Maharashtra Board Class 12 Commerce BK Chapter 2 Accounts of Not for Profit Concerns Solutions

Class 12 Commerce BK Chapter 2 Exercise Solutions

1. Objective Type Questions:
A. Select the most appropriate alternatives from the following and rewrite the sentences:

Question 1.
Not for Profit concern renders services to public at large.
(a) commercial
(b) social
(c) individual
(d) group
Answer:
(b) social
In simple words: Not-for-profit organizations primarily aim to provide services to the community, not to generate profit for owners or shareholders. Their focus is on social welfare or public benefit.

🎯 Exam Tip: Understanding the fundamental nature of "Not for Profit" concerns is crucial for identifying their core objectives and accounting practices.

Question 2.
Donation for Scholarship Fund is -
(a) Capital Receipt
(b) Revenue Receipt
(c) Capital Expenditure
(d) Revenue Expenditure
Answer:
(a) Capital Receipt
In simple words: A donation specifically earmarked for a scholarship fund is treated as a Capital Receipt because it's for a long-term purpose and not part of the organization's regular, recurring income.

🎯 Exam Tip: Differentiate between capital and revenue receipts based on their recurring nature and purpose; specific donations for long-term assets or funds are typically capital receipts.

Question 3.
Income and Expenditure Account is a Account.
(a) Capital
(b) Real
(c) Personal
(d) Nominal
Answer:
(d) Nominal
In simple words: The Income and Expenditure Account records all incomes and expenses, similar to a Profit and Loss Account, which is a Nominal Account as per accounting principles.

🎯 Exam Tip: Remember that Income and Expenditure accounts classify as Nominal accounts because they summarize revenues and expenses for a period, which are temporary accounts closed at year-end.

Question 4.
Outstanding subscription at the end of the Accounting Year represents -
(a) Liability
(b) an Expenditure
(c) an Asset
(d) Capital Fund
Answer:
(c) an Asset
In simple words: An outstanding subscription means income earned but not yet received by the organization, making it an asset.

🎯 Exam Tip: Clearly distinguish between outstanding (accrued) income as an asset and outstanding (accrued) expense as a liability for accurate financial reporting.

Question 5.
Subscription received in advance during the accounting year is -
(a) an Income
(b) an Expense
(c) an Asset
(d) a Liability
Answer:
(d) a Liability
In simple words: Money received for subscriptions that belong to a future period is an advance payment, creating an obligation for the organization until the services are provided, thus making it a liability.

🎯 Exam Tip: Subscription received in advance signifies unearned revenue, which is a current liability until the relevant accounting period occurs and the service is rendered.

Question 6.
Excess of Income over Expenditure is termed as -
(a) Deficit
(b) Profit
(c) Surplus
(d) Loss
Answer:
(c) Surplus
In simple words: When a Not-for-Profit concern's total income exceeds its total expenditure for an accounting period, the difference is called a surplus.

🎯 Exam Tip: For Not-for-Profit organizations, the term "Surplus" is equivalent to "Profit" in commercial entities, indicating a positive operational outcome.

Question 7.
Not for Profit concern prepares Account instead of Profit and Loss Account to know the result.
(a) Trading
(b) Income and Expenditure
(c) Cash
(d) Receipt and Payments
Answer:
(b) Income and Expenditure
In simple words: Not-for-Profit organizations prepare an Income and Expenditure Account to determine their financial performance, showing whether they had a surplus or deficit, which replaces the Profit and Loss Account of commercial entities.

🎯 Exam Tip: The Income and Expenditure Account is a key financial statement for NFP concerns, revealing their operational efficiency and resource management over a period.

Question 8.
The closing balance of Receipts and Payments Account usually represent -
(a) Closing stock
(b) Cash and Bank Balance
(c) Surplus
(d) Deficit
Answer:
(b) Cash and Bank Balance
In simple words: The Receipts and Payments Account is essentially a summary of cash transactions, so its closing balance reflects the cash and bank position at the end of the period.

🎯 Exam Tip: The Receipts and Payments Account acts like a cash book, providing a consolidated view of all cash inflows and outflows, with the final balance representing liquid assets.

Question 9.
Not for Profit organization is also called organization.
(a) service
(b) trading
(c) profit-making
(d) commercial
Answer:
(a) service
In simple words: Since Not-for-Profit organizations aim to provide services rather than goods for profit, they are also referred to as service organizations.

🎯 Exam Tip: Recognize that the primary function of Not-for-Profit organizations is service delivery, which defines their operational model and financial reporting.

Question 10.
Expenditure on Purchase of Building is a Expenditure.
(a) Capital
(b) Revenue
(c) General
(d) Recurring
Answer:
(a) Capital
In simple words: Purchasing a building is a significant investment that provides benefits over many years, making it a capital expenditure.

🎯 Exam Tip: Capital expenditures are for acquiring or improving long-term assets, enhancing their capacity or extending their useful life, and are not expensed in the current period.

B. Write the Word/Phrase/Term, which can substitute each of the following Statements.

Question 1.
The Form of Organization providing services to the society only.
Answer:
Not for Profit concern
In simple words: An organization solely focused on societal service without a profit motive is termed a Not for Profit concern.

🎯 Exam Tip: This definition is fundamental to understanding the nature and objectives of NFP entities in accounting.

Question 2.
An account which is prepared by Not for Profit concern instead of Profit and Loss Account.
Answer:
Income and Expenditure Account
In simple words: The Income and Expenditure Account serves as the primary financial statement for Not for Profit organizations to summarize their operational performance, replacing the Profit and Loss Account.

🎯 Exam Tip: Always remember that the Income and Expenditure Account is the equivalent of a Profit and Loss Account for non-profit entities, reflecting their financial outcomes.

Question 3.
Donations are received for a specific purpose.
Answer:
Specific donation/Capital Receipt
In simple words: When donations are given with a clear instruction for a particular use, they are called specific donations and are typically treated as capital receipts.

🎯 Exam Tip: Specific donations are usually capitalized because their use is restricted for a particular purpose or asset, unlike general donations which can be used for routine expenses.

Question 4.
The Receipts are not recurring in nature.
Answer:
Capital Receipt
In simple words: Receipts that are infrequent or irregular and do not form part of the normal course of operations are classified as capital receipts.

🎯 Exam Tip: Non-recurring receipts, often large in value and not part of daily operations, are typically capital in nature and affect the organization's long-term financial structure.

Question 5.
An Account that records only revenue items in case of Not a for-profit concern.
Answer:
Income and Expenditure Account
In simple words: The Income and Expenditure Account exclusively records revenue incomes and expenses for the current period to assess operational performance.

🎯 Exam Tip: The Income and Expenditure Account focuses strictly on the current period's revenue-generating and consuming activities, excluding capital items and past/future period transactions.

Question 6.
Accounts which records only cash transactions in case of Not for Profit concerns.
Answer:
Receipts and Payments Account
In simple words: This account summarizes all cash and bank transactions, regardless of their nature (revenue or capital) or the period they belong to.

🎯 Exam Tip: The Receipts and Payments Account is a real account, summarizing actual cash movements, and serves as the basis for preparing the Income and Expenditure Account and Balance Sheet.

Question 7.
The income is earned during the year but not received during the year.
Answer:
Outstanding income
In simple words: This refers to revenue that an organization has rightfully earned by providing services or goods during the current accounting period, but the cash payment for it is still pending.

🎯 Exam Tip: Outstanding income is an asset because it represents a future economic benefit, and it's important for accrual accounting to recognize income when earned, not when received.

Question 8.
The credit balance of Income and Expenditure Account.
Answer:
Surplus
In simple words: A credit balance in the Income and Expenditure Account indicates that the organization's total income for the period exceeded its total expenses, resulting in a surplus.

🎯 Exam Tip: A credit balance signals financial health and effective management of resources for a Not-for-Profit concern, similar to a profit for a commercial entity.

Question 9.
To excess of total assets over total liabilities of a Not for Profit concern.
Answer:
Capital Fund
In simple words: The capital fund represents the accumulated resources available to a Not for Profit organization after accounting for all its assets and liabilities, similar to owner's equity in a business.

🎯 Exam Tip: The Capital Fund, also known as General Fund or Accumulated Fund, is a critical component of the balance sheet for NFP organizations, reflecting their net worth.

Question 10.
All such receipts are non-recurring in nature and not forming a part of a regular flow of income.
Answer:
Capital Receipts
In simple words: These are financial inflows that are not part of the organization's routine operations and are typically used for long-term investments or specific purposes rather than daily expenses.

🎯 Exam Tip: Identifying receipts as non-recurring is key to correctly classifying them as capital receipts, which are then shown in the balance sheet, affecting the Capital Fund.

C. State whether the following statements are True or False with reasons.

Question 1.
Not for Profit concerns do not have a profit motive.
Answer:
This statement is True.
Not for profit concerns, the main aim is to give services to its members or to the society at large. They do not carry any Trading activity or Manufacturing activity so there is no question of having a profit motive for 'Not for Profit' concerns.
In simple words: The core purpose of Not for Profit organizations is public service, not making profit; any surplus generated is reinvested into their mission.

🎯 Exam Tip: Understanding the absence of a profit motive is fundamental to the accounting principles and financial reporting distinct to Not-for-Profit organizations.

Question 2.
Charitable Institutions prepare Profit and Loss Accounts at the end of every financial year.
Answer:
This statement is False.
Charitable Institutions, Not for Profit concerns, do not undertake any trading activities and hence instead of Profit and Loss Account prepare Income-Expenditure Account to record all revenue expenses/losses and revenue incomes/gains of the current year.
In simple words: Charitable institutions prepare an Income and Expenditure Account to show their financial performance, as they don't operate to earn profit and thus don't use a Profit and Loss Account.

🎯 Exam Tip: Avoid confusing the financial statements; "Income and Expenditure Account" is used by non-profits, while "Profit and Loss Account" is for profit-oriented businesses.

Question 3.
There is no difference between Receipts and Payments Account and Income and Expenditure Account.
Answer:
This statement is False.
In the Receipts and Payments Account, all receipts and payments transactions in cash or through the bank are recorded irrespective of the current year, previous year, or next year while in Income-Expenditure Account, only the current year's incomes and expenses (Revenue) are recorded.
In simple words: The Receipts and Payments Account is like a cash book, tracking all cash flows, whereas the Income and Expenditure Account is an accrual-based summary of only current year's revenue items.

🎯 Exam Tip: Distinguish these two accounts by their basis: Receipts and Payments is cash-based and includes all periods; Income and Expenditure is accrual-based and only for the current period's revenue items.

Question 4.
Income and Expenditure Account represents either surplus or deficit.
Answer:
This statement is True.
In the Income and Expenditure Account, all revenue incomes and expenses are recorded and at the end of the specified period, the difference is found out which is known as 'Surplus' (Revenue incomes are more than Revenue expenses) or 'Deficit' (Revenue expenses are more than Revenue incomes).
In simple words: The Income and Expenditure Account's outcome is either a surplus (income > expenditure) or a deficit (expenditure > income), indicating the financial performance of the Not for Profit concern.

🎯 Exam Tip: The final balance of the Income and Expenditure Account provides a clear indicator of whether the NFP organization successfully managed its revenue-generating and spending activities for the period.

Question 5.
Receipts and Payments Accounts do not have any opening balance.
Answer:
This statement is False.
Receipts and Payments Account is just like a cash book of trading concern and opening balance (Cash or Bank or Cash and Bank) must be there to start recording of transactions.
In simple words: Like a cash book, the Receipts and Payments Account always starts with an opening balance representing the cash and bank position from the previous period.

🎯 Exam Tip: The opening cash/bank balance is crucial as it signifies the starting liquidity position, making it incorrect to state that a Receipts and Payments Account has no opening balance.

Question 6.
Not for Profit concerns do not prepare a Balance Sheet.
Answer:
This statement is False.
To know the financial position of the organization, at the end of the particular period, Not for Profit concerns prepare Balance Sheet.
In simple words: Not for Profit organizations prepare a Balance Sheet to show their financial position, including assets, liabilities, and the capital fund, at a specific point in time.

🎯 Exam Tip: A Balance Sheet is essential for all organizations, including NFP concerns, to present a snapshot of their financial health, ensuring transparency and accountability.

Question 7.
Purchases of Sports Equipments is a Capital Expenditure.
Answer:
This statement is True.
Generally, the life span of sports equipment is more than one year, so the purchase of sports equipment is considered a capital expenditure.
In simple words: Buying sports equipment is a capital expenditure because it's a long-term asset that benefits the organization for more than one accounting period.

🎯 Exam Tip: Expenditures on items with a useful life exceeding one year are classified as capital expenditures, enhancing the organization's asset base rather than being consumed in current operations.

Question 8.
Income and Expenditure Account is a Real Account.
Answer:
This statement is False.
In the Income and Expenditure Account, all the revenue incomes and revenue expenses are recorded and therefore it is a Nominal Account and not a Real Account.
In simple words: The Income and Expenditure Account is a Nominal Account because it deals with incomes and expenses, which are temporary accounts closed at the end of the financial year.

🎯 Exam Tip: Remember the golden rules of accounting: Real accounts relate to assets, Personal accounts to individuals/entities, and Nominal accounts to revenues/expenses.

Question 9.
The Receipts and Payments Account contains only the transactions relating to the current year.
Answer:
This statement is False.
In the Receipts and Payments Account, transactions of not only the current year but of the previous year or of the next year are also recorded.
In simple words: The Receipts and Payments Account records all cash inflows and outflows, irrespective of the period they belong to, providing a comprehensive view of cash movements.

🎯 Exam Tip: Understand that the Receipts and Payments Account is a pure cash summary, encompassing all cash transactions irrespective of the accounting period, unlike the Income and Expenditure Account.

Question 10.
Excess of Assets over liabilities is called Capital Fund.
Answer:
This statement is True.
For 'Not for Profit' concerns in the Balance Sheet, when a total of Assets is more than the total of Liabilities, the difference of amount is considered as 'Capital Fund'.
In simple words: The Capital Fund represents the net worth of a Not for Profit organization, calculated as the total assets minus total liabilities.

🎯 Exam Tip: The Capital Fund is analogous to proprietor's capital or shareholders' funds in commercial accounting, representing the accumulated resources available to the organization.

D. Fill in the blanks.

Question 1.
Not for Profit organization is never engaged in activities.
Answer:
trading
In simple words: Not for Profit organizations focus on providing services or achieving social objectives, hence they do not engage in trading activities for profit.

🎯 Exam Tip: A key characteristic of NFP organizations is their absence of profit-making trade, which distinguishes their operational and financial structure.

Question 2.
Not for Profit organization is called organization.
Answer:
service
In simple words: Not for Profit organizations are fundamentally service-oriented, aiming to benefit society or specific groups rather than generate profits.

🎯 Exam Tip: Recognizing the service-oriented nature helps categorize NFP entities and understand their distinct accounting requirements.

Question 3.
Receipts and Payments Account falls under the category of Account.
Answer:
Real
In simple words: The Receipts and Payments Account is a Real Account because it primarily records cash and bank transactions, which are assets.

🎯 Exam Tip: Classifying this as a Real Account is important for understanding its nature as an asset summary, unlike Nominal accounts which record revenues and expenses.

Question 4.
In Receipts and Payment Account the summary of transactions are recorded.
Answer:
cash
In simple words: The Receipts and Payments Account acts as a consolidated record of all cash and bank transactions, simplifying the tracking of liquid funds.

🎯 Exam Tip: This account's focus on cash transactions highlights its role as a summary cash book, providing actual cash flows rather than accrual-based income or expenses.

Question 5.
Income and Expenditure Account is similar to the Account of Trading concern.
Answer:
Profit and Loss
In simple words: The Income and Expenditure Account serves the same purpose for a Not for Profit concern as the Profit and Loss Account does for a trading concern: to show financial performance.

🎯 Exam Tip: Drawing this analogy helps students understand the functional role of the Income and Expenditure Account in assessing the operational efficiency of NFP organizations.

Question 6.
Credit side of Receipts and Payments Account shows cash .
Answer:
payments
In simple words: The credit side of the Receipts and Payments Account lists all the cash outflows, representing how money was spent by the organization.

🎯 Exam Tip: Just like a cash book, the credit side signifies money leaving the organization, which is important for tracking expenditures and cash management.

Question 7.
Income and Expenditure Account is a Account.
Answer:
Nominal
In simple words: Since this account records all incomes and expenses, it is classified as a Nominal Account, which is closed at the end of the accounting period.

🎯 Exam Tip: Remembering that the Income and Expenditure Account is a nominal account is crucial for applying appropriate accounting rules for revenue and expense recognition.

Question 8.
Mumbai University prepares Account instead of a Profit and Loss account.
Answer:
Income and Expenditure
In simple words: As an educational institution, Mumbai University is a Not for Profit concern, thus it prepares an Income and Expenditure Account to present its financial performance.

🎯 Exam Tip: This question reinforces the application of NFP accounting principles to real-world entities like universities, which are service-oriented.

Question 9.
Subscription received from the members is considered as receipts.
Answer:
revenue
In simple words: Subscriptions are regular payments from members, forming a primary and recurring source of income for Not for Profit organizations, hence they are revenue receipts.

🎯 Exam Tip: Recurring income sources like subscriptions are vital for the day-to-day operations of NFP entities and are always treated as revenue income.

Question 10.
The transactions recorded in the Income and Expenditure Account related only to the year.
Answer:
current
In simple words: The Income and Expenditure Account strictly adheres to the accrual principle, only recognizing incomes and expenses pertaining to the present accounting period.

🎯 Exam Tip: This rule is critical for maintaining consistency with accrual accounting, ensuring that the Income and Expenditure Account accurately reflects the current period's financial performance.

E. Answer in one sentence only.

Question 1.
What do you mean by 'Not for Profit' Concern?
Answer:
A concern or organization which is formed and established to serve its members and society or the general public by undertaking various activities without any profit motive is called a 'Not for Profit' concern.
In simple words: A 'Not for Profit' concern is an organization created to serve its community or members without aiming to make a profit.

🎯 Exam Tip: A clear, concise definition demonstrating the service-oriented, non-profit nature is essential for full marks.

Question 2.
Which organizations prepare Income and Expenditure Account?
Answer:
'Not for profit' concern prepares Income and Expenditure Account.
In simple words: Organizations that operate without a profit motive, focusing on service, prepare the Income and Expenditure Account.

🎯 Exam Tip: Always associate the Income and Expenditure Account specifically with 'Not for Profit' organizations.

Question 3.
What is Receipts and Payments Account?
Answer:
An account that is prepared by a 'Not for Profit Concern' to record a summary of all types of cash receipts and cash payments inclusive of bank transactions is called Receipts and Payments Account.
In simple words: A Receipts and Payments Account is a summary of all cash and bank transactions for a Not for Profit organization.

🎯 Exam Tip: Emphasize that it's a *summary* of *cash* transactions, including bank, to distinguish it from other accounts.

Question 4.
Why Income and Expenditure Account is prepared?
Answer:
Income and Expenditure Account is prepared to ascertain, whether the concern has sufficient income to meet its expenses, or not.
In simple words: This account is prepared to determine if the organization has generated enough income to cover its expenses (surplus) or if it has spent more than it earned (deficit).

🎯 Exam Tip: The primary purpose is to assess financial performance (surplus/deficit), not to show cash position.

Question 5.
What is Capital Fund?
Answer:
Excess of Assets over Liabilities is known as Capital Fund which also consists of contributions, subscription, entrance fees, surplus income, etc.
In simple words: Capital Fund is the net worth of a Not for Profit organization, representing the excess of its assets over its liabilities, including accumulated surpluses and specific capital contributions.

🎯 Exam Tip: Explain it as Assets - Liabilities, and mention its components (contributions, surplus) to show a complete understanding.

Question 6.
What is a Subscription?
Answer:
Subscription is the periodical payment made by the members to the 'Not for Profit' concern for maintaining their membership.
In simple words: A subscription is a regular payment made by members to a Not for Profit organization to keep their membership active.

🎯 Exam Tip: Highlight that subscriptions are *periodical* payments, indicating their recurring nature as revenue income.

Question 7.
What is 'Legacy'?
Answer:
Any asset, property, or amount of cash which 'Not for Profit' concern receives as per the provisions made in the will of the donor after his death is called Legacy.
In simple words: A legacy is a donation received by a Not for Profit organization from a deceased person's will.

🎯 Exam Tip: Specify that it's a gift received through a will after the donor's death to ensure accuracy.

Question 8.
What is Surplus?
Answer:
Excess of income over expenditure shown by Income and Expenditure Account represents Surplus for the financial year.
In simple words: Surplus occurs when a Not for Profit organization's total income is greater than its total expenses for an accounting period.

🎯 Exam Tip: Clearly state that it's the excess of income over expenditure in the Income and Expenditure Account.

Question 9.
What do you mean by Non-recurring Expenses?
Answer:
Non-recurring expenses are the expenses that are made for the acquisition of fixed assets that gives benefits for a long period.
In simple words: Non-recurring expenses are significant, infrequent costs incurred to acquire long-term assets that provide benefits for multiple periods.

🎯 Exam Tip: Link non-recurring expenses to capital expenditures and their long-term benefit, differentiating them from routine operating expenses.

Question 10.
To which account 'Surplus' or 'Deficit' is transferred?
Answer:
'Surplus' or 'Deficit' is transferred to the Balance Sheet by adding it or subtracting it from Capital Fund.
In simple words: The surplus or deficit from the Income and Expenditure Account is transferred to the Capital Fund in the Balance Sheet.

🎯 Exam Tip: This transfer is crucial as it adjusts the organization's net worth (Capital Fund) based on its annual financial performance.

F. I. Complete the Table:

Question 1.

Solution:

In simple words: To complete the table, use the formula: Income - Expenditure = Surplus (or Deficit). If Income is greater, it's a Surplus; if Expenditure is greater, it's a Deficit. Missing values can be found by rearranging the formula.

🎯 Exam Tip: Mastering the basic relationship between income, expenditure, surplus, and deficit is fundamental for accurately analyzing the financial performance of any organization.

II. Salaries paid during the year:

Question 1.

Solution:

In simple words: For prepaid items, subtract the prepaid amount from the total paid to get the current year's expenditure. For outstanding items, add the outstanding amount to the total paid to get the current year's expenditure.

🎯 Exam Tip: Accurately adjusting for prepaid and outstanding expenses is vital for matching expenses to the correct accounting period under the accrual method.

III. Rent received during the year:

Question 1.

Solution:

In simple words: To calculate income for the year, subtract rent received in advance from total received, or add accrued rent to total received.

🎯 Exam Tip: Accrual accounting requires income to be recognized when earned, irrespective of when cash is received; hence, adjustments for advance and accrued income are critical.

G. Calculate the following:

Question 1.
10% p.a. Depreciation on Furniture Rs. 50,000 (for three months)
Solutions:
Depreciation = Cost of Asset \(\times\) Rate \(\times\) Period
\( = 50,000 \times \frac{10}{100} \times \frac{3}{12} \)
\( = \) Rs. 1250 Depr. for 3 months
Thus, Depreciation on furniture @ 10 % on Rs. 50,000 for 3 months = Rs. 1250.
In simple words: Depreciation for three months on furniture is calculated by taking the annual rate (10%) on the asset's value (Rs. 50,000) and then multiplying by the fraction of the year (3/12).

🎯 Exam Tip: When calculating depreciation for a partial period, always ensure the annual rate is prorated correctly based on the number of months the asset was in use.

Question 2.
12% p.a. Interest on Bank loan Rs. 80,000 for 1 year.
Answer:
\( I = \frac{PRN}{100} \)
\( = 80,000 \times \frac{12}{100} \times 1 \)
\( = \) Rs. 9600.
Thus, interest on a Bank loan Rs. 80,000 for 1 year = Rs. 9600.
In simple words: The annual interest on the bank loan is calculated by multiplying the principal amount (Rs. 80,000) by the annual interest rate (12%) for one year.

🎯 Exam Tip: Basic interest calculations are vital; always ensure the correct principal, rate, and time period are used, especially when dealing with annual rates for specific durations.

Question 3.
Opening stock of stationery Rs. 5,000, purchases of stationery Rs. 7000, outstanding stationery bill Rs. 12,000, closing stock Rs. 1000. What is the amount of stationery consumed?
Answer:
To consumption of stationery :
Rs.
Opening stock 5,000
Add: Purchases 7,000
Add: Outstanding stationery bill 12,000
24,000
Less: Closing stock 1,000
Consumption of stationery 23,000
In simple words: To find stationery consumed, add opening stock, purchases, and outstanding bills, then subtract the closing stock to find the amount utilized during the period.

🎯 Exam Tip: The formula "Opening Stock + Purchases + Outstanding Bill - Closing Stock" is essential for accurately calculating the consumption of consumables for an accounting period.

Question 4.
Salary Rs. 10,000, outstanding salary Rs. 5,000. Calculate the salary to be debited to the Income and Expenditure Account.
Answer:

In simple words: To find the total salary expenditure for the year, add the outstanding salary to the salary already paid, as both relate to the current period's expenses.

🎯 Exam Tip: For accrual accounting, ensure all expenses incurred for the current period, whether paid or outstanding, are debited to the Income and Expenditure Account.

Question 5.
Library Books Rs. ...............? Less 10% Depreciation Rs. 5,000 = Rs. 45,000.
Answer:
Library books Rs. 50,000. Less 10% Depreciation Rs. 5,000 = ? 45,000
\[\begin{vmatrix} \% & \text{Depr. Rs.} \\ 10 & 5,000 \\ 100 & ? \text{(cost)} \end{vmatrix}\]
\[ 5,000 = \text{Rs.} 50,000 \]
In simple words: If a Rs. 5,000 depreciation represents 10% of the original cost, then the total original cost of the library books must be Rs. 50,000.

🎯 Exam Tip: To find the original cost when depreciation and its percentage are given, use the formula: Original Cost = (Depreciation Amount / Depreciation Rate) * 100.

Question 4. Salary Rs. 10,000, outstanding salary Rs. 5,000. Calculate the salary to be debited to the Income and Expenditure Account.
Answer:

In simple words: To calculate the total salary expense for the period, the initial salary amount is added to any outstanding salary, representing the full cost incurred regardless of payment status.

🎯 Exam Tip: Remember to include both paid and outstanding salary amounts to reflect the true expense for the accounting period in the Income and Expenditure Account.

Question 5. Library Books Rs. ...............? Less 10% Depreciation Rs. 5,000 = Rs. 45,000.
Answer: Library books Rs. 50,000. Less 10% Depreciation Rs. 5,000 = Rs. 45,000 \[ \begin{array}{l} \text{Depr. Rs. } \\ \begin{bmatrix} \text{%} & \\ \text{10} & \text{5,000} \text{ = Rs. 50,000} \\ \text{100} & \text{? (cost)} \\ \end{bmatrix} \end{array} \]
In simple words: This problem asks to find the original cost of library books before depreciation. Knowing the depreciation rate and amount, we can work backward to find the asset's initial value.

🎯 Exam Tip: For depreciation problems, always clearly identify the original cost, depreciation rate, and the period to accurately calculate the depreciation amount or the book value.

H. Find odd one:

Question 1. Trading Account, Profit and Loss Account, Receipts and Payments Account, Balance Sheet.
Answer: Receipts and Payments Account
In simple words: Receipts and Payments Account is a summary of cash transactions, while Trading Account, Profit and Loss Account, and Balance Sheet are parts of final accounts for determining profitability and financial position.

🎯 Exam Tip: Understand the purpose of each account. Receipts and Payments focuses on cash flow, while the others determine financial performance and position.

Question 2. Machinery, Furniture, Computers, Salaries.
Answer: Salaries
In simple words: Machinery, Furniture, and Computers are all assets (fixed assets), while Salaries are an expense.

🎯 Exam Tip: Distinguish between assets (which provide future economic benefit) and expenses (which are consumed within the current period).

Question 3. Subscription, Stationery, Interest Received, Locker Rent received.
Answer: Stationery
In simple words: Subscription, Interest Received, and Locker Rent received are all forms of income for a not-for-profit concern, whereas Stationery is an expense.

🎯 Exam Tip: Classify items correctly as either income or expense to ensure accurate accounting for non-profit organizations.

Question 4. Reliance Industries, Venna Vidya Mandir, Laxmi Hospital, Manoj Sports club.
Answer: Reliance Industries
In simple words: Reliance Industries is a profit-making corporate entity, while Venna Vidya Mandir, Laxmi Hospital, and Manoj Sports club are examples of not-for-profit concerns that typically provide services.

🎯 Exam Tip: Recognize the core business model of organizations-profit-seeking vs. service-oriented-to correctly categorize them in accounting contexts.

Question 5. Surplus, Deficit, Net Profit, Capital fund.
Answer: Net Profit
In simple words: Surplus and Deficit are terms used in Not-for-Profit organizations to denote excess income over expenditure or vice-versa, and Capital Fund is their equivalent of capital. Net Profit, however, is a term exclusively used by profit-making businesses.

🎯 Exam Tip: Differentiate between the terminology used for 'for-profit' and 'not-for-profit' entities, as their financial goals and reporting differ significantly.

Practical Problems

Question 1. Calculation of stationery consumed during the year Balance Sheet as on 01.04.2018

Receipts and Payments Account for the year ending 31.03.2019

Adjustments:
1. Rs. 1,000 outstanding for the stationery bill.
2. Stock of Stationery as of 31 - 03 - 2019 was valued at Rs. 1,800.
With the above information, calculate the amount of Stationery consumed during the year and show its presence in final Accounts of a concern.
Solution: In the books of

Balance Sheet as of 31 - 03 - 2019

In simple words: To calculate stationery consumed, we add opening stock, purchases, and outstanding bills, then subtract the closing stock. The outstanding bill is a liability, and closing stock is an asset on the balance sheet.

🎯 Exam Tip: When calculating consumption of an item, always start with opening stock, add purchases (cash and credit), and subtract closing stock to get the amount actually used.

Question 2. Presentation of Subscription only Balance Sheet as on 01.04.2018

Receipts and Payments Account for the year ending 31.03.2019.

Adjustments:
The outstanding subscription for 2018-19 is Rs. 32,000.
With the above information, present the item Subscription in Income and Expenditure Account for the year ended 31 -03-2019 and Balance Sheet as on the date.
Solution: In the books of

Balance Sheet as of 31st March 2019

Working Note:
Outstanding subs, given in the balance sheet as on 01-04-2018 are Rs. 26,000 (for 2016-17) and Rs. 35,000 (for 2017-18). Against that, as shown in Receipt - Payment A/c Rs. 23,000 and Rs. 30,000 are received respectively. Means Rs. 3,000 and Rs. 5,000 are still outstanding which are known in the current year balance sheet.
In simple words: This problem demonstrates how to record subscriptions in both the Income and Expenditure Account and the Balance Sheet, accounting for outstanding and advance receipts across different years.

🎯 Exam Tip: Carefully segregate subscriptions by year to ensure only current year's income is recognized in the Income and Expenditure Account, and outstanding/advance amounts are correctly shown on the Balance Sheet.

Question 3.

Receipts and payments Account for the year ending 31.03.2018.

Adjustments:
Subscription outstanding for the year 2017-18 is Rs. 6,000.
During the previous year subscription received in advance for 2017-18 is Rs. 2,000.
The outstanding subscription of 2016-17 is Rs. 2,500.
With the help of the above information present the item Subscription in Income and Expenditure Account for the year ending 31-03-2018 and Balance Sheet as on that date.
Solution: In the books of

Balance Sheet as of 31st March 2018

In simple words: This problem illustrates how to account for subscriptions with prior-year outstanding and advance receipts, and current year outstanding amounts, to accurately present them in financial statements.

🎯 Exam Tip: Always reconcile subscription amounts received with outstanding and advance figures from both current and previous years to determine the actual income for the period and its balance sheet impact.

Question 4. Preparation of Income and Expenditure Account only
Following is the Receipts and Payments Account of "Satara Sports Club" Satara. Prepare Income and Expenditure Account for the year ending 31-03-2019.

Receipts and Payments Account for the year ending 31.03.2019.

Adjustments:
1. Outstanding subscription for the current year is Rs. 4,500.
2. Outstanding rent for the current year amounted to Rs. 1,000.
3. Entrance fees are to be treated as Revenue Income.
4. Stock of sports material as of 01-04-2018 Rs. 6,000 and on 31 - 03 - 2019 Rs. 14,000.
Solution: In the books of 'Satara Sports Club' Satara

Working Notes:
1. Entrance fees are to be treated as Revenue income. Therefore entire amount is recorded on the income side.
2. Since the selling price of Furniture Rs. 4,500 is lower than its cost price of Rs. 8,000, there is a Loss in the sale of furniture.
It is calculated as follows:
Loss on sale of furniture = Book value (cost) - Selling price
= 8,000 - 4,500
= Rs. 3,500
It is debited to Income and Expenditure A/c.
In simple words: This problem requires preparing an Income and Expenditure Account for a sports club, carefully adjusting for outstanding subscriptions and rent, treating entrance fees as revenue, and calculating sports material consumption and loss on sale of furniture.

🎯 Exam Tip: Pay close attention to adjustments for outstanding and prepaid items, and correctly distinguish between capital and revenue nature transactions, especially for entrance fees and asset sales.

Question 5. "Bhartiya Kala Kendra", Solapur gives you the following information for the year ended on 31-03-2018. Prepare Income and Expenditure Account for the year ending 31-03-2018.

Dr.

Additional Information:
1. Legacies are to be capitalized.
2. Outstanding salary Rs. 200.
3. 50% of Entrance fees are to be capitalized.
Solution: In the books of Bhartiya Kala Kendra, Solapur

In simple words: This problem involves preparing the Income and Expenditure Account for a cultural center, capitalizing legacies and a portion of entrance fees, and adjusting for outstanding salaries.

🎯 Exam Tip: Correctly identifying and allocating capital and revenue items, such as legacies and entrance fees, is crucial for accurate financial reporting in Not-for-Profit Concerns.

Question 6. Accounts of a Charitable Hospital
From the following particulars relating to "Radha-Krishna Charitable Hospital”, Pune.
Prepare Income and Expenditure Account for the year ending 31-03-2020 and Balance Sheet as of that date.

Receipts and payments Account for the year ending 31.03.2020.

Additional Information:

Provide Depreciation on Equipments Rs. 1,900 and on Building Rs. 1,500.
Solution: In the Books of Radha-Krishna Charitable Hospital, Pune

Balance Sheet as of 31st March 2020

Working Notes:
1. To find medicines consumed, here in the opening stock, purchases are added and the closing stock of medicine is subtracted.
2. For equipment, in opening balance, add equipment purchased during the year and subtract depreciation to get the closing balance of equipment.
3. Interest Rs. 10,000 is received on 10% investments means there is no outstanding interest.
In simple words: This problem requires preparing a hospital's Income and Expenditure Account and Balance Sheet, accounting for medicine consumption, equipment depreciation, outstanding subscriptions, and advance subscriptions.

🎯 Exam Tip: Always apply the concept of accrual accounting for non-profit organizations: record incomes when earned and expenses when incurred, regardless of cash movement, especially for subscriptions and depreciation.

Question 7. From the following transactions of Receipts and Payments Account of "Pavan-putra Hanuman Vyayamshala”, Parbhani and the adjustments are given, you are required to prepare Income and Expenditure Account and Balance Sheet as of 31st March 2019.

Receipts and payments Account for the year ending 31.03.2019.

Adjustments:
1. There are 500 members paying an annual subscription of Rs. 50 each.
2. Outstanding salary was Rs. 1,200.
3. The Assets on 01-04-2018 were as follows:
Building Rs. 50,000, Furniture Rs. 15,000
4. Provide depreciation on Building and Furniture at 5% and 10% respectively.
5. 50% Entrance fees are to be capitalized.
6. Interest on investment at 5% p.a. has accrued for 6 months.
7. Capital fund Rs. 70,000 on 01-04-2018.
Solution: In the Books of Pavan-putra Hanuman Vyayamshala, Parbhani

Balance Sheet as of 31st March 2019

Working Notes:
1. Interest on investment is receivable for 6 months:
\[ I = \frac{PRN}{100} \]
\( \implies \) \( = 15,000 \times \frac{5}{100} \times \frac{6}{12} \)
\( = \) Rs. 375 (outstanding interest on investment)
2. 50 % of entrance fees (i.e. \( \frac{6200}{2} = \) Rs. 3100) is to be capitalised means add it to capital fund.
3. Total subscription of current year = 500 members \(\times\) 50 = Rs. 25,000
But actual subscription received = Rs. 18,000
means difference (25,000 - 18,000) of Rs. 7,000 is outstanding subscription.
In simple words: This problem requires preparing the Income and Expenditure Account and Balance Sheet for a Vyayamshala, adjusting for membership subscriptions, outstanding salaries, depreciation on assets, capitalization of entrance fees, and accrued interest on investments.

🎯 Exam Tip: When dealing with membership-based organizations, carefully calculate the total subscription income for the current year based on membership count and annual fees, then reconcile with actual receipts and outstanding amounts.

Question 8. Newly Started Art Circle
"Jeevan Jyoti Art Circle” a newly established concern has presented the following information:
Receipts and payments Account for the year ending 31.03.2018.

Adjustments:
1. Subscription outstanding for the year was Rs. 5,000.
2. Depreciate Furniture @ 10% p.a.
3. Full amount of admission fees and 50% donations are to be capitalized.
You are required to prepare an Income and Expenditure Account for the year ending 31-03-2018 and a Balance Sheet as of that date.
Solution:

Balance Sheet as of 31st March 2018

Working Notes:
The full amount of admission fees and 50% of donations are added to the surplus amount to get capital funds. (Opening balance of the capital fund is not given.)
In simple words: This problem requires preparing the Income and Expenditure Account and Balance Sheet for a newly established art circle, including adjustments for outstanding subscriptions, depreciation on furniture, and the capitalization of admission fees and a portion of donations.

🎯 Exam Tip: For newly established non-profit concerns, ensure that the opening capital fund is correctly calculated if not provided, by netting assets and liabilities at the start, and then adjusting for all capital and revenue items as per accrual accounting principles.

Question 9. Given below is the Receipts and Payments Account of "Vithai Mahila Mandat", Pandharpur for the year ending 31-03-2018. Prepare an Income and Expenditure Account for the year ended 31-03-2018 and Balance Sheet as of that date.

Receipts and payments Account for the year ending 31.03.2018.

Adjustments:
1. Capital fund on 01-04-2017 was Rs. 90,000.
2. Outstanding subscription Rs. 4,000.
3. Entrance fees are to be capitalized.
4. Rent paid includes 800 paid for April 2018.
5. They have the following Assets and Liabilities as of 01-04-2017:
Furniture Rs. 9,000, Building Rs. 70,000, and Outstanding Expenses 12,000.
Solution: In the books of Vithai Mahila Mandal, Pandharpur

Question 10.
From the following Receipts and Payments Account "K.B.P. Engineering College", Nashik for the year ending on 31-03-2019 and additional information, prepare Income and Expenditure Account for the year ending 31-03-2019 and Balance Sheet as on that date.
Answer:

Receipts And Payments Account For The Year Ending 31.03.2019.

Additional Information:

1. 50% of donations are for the Building funds and the balance is to be treated as Revenue income.
2. Outstanding subscription Rs. 5,300.
3. Life membership fees are to capitalize.
Solution:
In the books of K.B.P. Engineering College, Nashik

Additional Information:

Income And Expenditure Account For The Year Ended On 31st March, 2019

Balance Sheet As Of 31st March 2019

Working Notes:
1. Life membership fees are to be capitalized, which means add the entire amount to the capital fund.
2. 50% of Donations of Rs. 7,00,000 i.e., Rs. 3,50,000 is to be added to the Building Fund, and the remaining amount of donation i.e., Rs. 3,50,000 is credited to Income and Expenditure A/c.
3. The depreciation on Fixed assets is calculated by using the following formula:
Depreciation = Opening balance + Purchases - Closing value

\( \implies \) Depreciation on Books = 6,00,000 + 61,000 - 6,00,000
= 6,61,000 - 6,00,000
= Rs. 61,000

\( \implies \) Depreciation on Furniture = 3,19,000 + 51,000 - 3,00,000
= 3,70,000 - 3,00,000
= Rs. 70,000
4. Fixed deposit: Opening balance given = Rs. 9,10,000
Fixed deposit (31-03-2019) = Rs. 8,50,000
(Newly purchased)

\( \implies \) Total fixed deposits = Rs. 17,50,000
5. Admission Fees Rs. 60,000 are recorded on the credit side of Income and Expenditure A/c because it is taken as Revenue income.
In simple words: This problem requires preparing the Income and Expenditure Account and Balance Sheet for a college, involving adjustments for donations, subscriptions, life membership fees, depreciation, and fixed deposits. It demonstrates how to differentiate between capital and revenue items for non-profit organizations.

🎯 Exam Tip: Pay close attention to distinguishing between capital and revenue receipts/payments, and accurately calculate depreciation and outstanding/prepaid items as they significantly impact both the Income and Expenditure Account and the Balance Sheet.

Question 11.
Account of a School
From the following Balance Sheet and Receipts and Payments Account of "New English School", Barshi, prepare Income and Expenditure Account for the year ending 31-03-2020 and a Balance Sheet as on that date.
Answer:

Balance Sheet As On 01.04.2019

Receipts And Payments Account For The Year Ending 31.03.2020.

Additional Information:
1. Outstanding salary of Rs. 9,000.
2. Outstanding tuition fees 15,000.
3. Depreciate library books by Rs. 9,000 and Furniture by Rs. 10,000.
Solution:
In the books of New English School, Barshi

Income And Expenditure Account For The Year Ended 31st March, 2020

Balance Sheet As Of 31st March 2020

Working Notes:
1. Donation (Capital) is added to the Capital fund.
2. Government Grant Rs. 1,20,000 is recorded on the credit side of Income & Expenditure A/c because it is the revenue income of the organization.
3. Outstanding tuition fees 15,000 and outstanding salary 9,000 are added to the respective head of Account and then they are shown separately on the Assets side and Liabilities side of the Balance Sheet respectively.
In simple words: This problem involves preparing financial statements for a school, focusing on recognizing various income sources like tuition fees, government grants, and donations, and accounting for expenses and depreciation on assets. It highlights how non-profit educational institutions manage their finances.

🎯 Exam Tip: Remember to differentiate between capital and revenue donations and ensure all outstanding income (like tuition fees) and expenses (like salaries) are properly accounted for in the Income and Expenditure Account and reflected in the Balance Sheet.

Question 12.
Account of a Library
Following is the Receipts Payments Account of "Dhananjay Library”, Mumbai for the year ending 31-03-2020.
Answer:

Receipts And Payments Account For The Year Ending 31.03.2020.

You are required to prepare an Income and Expenditure Account for the year ended 31-03-2020 and a Balance Sheet as of that day.
The following information is also made available to you.
1. On 31-03-2019, the library had the following Assets also; Books Rs. 50,000, Furniture 6,500, and Machinery of 30,000.
2. Subscription received in advance amounted to Rs. 500.
3. Outstanding salaries 1300 and Rent Rs. 950.
4. 50% of the admission fees should be capitalized.
5. Furniture to be depreciated at 10% p.a.
6. Library books were purchased on 1st April 2019 charge depreciation at 10% p.a.
7. The Investments were purchased on 01-04-2019 and they carry interest at 20% p.a.
Solution:
In the books of Dhananjay Library, Mumbai

Income And Expenditure Account For The Year Ended 31st March, 2020

Balance Sheet As Of 31st March 2020

Working Notes:
1. Opening Balance Sheet is prepared to find out opening capital fund:

Balance Sheet As Of 31st March 2019

2. Outstanding expenses of the previous year, paid in the current year so no entry for outstanding expenses (2018-19)
3. Interest on Investment @ 20% on Rs. 6,000 = Rs. 1,200
Interest on Investment received = Rs. 900
Outstanding interest on investment = 300
4. Depreciation on library books at 10% p.a.
On opening balance of Rs. 50,000 (for whole year) = Rs. 5,000
On purchases on 01-04-2019 (for whole year) = Rs. 500
Total Depreciation = 5,500
5. Subscriptions received in advance Rs. 500 is deducted from subscription received on the credit side of Income and Expenditure A/c and then subscription received in advance is shown separately on the Liabilities side of Balance Sheet.
6. Outstanding salaries and outstanding rent are added to the respective head of Account on the debit side of the Income & Expenditure Account and both the outstanding items are recorded on the Liabilities side of the Balance Sheet.
In simple words: This problem guides through preparing the Income and Expenditure Account and Balance Sheet for a library, incorporating various adjustments like depreciation on assets, outstanding expenses, advance subscriptions, and capitalized admission fees. It emphasizes the importance of accurately valuing assets and liabilities at the beginning and end of the accounting period.

🎯 Exam Tip: When preparing the opening balance sheet for a non-profit organization, remember to include all assets and liabilities from the previous year-end to accurately determine the opening capital fund. Also, carefully calculate depreciation on all fixed assets, considering both opening balances and new purchases, and ensure all outstanding/prepaid items are correctly treated.

Question 13.
Outstanding Expenses and Prepaid Expenses
From the following information supplied to you, prepare Income and Expenditure Account for the year ending 31-03-2020 and Balance Sheet as on that date for "Morya Sports Club”, Thane.
Answer:

Balance Sheet As On 01.04.2019

Receipts And Payments Account For The Year Ended 31.03.2020

Adjustments:
1. Subscription received includes Rs. 3,000 for 2018-19 and outstanding subscription for 2019-20 was Rs. 14,000.
2. On 31-03-2020, the Prepaid insurance premium was Rs. 2,500.
3. Depreciate Furniture by Rs. 3,000.
4. Locker rent outstanding for 2019-20 is Rs. 400.
Answer:
In the books of 'Morya Sports Club' Thane

Income And Expenditure Account For The Year Ended 31st March, 2020

Balance Sheet As Of 31st March 2020

Working Notes:
1. Outstanding subscription (2018-19) Rs. 8,000 given in b/s against that Rs. 3,000 received in 2019-20.
Means still receivable subscription = Rs. 5,000 (8,000 - 3,000).
2. Prepaid insurance premium (2018-19) Rs. 2,000 is for the current year. Therefore, in the current year's insurance premium, 2,000 is to be added and then subtract the current year's prepaid insurance premium.
3. Outstanding salary of (2018-19), Rs. 4,000 of the previous year is to be subtracted from current year's salary.
4. Total amount of donations and entrance fees are to be capitalized so add the entire amount of both the items to Capital fund.
5. Outstanding locker's rent (2018-19) Rs. 500 is given in the Balance Sheet. It is to be subtracted from the current year's locker's rent and then adds the current year's outstanding locker rent.
In simple words: This problem demonstrates preparing financial statements for a sports club, focusing on how to handle various adjustments for subscriptions, outstanding salaries, prepaid insurance, and depreciation. It highlights the importance of correctly adjusting opening balances for previous year's outstanding/prepaid items and accounting for current year's adjustments.

🎯 Exam Tip: Always analyze previous year's outstanding/prepaid items from the opening balance sheet in conjunction with current year's receipts/payments and adjustments. Correctly identifying and adjusting these items is crucial for accurate income and expenditure reporting and balance sheet presentation.

Question 14.
Charitable Hospital
Following information has been provided by "Vivekanand Charitable Hospital”, Latur. You are required to prepare an Income and Expenditure Account for the year ending 31-03-2019 and the Balance Sheet as of that date.

Balance Sheet As On 01.04.2018.

Receipts And Payments Account For The Year Ending 31.03.2019

Adjustments:
1. On 31-03-2019 stock of drugs was valued at 22,000.
2. Depreciation on Building at 5% p.a. and on Ambulance 30,000.
3. Life membership fees are to be capitalized.
Answer:
In the books of Vivekanand Charitable Hospital, Latur

Income And Expenditure Account For The Year Ended 31st March, 2019

Balance Sheet As Of 31st March 2019

Working Notes:
1. Purchase of drugs Rs. 2,00,000 includes Rs. 40,000 of 2017-18 and in the Balance Sheet of 2017-18, the outstanding bill of drugs is Rs. 50,000 given. So, Rs. 10,000 is still outstanding.
2. Consumption of drugs:
Opening stock (2017-18) = Rs. 42,000
Add: Purchase of drugs = Rs. 1,60,000
Total = 1,60,000 + 42,000 = Rs. 2,02,000
Less: Closing stock of drugs = Rs. 22,000
Consumption of drugs = 1,80,000
In simple words: This problem involves preparing financial statements for a charitable hospital, requiring careful handling of drug consumption, depreciation on fixed assets like building and ambulance, and capitalization of life membership fees. It highlights the unique accounting aspects of healthcare non-profit organizations.

🎯 Exam Tip: For problems involving consumption of materials (like drugs), always calculate the 'consumption' amount by adjusting opening stock, purchases, and closing stock. Also, ensure that depreciation is correctly calculated on all relevant fixed assets and that all outstanding liabilities (like drug bills) are accurately reflected.