CBSE Class 11 Accountancy Financial Statements Of Not For Profit Organizations Worksheet

Objective Questions

Question. Balance sheet is prepared to know
(a) financial performance.
(b) financial position.
(c) liabilities position.
(d) assets position. 

Answer :  B

Question. Debts that were earlier written off, if recovered, are transferred to the credit side of
(a) Debtors Account.
(b) Trading Account.
(c) Profit and Loss Account.
(d) Provision for Doubtful Debts Account. 

Answer :  C 

Question. Current liabilities are such obligations which are to be satisfied
(a) within one year.
(b) within two years.
(c) within three years.
(d) within four years. 

Answer :  A 

Question. Goods destroyed by fire costing Rs. 50,000 and insurance company admitted 60% claim. The adjustment will be entered in
(a) Trading Account.
(b) Profit and Loss Account.
(c) Balance Sheet.
(d) Trading Account, Profit and Loss Account and Balance Sheet. 

Answer :  D

Question. Depreciation for current year in the Trial Balance is shown in
(a) Debit side of Profit and Loss Account and it is deducted from that particular asset in the Balance Sheet.
(b) Assets side of Balance Sheet as a deduction from the concerned Asset.
(c) Debit side of Profit and Loss Account.
(d) Debit side of Trading Account. 

Answer :  C

Question.  Computers owned by a firm are classified as
(a) Tangible Assets.
(b) Current Assets.
(c) Liquid Assets.
(d) Intangible Assets. 

Answer :  A 

Question. Trading Account is prepared to know
(a) Gross Profit.
(6) Net Profit.
(c) Balance of Capital.
(d) Financial Position. 

Answer :  A

Question. Profit and Loss Account is prepared to know
(a) Gross Profit or Gross Loss.
(6) Net Profit or Net Loss.
(c) Operating Profit or Operating Loss,
(d) Financial Position. 

Answer :  B 

Question. Salaries and Wages Account is shown in
(a) Trading Account.
(b) Profit and Loss Account.
(c) Balance Sheet.
(d) Trading Account and Balance Sheet. 

Answer :  B

Question.  Closing Stock is valued at
(a) Cost.
(b) Net Realisable Value (Market Value).
(c) Cost or Net Realisable Value (Market Value), whichever is more.
(d) Cost or Net Realisable Value, whichever is less. 

Answer :  D 

Question. Revenue Expenditure is transferred to
(a) Profit and Loss Account.
(b) Trading and Profit and Loss Account.
(c) Balance Sheet.
(d) Purchases Account. 

Answer :  B

Question. Outstanding Salaries is shown as
(a) an asset in the Balance Sheet.
(b) a liability in the Balance Sheet.
(c) adjusted in Profit and Loss Account.
(d) both (b) and (c). 

Answer :  D

Question. Large advertisement expenditure to introduce a new product is
(a) Capital Expenditure.
(b) Revenue Expenditure.
(c) Deferred Revenue Expenditure.
(d) None of these. 

Answer :  C

Question. Purchase of machinery for production is
(a) Revenue Expenditure.
(b) Capital Expenditure.
(c) Deferred Revenue Expenditure.
(d) None of these. 

Answer :  B

Question. Which of the following is not the part of Financial Statements?
(a) Trial Balance
(b) Trading Account
(c) Profit and Loss Account
(d) Balance Sheet 

Answer :  A

Very Short Answer Type Questions

Question. The current asset does not include closing stock
Answer: False

Question. Goodwill is
1. Current Asset
2. Tangible Asset
3. Intangible Asset
4. Fictitious Asset
Answer: Intangible Asset

Question. What are the financial statements?
Answer: Financial statement is a statement which presents financial profit data and financial status of a company.

Question. Which is a trading account?
Answer: A trading account is a financial statement that shows the result of the purchase and selling of goods and services of an accounting year.

Question. State the formula to calculate operating profit from net profit.
Answer: Operating Profit = Net Profit – Non-Operating Income + Non-Operating Expenses

Question. Define Balance Sheet.
Answer: A Balance Sheet is a statement which shows the liabilities, assets and shareholder’s equity of the enterprise. This statement comprises of 2 major groups in which it is categorized, namely, assets, which is classified into Non – Current Assets and Current assets. Current Assets are such assets which are easily transformed into cash. On the other hand, the Non – Current Assets are such types of assets with the assistance of which the enterprise operates the enterprise.

Question. Define Net profit
Answer: Net profit refers to the surplus of all the revenues overall expenses and losses of a company.

Question. The purpose of preparing a final account is to determine
1. Profit and Loss
2. Capital
3. The value of Assets
4. Profit and Loss and Financial position
Answer: Profit and Loss and Financial position

Question 1. What are not profit organizations? How are they different from profit seeking organizations?
Answer: Not-for-Profit Organisations (NPOs) are entities set up with the primary objective of providing service to society rather than earning profit. Examples include schools, hospitals, libraries, and sports clubs.
Difference from profit-seeking organizations:
1. Primary Objective: The main aim of NPOs is service to members or the public, whereas profit-seeking organizations aim to earn profits.
2. Financial Statements: NPOs prepare Receipts and Payments Account, Income and Expenditure Account, and Balance Sheet. Profit-seeking organizations prepare Trading and Profit and Loss Account and Balance Sheet.
3. Surplus/Deficit vs Net Profit/Loss: NPOs calculate Surplus or Deficit from their operations, whereas business enterprises calculate Net Profit or Net Loss.
4. Fund Management: NPOs rely on subscriptions, donations, legacies, and grants, and maintain special funds, whereas business concerns rely on capital contributed by owners and borrowings.
In simple words: NPOs exist to serve society without profit motives, while businesses exist primarily to make profits.

Exam Tip: Always highlight the primary motive (service vs profit) and the difference in terminology (Surplus/Deficit vs Net Profit/Loss) when answering this question.

Question 2. Explain the concept of Fund Based Accounting.
Answer: Fund Based Accounting is a system of accounting used by Not-for-Profit Organisations where receipts meant for specific purposes are credited to a specific fund account rather than general income. All expenses and incomes relating to that specific fund are adjusted against that particular fund. For example, if a specific donation is received for a Prize Fund, it is credited to the Prize Fund, and any prizes awarded are deducted from it. If the fund has investments, the interest earned is also added to that fund.
In simple words: Special funds are kept separate so that money given for a specific purpose is only spent on that purpose.

Exam Tip: Remember that if a specific fund liability exists, any income or expense directly related to it must be added or subtracted from the fund balance in the Balance Sheet, not taken to the Income and Expenditure Account.

Question 3. What is a Receipt and Payment A/c? Enumerate its features.
Answer: Receipt and Payment Account is a summarized cash book of a Not-for-Profit Organisation for a given accounting period. It records all cash and bank receipts of a capital and revenue nature, regardless of the period to which they relate.
Features:
1. Nature: It is a real account and is a summary of cash and bank transactions.
2. Basis of Accounting: It is prepared on cash basis of accounting.
3. Nature of Receipts and Payments: It records both capital and revenue transactions.
4. Period: It includes amounts relating to past, current, and future periods as long as cash is received or paid during the current year.
5. Exclusions: Non-cash items like depreciation, outstanding expenses, or accrued incomes are not recorded in it.
6. Opening and Closing Balances: It usually starts with opening cash and bank balances and ends with closing cash and bank balances.
In simple words: It is a summary of all cash coming in and going out during the year, regardless of which year the money belongs to.

Exam Tip: Point out clearly that it records both capital and revenue items and excludes all non-cash adjustments like depreciation.

Question 4. Why is Income and Expenditure A/c prepared? State its features.
Answer: Income and Expenditure Account is prepared to ascertain the surplus or deficit of incomes over expenditures of a Not-for-Profit Organisation for a particular accounting period, similar to a Profit and Loss Account of a business enterprise.
Features:
1. Nature: It is a nominal account.
2. Basis of Accounting: It is prepared on the accrual basis of accounting.
3. Revenue Items Only: It records only revenue incomes and revenue expenses pertaining to the current accounting year. Capital items are strictly excluded.
4. Adjustments: Non-cash items like depreciation, bad debts, outstanding expenses, and prepaid expenses are duly adjusted.
5. Result: The final balance shows either a Surplus (excess of income over expenditure) or a Deficit (excess of expenditure over income), which is transferred to the Capital Fund in the Balance Sheet.
In simple words: It acts like a profit and loss account to find out whether the organization earned more than it spent during the current year.

Exam Tip: Emphasize that it follows the accrual concept and records only current year revenue items.

Question 5. Define and explain the accounting treatment of the following terms:
a) Subscriptions
b) Life membership subscription
c) Entrance fees
d) Legacy
Answer:
a) Subscriptions: Subscriptions are the periodic payments made by members to keep their membership active. They are the main source of regular income for an NPO.
*Treatment:* The amount relating to the current year (after making adjustments for opening and closing outstanding and advance subscriptions) is credited to the Income and Expenditure Account as income. Any advance subscription is shown as a liability, and any outstanding subscription is shown as an asset in the Balance Sheet.
b) Life membership subscription: It is a lump sum amount paid by a member once to become a member for life.
*Treatment:* It is a capital receipt because it is non-recurring in nature. It is directly added to the Capital Fund on the liabilities side of the Balance Sheet.
c) Entrance fees: Entrance fees (or admission fees) are the amount paid by a person at the time of becoming a member of the NPO.
*Treatment:* According to standard practice, if specified by the organization's rules or if the amount is large, it is treated as a capital receipt and added to the Capital Fund. Otherwise, if it is a regular small receipt, it is treated as revenue income and credited to the Income and Expenditure Account.
d) Legacy: Legacy is the amount received by an NPO as per the will of a deceased person.
*Treatment:* Since it is generally non-recurring, it is treated as a capital receipt and capitalized by adding it directly to the Capital Fund on the liabilities side of the Balance Sheet. However, small legacies may be treated as income if permitted.
In simple words: Regular subscriptions go to income, while one-time amounts like life membership, large entrance fees, and legacies go straight to the capital fund.

Exam Tip: Clearly distinguish between revenue items (regular subscriptions) and capital items (life membership, legacy) as this is heavily tested in numerical adjustments.

Question 6. Distinguish between:
a) Receipts and Payments A/c and Income and Expenditure A/c
b) Income and Expenditure A/c and Profit and Loss A/c.
c) Receipts and Payments A/c and Cash book.
Answer:
a) Distinguish between Receipts and Payments A/c and Income and Expenditure A/c:
1. Nature: Receipts and Payments A/c is a summary of cash transactions, whereas Income and Expenditure A/c is a summary of incomes and expenses on accrual basis.
2. Nature of Items: Receipts and Payments A/c records both capital and revenue items. Income and Expenditure A/c records only revenue items.
3. Period: Receipts and Payments A/c includes amounts relating to past, current, and future periods. Income and Expenditure A/c includes only current period items.
4. Non-Cash Items: Receipts and Payments A/c does not include non-cash items like depreciation. Income and Expenditure A/c includes non-cash items.
5. Final Balance: Receipts and Payments A/c ends with cash and bank balances. Income and Expenditure A/c ends with a Surplus or Deficit.

b) Distinguish between Income and Expenditure A/c and Profit and Loss A/c:
1. Primary Objective: Income and Expenditure A/c is prepared by NPOs to find surplus or deficit. Profit and Loss A/c is prepared by business entities to find net profit or net loss.
2. Funders/Owners: Income and Expenditure A/c does not distribute profit to owners; surplus is added to the Capital Fund. Profit and Loss A/c net profit is added to capital or distributed among proprietors/partners.

c) Distinguish between Receipts and Payments A/c and Cash book:
1. Chronological Recording: A Cash Book records transactions day-to-day chronologically. Receipts and Payments A/c is a periodic summary of the Cash Book.
2. Preparation Source: A Cash Book is prepared directly from source documents. Receipts and Payments A/c is prepared from the Cash Book at the end of the accounting period.
In simple words: Receipts and Payments records all cash movements, while Income and Expenditure records accrual-based income and expenses for the year.

Exam Tip: Structure differences in tabular format in exams using clear points like Nature, Basis, and Items included to secure full marks.

Question 7. How will you deal with the given information while preparing the final accounts for the year 2002:
Subscription received during 2002: for 2001- Rs. 5,000; for 2002- Rs. 30,000; for 2003- Rs. 6,000
Subscription received in advance as at 31.12.2001- Rs. 6,000
Subscription outstanding as at 31.12.2001- Rs. 6,000
Subscription outstanding for the year 2002- Rs. 4,000
Answer:
Calculation of Subscriptions to be credited to Income and Expenditure Account for the year 2002:
Subscription received for 2002 = Rs. 30,000
Add: Subscription outstanding for the year 2002 = Rs. 4,000
Add: Subscription received in advance as at 31.12.2001 (pertaining to 2002) = Rs. 6,000
Total subscription to be credited to Income and Expenditure A/c = \(30,000 + 4,000 + 6,000 =\) Rs. 40,000

Treatment in Balance Sheet as on 31.12.2002:
1. Liabilities Side: Subscription received in advance for 2003 = Rs. 6,000.
2. Assets Side: Subscription outstanding for the year 2002 = Rs. 4,000.
(Note: Out of the Rs. 6,000 outstanding at the beginning for 2001, Rs. 5,000 was received during 2002. The remaining Rs. 1,000 for 2001 is still outstanding and should be added to the opening outstanding unless written off, but here only current year outstanding is given as Rs. 4,000).
In simple words: Take current year's received subscription, add outstanding at the end, and add advance received at the beginning to find total income.

Exam Tip: Always start with the total subscription received for the current year and carefully add or subtract beginning/ending outstanding and advance amounts using standard formulas.

Question 8. Calculate the amount of subscriptions to be credited to the Income and Expenditure A/c for the year ending 31st March, 2003:
Subscription in arrears on 31.3.2002- Rs. 500
Subscription received in advance on 31.3.2002- Rs. 1,100
Total subscription received during 2002-03 (including Rs. 400 for 2001-02, Rs. 900 for 2003-04 and Rs. 300 for 2004-05)- Rs. 35,400
Subscription outstanding for 2002-03- Rs. 400
Answer:
Calculation of Subscriptions to be credited to Income and Expenditure Account for the year ending 31st March, 2003:
Total subscription received during the year = Rs. 35,400
Less: Subscription for 2001-02 included = Rs. 400
Less: Subscription for 2003-04 included = Rs. 900
Less: Subscription for 2004-05 included = Rs. 300
Subscription pertaining to 2002-03 received during the year = \(35,400 - (400 + 900 + 300) = 35,400 - 1,600 =\) Rs. 33,800
Add: Subscription outstanding for 2002-03 = Rs. 400
Add: Subscription received in advance on 31.3.2002 (pertaining to 2002-03) = Rs. 1,100
Total subscription to be credited to Income and Expenditure A/c = \(33,800 + 400 + 1,100 =\) Rs. 35,300
In simple words: Strip out past and future year amounts from total cash received, then add current year's outstanding and last year's advance.

Exam Tip: When total cash received includes other years, subtract them first before adding the current year's accruals and advance openings.

Question 9. From the following extracts of the Receipts and Payments A/c and the additional information, you are required to compute the income from subscription for the year ending on 31st December, 2002 and show the subscription items in the Income & Expenditure A/c and the Balance Sheet as on 31.12.2002.
An extract of Receipts and Payments A/c for the year ending On 31st December, 2002:
Receipts: To subscriptions: 2001: Rs. 9,000; 2002: Rs. 1,34,400; 2003: Rs. 5,200
Information: Subscription outstanding as on 31.12.2001- Rs. 9,200; subscription received in advance as on 31.12.2001- Rs. 2,800 (including Rs. 800 for 2002). There are 1,440 members each paying an annual subscription of Rs. 100.
Answer:
Method 1: Calculation based on membership details:
Total members = 1,440
Annual subscription per member = Rs. 100
Total subscription income for the current year (2002) = \(1,440 \times 100 =\) Rs. 1,44,000.

Method 2: Verification using Receipts and Payments data:
Subscription received for 2002 during the year = Rs. 1,34,400
Add: Subscription outstanding for 2002 (Total due \(1,44,000 - 1,34,400\) received) = Rs. 9,600
Total Income to be credited to Income and Expenditure A/c = Rs. 1,44,000.

Balance Sheet as on 31.12.2002:
1. Liabilities Side: Subscription received in advance for 2003 = Rs. 5,200.
2. Assets Side:
- Subscription outstanding for 2002 = Rs. 9,600
- Subscription outstanding for 2001 = \(9,200 - 9,000\) (received) = Rs. 200
Total outstanding subscriptions in Assets = \(9,600 + 200 =\) Rs. 9,800.
In simple words: When member count and fee are given, total subscription income is simply members multiplied by fee.

Exam Tip: Always cross-check your subscription income with the number of members multiplied by the annual fee if membership data is provided in the problem.

Question 10. How will you deal with the following items while preparing the Income and Expenditure A/c for the year ending on 31st December, 2003 and the Balance Sheet as on that date?
Subscription outstanding as on 31.12.2002- Rs. 9,500 (including Rs. 500 for 2001), subscription received in advance as on 31.12.2002- Rs. 3,000 (including Rs. 200 for 2004)
Subscription received during 2003: For 2001- Rs. 400; for 2002- Rs. 8,900; for 2003- Rs. 1,34,400; for 2004- Rs. 4,000; for 2005- Rs. 1,200
Subscription outstanding as on 31.12.2003- Rs. 7,000
Answer:
Calculation of Subscriptions to be credited to Income and Expenditure Account for the year 2003:
Subscription received for 2003 = Rs. 1,34,400
Add: Subscription outstanding for 2003 at the end = Rs. 7,000
Add: Subscription received in advance for 2003 (received in 2002, out of total advance of Rs. 3,000, advance for 2003 is \(3,000 - 200\) for 2004 = Rs. 2,800)
Total subscription to be credited to Income and Expenditure A/c = \(1,34,400 + 7,000 + 2,800 =\) Rs. 1,44,200.

Treatment in Balance Sheet as on 31.12.2003:
1. Liabilities Side:
- Subscription received in advance for 2004 = Rs. 4,000 + Rs. 200 (from previous advance) = Rs. 4,200
- Subscription received in advance for 2005 = Rs. 1,200
Total advance subscription = \(4,200 + 1,200 =\) Rs. 5,400.
2. Assets Side:
- Subscription outstanding for 2003 = Rs. 7,000.
- Subscription outstanding for 2002 = \(9,500 - 500 (\text{for } 2001) - 8,900 (\text{received in } 2003) =\) Rs. 100.
Total outstanding subscription = \(7,000 + 100 =\) Rs. 7,100.
In simple words: Carefully segregate cash received for 2003, add ending outstanding, add beginning advance for 2003, and place remaining balances in the balance sheet.

Exam Tip: Maintain separate working notes for past, current, and future years to avoid mixing up opening and closing outstandings and advances.

Question 11. How will you deal with the following items while preparing the Income & Expenditure A/c for the year ending on 31st March, 2002 and a Balance Sheet as on that date:
As at 1.4.2001: Amount due to suppliers of sports materials - Rs. 15,000; Advances to suppliers of sports materials - Rs. 5,000; Stock of sports materials - Rs. 15,000
As at 31.3.2002: Amount due to suppliers of sports materials - Rs. 9,750; Advances to suppliers of sports materials - Rs. 3,250; Stock of sports materials - Rs. 2,500
During 2001-02, the payment made to the suppliers of sports materials was Rs. 54,000.
Cash purchases - Rs. 8,000
Answer:
Step 1: Calculate Total Credit Purchases of sports materials using Creditors for Sports Materials Account:
Opening Creditors (1.4.2001) = Rs. 15,000
Closing Creditors (31.3.2002) = Rs. 9,750
Opening Advance to suppliers (1.4.2001) = Rs. 5,000
Closing Advance to suppliers (31.3.2002) = Rs. 3,250
Payment made to suppliers = Rs. 54,000
Credit Purchases = Payment made + Closing Creditors - Opening Creditors + Opening Advance - Closing Advance
\(= 54,000 + 9,750 - 15,000 + 5,000 - 3,250 =\) Rs. 50,500.

Step 2: Calculate Total Purchases of sports materials:
Total Purchases = Credit Purchases + Cash Purchases = \(50,500 + 8,000 =\) Rs. 58,500.

Step 3: Calculate Cost of Sports Materials Consumed during the year:
Opening Stock (1.4.2001) = Rs. 15,000
Add: Total Purchases = Rs. 58,500
Less: Closing Stock (31.3.2002) = Rs. 2,500
Cost of Sports Materials Consumed = \(15,000 + 58,500 - 2,500 =\) Rs. 71,000.

Treatment in Final Accounts:
1. Income and Expenditure Account (Expenditure side): Debited with 'Cost of sports materials consumed' = Rs. 71,000.
2. Balance Sheet as on 31.3.2002:
- Assets Side: Stock of sports materials = Rs. 2,500; Advance to suppliers = Rs. 3,250.
- Liabilities Side: Amount due to suppliers (Creditors) = Rs. 9,750.
In simple words: Find total purchases using creditors and advance accounts, then add opening stock and subtract closing stock to find material consumed.

Exam Tip: For consumable items like sports material or stationery, always prepare a Creditors Account to find credit purchases before calculating the material consumed.

Question 12. How will you deal with the following items while preparing the final accounts for the year ending 31.3.2002:
Prizes awarded - Rs. 2,000; Prize fund as at 31.3.2001 - Rs. 12,000; Donations for prizes received during the Year 2001-2002 - Rs. 2,800; 10% Prize fund investments as at 31.3.2001 - Rs. 12,000; interest received on Prize fund investments - Rs. 800
Answer:
Calculation of Prize Fund balance for Balance Sheet as on 31.3.2002:
Opening Prize Fund (as at 31.3.2001) = Rs. 12,000
Add: Donations for prizes received = Rs. 2,800
Add: Interest received on Prize Fund Investments = Rs. 800
(Note: Accrued interest on investments = \(10\% \text{ of } 12,000 = 1,200\). Since only Rs. 800 is received, accrued interest of \(1,200 - 800 =\) Rs. 400 should also be added to the fund and shown as accrued interest on assets side).
Total fund available before awards = \(12,000 + 2,800 + 1,200 =\) Rs. 16,000.
Less: Prizes awarded = Rs. 2,000
Closing Prize Fund balance = \(16,000 - 2,000 =\) Rs. 14,000.

Treatment in Final Accounts:
1. Income and Expenditure Account: Neither the prizes awarded nor the donations and interest are taken to Income and Expenditure Account because it is a specific fund item (Fund Based Accounting).
2. Balance Sheet as on 31.3.2002:
- Liabilities Side: Prize Fund = Rs. 14,000.
- Assets Side: 10% Prize Fund Investments = Rs. 12,000; Accrued Interest on Prize Fund Investments = Rs. 400.
In simple words: Since this is a specific prize fund, add donations and interest to the fund and subtract prizes awarded directly on the balance sheet liabilities side.

Exam Tip: Never take specific fund expenses or incomes to the Income and Expenditure Account; they must be adjusted strictly within the respective fund in the Balance Sheet.