the club owned land and building valued at Rs 1,00,000 and furniture valued at Rs 11,000.

Interest for 3 months @6% p.a. as accrued on investments.

[B.Com (Hons) Delhi – Modified]

Answer

1. Excess of income over expenditure Rs 2,650
2. Capital fund in the beginning Rs 1,25,500
3. Balance Sheet Total Rs 1,32,150

33. The Receipts and Payments Account and the Income and Expenditure Account of a recreation club for the year ended Dec 31, 2008 were as follows:

 

The club’ assets as on Jan 1, 2008 were as follows:

Building Rs 1,50,000, Books Rs 1,00,000

Furniture Rs 10,000, Investments Rs 1,00,000

Literalities as on the date were Rs 500 for advertisement and Rs 1,000 for salary

You are required to prepare the Balance Sheets

1. As on Dec 31, 2007
2. As on Dec 31, 2008

(B.Com Delhi University – Modified)

Answer

1. Balance Sheet as on Dec 31, 2007 Rs 3,82,500
2. Capital Fund Rs 3,81,000
3. Balance Sheet as on Dec 31, 2008 Rs 4,10,000

34. The accounts set out below are submitted to you for audit. Pass comments and prepare corrected and proper final accounts for the year ending Dec 31, 2008.

 

Treasurers Note

Subscriptions in arrears amount to Rs 1,200. Sundry traduces bills Rs 420 were outstanding on Dec 31 but have since been paid. The secretary’s salary has not yet been paid. The 3½12; % G.P. notes of the face value of Rs 20,000 were purchased at Rs 960 the lease of the club premises costs Rs 21,240, the balance of the bank loan now outstanding is Rs 10,000, secured by mortgage on the leasehold premises.

Answer

1. Excess of expenditure over income Rs 6,450
2. Balance sheet total Rs 53,540
3. Capital fund Rs 42,820
4. Cash balance at the end Rs 11,900

35. From the following particulars, which relate to a commercial and literacy society, prepare Receipts and Payments Account, Income and Expenditure Account and Balance Sheet as on Dec 31, 2008.

 

The transactions for the year 2008 were as follows:

Received from subscriptions Rs 25,000, proceeds from entertainment and lectures Rs 10,000, received from interest on securities Rs 4,750, entrance fee received Rs 5,000, sale proceeds of old chairs Rs 750.

Paid for rent Rs 6,000, for printing Rs 1,500, for advertising Rs 2,000, for petty disbursements Rs 550 and for purchase of government securities Rs 25,000.

Paid for outstanding creditors Rs 4,250, for furniture Rs 4,000, for library books Rs 3,000; for cost of entertainment Rs 7,500.

On Dec 31, 2008, the following liabilities were outstanding for printing Rs 750 and for rent Rs 1,000.

There were also outstanding on account of interest on securities Rs 1,500 and subscriptions Rs 3,250.

[B.Com (Madras University)]

Answer

1. Receipts and Payments A/c Total Rs 75,500
2. Closing Cash balance Rs 21,700
3. Excess of Income over Expenditure Rs 25,700
4. Balance Sheet as on Dec 31, 2008 Rs 1,83,200 total

36. Mrs Parul Vasanth is an advocate by Profession and her receipts and payments for the year ending Mar 31, 2009 are as follows:

1. Fees outstanding: on Mar 31, 2008 Rs 1,000, on Mar 31, 2009: Rs 2,500
2. Stock of stationeries: on Mar 31, 2008 Rs 5,000, on Mar 31, 2009: Rs 9,300
3. Creditors for stationeries: on Mar 31, 2008 Rs 50, on Mar 31, 2009: Rs 150
4. Software equipment on Mar 31, 2008 Rs 25,000. Software equipment was sold as well as purchased on Jan 1, 2009 the cost of equipment sold benign Rs 3,000. Equipment is subject to depreciation of 20%. p.a.
5. Furniture on Mar 31, 2008 Rs 2,500, library books on Mar 31, 2008 Rs 500. Depreciates Furniture by 10% and library books by 20%.
6. Salary to clerk still payable is Rs 1,500
7. 60% of conveyance is for professional purpose

You are required to prepare the Receipts and Expenditure of MRs Parul Vasanth for the year 2008–2009 and the Balance Sheet as on Mar 31, 2009.

Answer

1. Receipts and Expenditure A/c Surplus Rs 31,850
2. Balance Sheet as on Mar 31, 2009 Rs 55,750 (Total)

Hints

1. Balance Sheet as on Mar 31, 2008 capital fund Rs 62,250
2. Crs for stationeries Rs 21,600 (Purchases), stock of stationeries Rs 17,300

37. Dr. Renu is a practicing surgeon. The Receipts and Payments Account for the year 2008 is as follows:

Her position stood on Jan 1, 2008 as:

Equipment Rs 1,50,000; medicines Rs 20,000; fees outstanding Rs 4,000; books Rs 20,000.

Fees still outstanding Rs 10,000, salaries to nurses still payable Rs 4,000; stock of medicines Rs 4,000.

Depreciate Equipment by 10% and Books @ 20.

You are required to prepare Receipts and Expenditure Account of Dr Renu for the year ending Dec 31, 2008 and a Balance Sheet on that date.

Answer

1. Receipts and Expenditure A/c Surplus Rs 1,44,400
2. Balance Sheet as on Dec 31, 2008 Rs 2,28,400 (Total)

Hints

Capital Rs 2,10,000

38. Shree & Co is a firm of solicitors whose partners Vasanth and Sekar share profits equally after charging a management fee of 5% from the Vasanth for the year ended on Mar 31, 2009, the books maintained by the firm reveal the following particulars.

Information

1. Capital accounts of partners at the beginning of the year were of equal amounts.
2. Included in the bills of costs sent to clients are sundry disbursements like postage, telephone, etc. defied in the books of office expenses account. At the end of the year, items on the debit side of clients disbursements account, amounting to Rs 6,400, had not been charged to clients in bills of costs of these Rs 400 was received and credited to their accounts in the year.

You are required to prepare the Receipts and Expenditure Account for the year ended on Mar 2009 and a Balance Sheet of the firm on that date.

Answers

1. Receipts and Expenditure Account Net Profit Rs 1,30,720
2. Balance Sheet as on Mar 31, 2009 Rs 2,12,800 (total)

39. Sathyan & Shree is in partnership practicing as Chartered Accountants under the name and style SSS Co sharing profits/losses equally. They close their accounts on Mar 31 every year. The following was their Balance Sheet as on Mar 31, 2008.

 

The following is the summary of their cash/bank transactions for the year ended Mar 31, 2009.

	1.	Audit Fees Receivable	Rs
		Sathyan’s Clients	90,000
		Shree’s Clients	1,50,000
	2.	Audit Fees collected in advance Shree’s Clients	60,000
	3.	Outstanding liability for salary on Mar 31, 2009	60,000
	4.	Depreciate Furniture and Library Books at 10% and Office and Car at 20%

It has been agreed that 80% of audit fees and 40% of fees for other services should be transferred to Income and Expenditure Account in respect of each partners account, the balance being credited directly to the capital accounts.

You are required to prepare Income and Expenditure A/c for the year ended Mar 31, 2009 and a Balance Sheet as on that date.

(C.A. Modified)

Answers

1. Income and Expenditure A/c Surplus Rs 5,400
2. Balance Sheet as on Mar 31, 2009 Rs 7,16,400 (Total)

40. From the following trial balance and accompanying notes for adjustments, prepare Income and Expenditure Account for the year ended Dec 31, 2008 and a Balance Sheet as on that date of a club:

Note for adjustments

1. Stock of Stationery and Printing on Dec 31, 2008 Rs 70.
2. Out of the total subscription Rs 2,250 represented arrears collected and Rs 1,520 paid in advance.
3. Entrance fees to be capitalised.
4. Out of the donations, Rs 7,200 represented donation to election fund and of the balance 50% shall be capitalised.
5. Depreciate crockery on the following basis: 1/5 15 of their value is to be written off in the year of purchase 2/5 the in each of the next two yeaRs Of the stock of crockery as on Jan 1, 2008 (Rs 4,000) one half was one-year old and the other half, two-year old.

Answer

1. Excess of income over expenditure Rs 30,520
2. Balance Sheet Rs 1,16,740 (Total)