Samacheer Kalvi Class 12 Accountancy Solutions Chapter 2 Accounts of Not-for-profit Organisation

Tamilnadu Samacheer Kalvi 12th Accountancy Solutions Chapter 2 Accounts of Not-For-Profit Organisation

12th Accountancy Guide Accounts of Not-For-Profit Organisation Text Book Back Questions and Answers

I Multiple Choice Questions

Choose the correct answer

 

Question 1. Receipts and payments account is a
(a) Nominal A/c
(b) Real A/c
(c) Personal A/c
(d) Representative personal account
Answer: (b) Real A/c
In simple words: A receipts and payments account works like a cash book, tracking all actual money coming in and going out. It is considered a real account because it deals with real assets like cash and bank balances. This account helps track the flow of physical money.

🎯 Exam Tip: Remember that "Real A/c" relates to assets and liabilities, focusing on actual cash transactions rather than income or expenses that are not yet paid.

 

Question 2. Receipts and payments account records receipts and payments of
(a) Revenue nature only
(b) Capital nature only
(c) Both revenue and capital nature
(d) None of the options
Answer: (c) Both revenue and capital nature
In simple words: This account records all money transactions, whether they are everyday small incomes/expenses (revenue) or large, one-time transactions like buying assets (capital). It shows all cash movements, no matter their type.

🎯 Exam Tip: Receipts and Payments accounts act like a cash book, so every cash transaction, big or small, recurring or non-recurring, is included, regardless of its classification as revenue or capital.

 

Question 3. Balance of receipts and payments account indicates the
(a) Loss incurred during the period
(b) Excess of income over expenditure of the period
(c) Total cash payments during the period
(d) Cash and bank balance as on the date
Answer: (d) Cash and bank balance as on the date
In simple words: The final amount left in the receipts and payments account tells you how much cash and money in the bank the organization has at the end of the accounting period. It simply shows the total money available.

🎯 Exam Tip: Always remember that the closing balance of a Receipts and Payments account represents the actual cash and bank position, similar to a cash book, not profit or loss.

 

Question 4. Income and expenditure account is a
(a) Nominal A/c
(b) Real A/c
(c) Personal A/c
(d) Representative personal account
Answer: (a) Nominal A/c
In simple words: An income and expenditure account is like a profit and loss account. It records all incomes and expenses to find out if the organization has a surplus or a deficit, making it a nominal account. It helps in understanding the financial performance over a period.

🎯 Exam Tip: Nominal accounts are used for incomes, expenses, gains, and losses, which perfectly aligns with the purpose of an income and expenditure account to determine surplus or deficit.

 

Question 5. Income and expenditure Account is prepared to find out
(a) Profit or loss
(b) Cash and bank balance
(c) Surplus or deficit
(d) Financial position
Answer: (c) Surplus or deficit
In simple words: This account is made to see if the organization spent more money than it earned (a deficit) or earned more than it spent (a surplus) during a specific time. It tells us about the financial results for the period.

🎯 Exam Tip: Unlike commercial businesses that aim for profit, not-for-profit organizations aim for a 'surplus' if income exceeds expenditure, or a 'deficit' if expenditure exceeds income.

 

Question 6. Which of the following should not be recorded in the income and expenditure account?
(a) Sale of old news papers
(b) Loss on sale of asset
(c) Honorarium paid to the secretary
(d) Sale proceeds of furniture
Answer: (d) Sale proceeds of furniture
In simple words: Selling furniture is a capital receipt, meaning it's a large, non-recurring transaction related to an asset. The income and expenditure account only records revenue items (regular income and expenses), not capital items like the full sale amount of an asset. Only any profit or loss from the sale of furniture would be recorded.

🎯 Exam Tip: Distinguish between revenue items (regular, recurring income/expenses) and capital items (large, non-recurring transactions involving assets/liabilities). Income and Expenditure accounts only deal with revenue items and the profit/loss on sale of assets, not the full sale proceeds.

 

Question 7. Subsceiption due but not received for the current year is
(a) An asset
(c) An expense
(b) A liability
(d) An item to be ignored
Answer: (a) An asset
In simple words: If money from subscriptions is owed to the organization but has not been received yet, it is considered an asset. This is because the organization has a right to receive that money in the future. It's like a promise of money that is yet to come in.

🎯 Exam Tip: Amounts receivable (like outstanding subscriptions) are always treated as current assets because they represent future economic benefits for the organization.

 

Question 8. Legacy is a
(a) Revenue expenditure
(b) Capital expenditure
(c) Revenue receipt
(d) Capital receipt
Answer: (d) Capital receipt
In simple words: A legacy is a gift received by an organization through a will after someone passes away. These are usually large, one-time amounts, so they are treated as capital receipts, increasing the organization's long-term funds. Legacies contribute to the permanent funds of the organization.

🎯 Exam Tip: Legacies are generally considered capital receipts because they are non-recurring, substantial, and intended for long-term use, forming part of the capital fund.

 

Question 9. Donations received for a specific purpose is
(a) Revenue receipt
(b) Capital receipt
(c) Revenue expenditure
(d) Capital expenditure
Answer: (b) Capital receipt
In simple words: When a donation is given for a specific reason, like building a new hall or buying equipment, it's considered a capital receipt. This is because it's not meant for everyday expenses but for a particular long-term goal. Such donations are restricted to their stated purpose.

🎯 Exam Tip: Always treat specific donations as capital receipts and show them on the liabilities side of the balance sheet, as they are funds designated for a particular purpose and not freely available for general expenses.

 

Question 10. There are 500 members in a club each paying Rs 100 as annual subscription. Subscription due but not received for the current year is Rs 200; Subscription received in advance is Rs 300. Find out the amount of subscription to be shown in the income and expend; account.
(a) Rs 50,500
(b) Rs 50,200
(c) Rs 49,900
(d) Rs 49,800
Answer: (a) Rs 50,500
In simple words: To find the correct subscription amount for the income and expenditure account, we start with the total expected from members. Then, we add any outstanding amounts from the current year, because that money is still due. Finally, we subtract any money received in advance for the next year, since that doesn't belong to the current year's income. This calculation ensures that only the subscription income for the current period is included.

🎯 Exam Tip: When calculating subscription income for the Income and Expenditure Account, always adjust for outstanding and advance receipts/payments to reflect only the current year's accrual.

II Very Short Answer Questions

 

Question 1. State the meanting of not-for-profit organisation.
Answer: Not-for-profit organizations are set up to offer services to the public without aiming to make a profit. They are formed to promote things like art, culture, education, and sports. Their main goal is to serve the community rather than generating earnings. These organizations use any surplus funds to further their objectives.
In simple words: These organizations work to help people or promote good causes, not to make money.

🎯 Exam Tip: Key terms for defining not-for-profit organizations are "service motive," "no profit motive," and "promotion of welfare."

 

Question 2. What is receipts any payments account?
Answer: A Receipts and Payments account is a summary of all cash and bank transactions for a not-for-profit organization. It is prepared at the end of each financial year, starting with opening cash and bank balances and ending with closing balances. All money received is recorded on the debit side, and all payments are recorded on the credit side, regardless of whether they are for capital or revenue purposes or which period they relate to. This account provides a clear picture of actual cash flows during the year. It works like a simple cash book, showing all money movements.
In simple words: It is a summary of all the money an organization gets and spends, acting like a simple cash book for the year.

🎯 Exam Tip: Emphasize that a Receipts and Payments account is a real account, records both capital and revenue items, and shows only cash transactions, irrespective of the period they belong to.

 

Question 3. What is Legacy?
Answer: A legacy is a significant gift or donation received by a not-for-profit organization through someone's will after their death. Since it is typically a large, one-time receipt, it is treated as a capital receipt. Legacies often contribute to the permanent funds of the organization. This type of income helps to build the organization's long-term financial base.
In simple words: A legacy is a big gift of money an organization gets from someone's will after they pass away, used for long-term goals.

🎯 Exam Tip: Note that legacies are considered capital receipts and are usually added to the capital fund or shown separately on the liabilities side of the balance sheet, as they are not meant for routine expenses.

 

Question 4. Write a short note on life membership fees.
Answer: Life membership fees are amounts received from members for their entire lifetime membership in an organization. Since these fees are non-recurring and grant membership for a long period, they are treated as capital receipts. This means they are added to the organization's capital fund. These fees help in building the organization's permanent financial base.
In simple words: Life membership fees are one-time payments from members for lifelong membership, treated as long-term funds for the organization.

🎯 Exam Tip: Life membership fees are capital receipts because they are non-recurring and provide benefits for an extended period, thus contributing to the capital fund.

 

Question 5. Give four examples for Capital r pts of not-for-profit organisation.
Answer: Four examples of capital receipts for a not-for-profit organization are:
(i) Life membership fees
(ii) Legacies
(iii) Specific donations
(iv) Sale of fixed assets
These receipts are generally large, non-recurring, and contribute to the long-term funds of the organization. They are important for the organization's financial stability.
In simple words: Capital receipts are big, one-time money inflows like membership fees for life, gifts from wills, donations for special projects, or money from selling old things the organization owns.

🎯 Exam Tip: Capital receipts are distinguished by their non-recurring nature and their role in increasing the capital fund or creating/acquiring fixed assets.

 

Question 6. Give four examples for revenue receipts of not-for-profit organisation?
Answer: Four examples of revenue receipts for a not-for-profit organization are:
(i) Subscription
(ii) Interest on investment
(iii) Interest on fixed deposit
(iv) Sale of (old) sports materials
These are regular, recurring income sources that help fund the daily operations and running expenses of the organization. These receipts are essential for the ongoing activities of the club.
In simple words: Revenue receipts are regular money an organization gets, like membership fees, interest from savings, or money from selling old newspapers or sports items.

🎯 Exam Tip: Revenue receipts are typically recurring in nature, earned during the normal course of operations, and are credited to the Income and Expenditure Account.

III Short Answer Questions

 

Question 1. What is income and expenditure account?
Answer: An Income and Expenditure account is a financial statement prepared by not-for-profit organizations at the end of an accounting year. Its main purpose is to determine the surplus (when income exceeds expenditure) or deficit (when expenditure exceeds income) for a specific period. It is a nominal account that records only revenue receipts and revenue expenditures related to the current year, following the accrual basis of accounting. This account gives a true picture of the organization's financial performance.
In simple words: It's a yearly report showing if a non-profit organization earned more money than it spent (surplus) or spent more than it earned (deficit), focusing only on regular income and costs for that year.

🎯 Exam Tip: Highlight that the Income and Expenditure Account is based on the accrual system, includes only revenue items of the current period, and identifies surplus or deficit, not cash balance.

 

Question 2. State the differences between Receipts and Payments Account and Income and Expenditure Account
Answer: The main differences between a Receipts and Payments Account and an Income and Expenditure Account are:

In simple words: The Receipts and Payments Account shows all actual money in and out, like a cash book. The Income and Expenditure Account shows if the organization made a surplus or deficit, like a profit and loss account, only for the current year's regular items.

🎯 Exam Tip: Clearly state that Receipts and Payments account is a Real account and follows cash basis, while Income and Expenditure account is a Nominal account and follows accrual basis, focusing on their distinct purposes.

 

Question 3. How annual subscription is dealt with in the final accounts of not-for-profit organisation?
Answer: Annual subscription is a key source of revenue for not-for-profit organizations. In the final accounts, it is recognized on an accrual basis in the Income and Expenditure Account for the current period. Adjustments are made for subscriptions received in advance or outstanding (due but not yet received). These adjustments ensure that only the income related to the current financial year is shown, regardless of when the cash was actually received or paid.
For the Balance Sheet, advance subscriptions are shown as a liability, and outstanding subscriptions are shown as an asset. This detailed treatment helps reflect the true financial position of the organization.

In simple words: Annual subscriptions are treated carefully: only money earned for the current year is counted as income. Any money received early for future years is a debt, and money owed for the current year is an asset.

🎯 Exam Tip: Always adjust subscriptions for outstanding amounts (add current year, subtract previous year) and advances (subtract current year's advance, add previous year's advance for current year) to determine the income for the Income and Expenditure Account.

 

Question 4. How the following items are dealt with in the final accounts of not-for-profit organisation? (a) Sale of sports materials (b) Life membership fees (c) Tournament fund
Answer: Here's how each item is handled in the final accounts of a not-for-profit organization:
(a) Sale of sports materials: The proceeds from the sale of old or used sports materials are treated as a revenue receipt. This amount is shown on the credit side of the Income and Expenditure Account. Such sales contribute to the general income of the organization.
(b) Life membership fees: These fees are considered capital receipts because they are non-recurring and grant long-term membership. Therefore, they are shown on the liabilities side of the Balance Sheet. They add to the organization's permanent capital fund.
(c) Tournament Fund: A tournament fund is a specific fund created for organizing tournaments. It is treated as a capital receipt and shown on the liabilities side of the Balance Sheet. All income related to the tournament (like ticket sales) is added to this fund, and all expenses for the tournament are deducted from it. This ensures proper accounting for dedicated funds.
In simple words: Selling old sports stuff is regular income. Life membership fees are long-term money kept aside. A tournament fund is special money only for tournaments.

🎯 Exam Tip: Differentiate between revenue (recurring for daily operations) and capital (non-recurring for long-term assets or specific purposes) items in both Receipts and Payments and Income and Expenditure Accounts, as well as the Balance Sheet.

IV Exercise

 

Question 1. From the information given below, prepare Receipts and Payments account of Kurunji Sports Club for the year ended 31st December, 2018
Answer:

Solution: In the books of Kurunji Sports Club Receipts & Payments A/c for the year ended 31.12.2018

Cash balance: Rs 5,000
In simple words: We list all money received (cash in hand, membership fees, subscriptions, rent, locker rent, tournament receipts) on the left side, and all money paid out (salaries, printing, tournament expenses, investments) on the right. The leftover money is the closing cash balance.

🎯 Exam Tip: Remember to always include the opening cash balance as a receipt and the closing cash balance as a payment (balancing figure) in a Receipts and Payments account.

 

Question 2. From the information given below, prepare Receipts and Payments account of Coimbatore Cricket club for the year ending 31st March, 2019.
Answer:

Solution: In the book of Coimbatore Cricket Club/Receipts & Payments A/c for the year ended 31.3.2019

Answer: Bank balance: Rs 2,400. Wages yet to be paid are a non-cash item. Therefore, they are not included in the receipts and payments account.
In simple words: We put all the money received (like cash in hand, subscriptions, match fund money, gifts) on the left side. All the money paid out (like previous bank overdraft, wages, interest, honorarium, match expenses, sports materials) goes on the right. The leftover money is the final cash and bank balance. We don't include things that are owed but not yet paid, like wages, because this account only tracks actual money movement.

🎯 Exam Tip: Always remember that the Receipts and Payments account strictly follows the cash basis of accounting, meaning only actual cash transactions are recorded, not accrued or outstanding items.

 

Question 3. From the information given below, prepare Receipts and Payments account of Madurai Mother Theresa Mahalir Madram for the year ended 31st December, 2018.
Answer:

Solution: In the book of Mother Teresa Mahalir Mandram, Madurai Receipt & Payment A/c for the year ended 31.12.2018

Answer: Bank Overdraft: Rs 4,700. Depreciation on furniture is a non-cash item, so it is not included in the receipts and payments account.
In simple words: We list all money received (like opening cash/bank, sales, entrance fees, interest, subscriptions) on the left side, and all money paid out (like stationery, audit fees, scholarships, insurance, furniture purchases, conveyance) on the right. The final money balance is either cash in hand or an overdraft. Things like depreciation are not included because no actual cash is exchanged.

🎯 Exam Tip: Remember that depreciation is a non-cash expense and should never be included in a Receipts and Payments account, which only records actual cash movements.

 

Question 4. Mayiladuthrai Recreation Club gives you the following details. Prepare Receipts and Payments account for the year ended 31st March, 2019.
Answer:

Solution: In the books of Mayiladuthurai Recreation Club Receipts & Payments A/c for the year ended 31.3.2019

Answer: Bank balance: Rs 50,000.
In simple words: We record all the money the club received (like opening cash, donations, sales, collections from events) on one side, and all the money it paid out (like salaries, rent, club expenses, buying things) on the other. The final amount of cash and bank balance is calculated at the end.

🎯 Exam Tip: Ensure all opening balances are correctly recorded as receipts and all closing balances as payments to balance the Receipts and Payments account.

 

Question 5. From the following information, prepare Receipts and Payments account of Cuddalore Kabaddi Association for the year ended 31st March, 2019
Answer:

Solution: In the books of Cuddalore Kabaddi Association Receipts & Payments A/c for the year ended 31.3.2019

Answer: Bank Overdraft: Rs 4,500.
In simple words: We record all money received by the association (like opening cash, dividends, grants, admission fees) on the left side, and all money paid out (like opening bank overdraft, stationery, travel, expenses, insurance, electricity) on the right side. The final cash balance is then determined.

🎯 Exam Tip: Always start a Receipts and Payments account with the opening cash/bank balances and end with the closing cash/bank balances, ensuring all cash inflows and outflows are captured.

 

Question 6. From the following receipts and payments account of Tenkasi Ihiruvalluvar Mandram, Prepare income and expenditure account for the year ended 31st March, 2019.
Answer:

In this income and expenditure account, the club has a surplus of Rs 2,300, which means its income was higher than its expenses for the year. The capital fund on 1st January 2018 was Rs 30,000. For sports materials, the opening stock was Rs 3,000, purchases were Rs 13,000, and closing stock was Rs 5,000.
In simple words: The club earned more money than it spent, resulting in a surplus of Rs 2,300. The total value of sports materials used during the year was calculated by adding purchases to opening stock and subtracting closing stock.

🎯 Exam Tip: Remember to adjust for opening and closing stock when calculating the consumption of materials, as only the amount used is an expense for the Income and Expenditure Account.

 

Question 7. From the following receipts and payment account, prepare income and expenditure account of Kumbakonam Basket Ball Association for the year ended 31st March, 2018.
Answer:

The Income and Expenditure Account for Kumbakonam Basket Ball Association shows a deficit of Rs 26,000. This means the association spent Rs 26,000 more than it earned during the financial year. Key expenses included rent, printing, bank charges, insurance, audit fees, and sports materials, while income came from hall rent, subscriptions, and locker rent.
In simple words: The association spent much more money than it brought in this year, leading to a shortage of Rs 26,000. It's like spending Rs 43,000 but only earning Rs 17,000.

🎯 Exam Tip: A deficit occurs when total expenses exceed total income. It's crucial to identify all revenue and capital items correctly to avoid misclassifications in the Income and Expenditure Account.

 

Question 8. From the following receipts and payments account and the additional information given below, calculate the amount of subscription to be shown in Income and expenditure account for the year ending 31st December, 2018.
Answer:

The total subscription amount to be shown in the Income and Expenditure Account for the year 2018 is Rs 1,80,000. This is calculated by taking the subscription received during the year (Rs 1,72,000) and adding the outstanding subscription for the current year (Rs 8,000). The goal is to reflect the actual income earned for the specific period, regardless of when cash was received.
In simple words: To find the total subscription income for 2018, we add the money received during the year to any money still owed for that year. This makes sure we count all the income that belongs to 2018.

🎯 Exam Tip: Always remember to adjust for outstanding (due) and prepaid (received in advance) subscriptions to correctly calculate the income for the current accounting period under the accrual basis.

 

Question 9. How the following items will appear in the final accounts of a club for the year ending 31st March 2019?
Answer:

For the year ending 31st March 2019, the Income and Expenditure Account will show subscription income of Rs 80,000. This is calculated by adding the subscription received for the current year (Rs 50,000) and the outstanding subscription for the same year (Rs 30,000). The Balance Sheet as of 31st March 2019 will report the pre-received subscription of Rs 5,000 as a liability and outstanding subscriptions for 2017-2018 (Rs 2,000) and 2018-2019 (Rs 30,000) as assets. This ensures that all incomes and liabilities are properly accounted for in the club's financial statements.
In simple words: The club's income statement will show Rs 80,000 from subscriptions because we count both the money received and the money still owed for the current year. On the balance sheet, money received in advance is a debt, and money still owed to the club is an asset.

🎯 Exam Tip: When preparing final accounts, carefully distinguish between subscriptions related to the current year, previous years, and future years to ensure accurate income recognition and balance sheet representation.

 

Question 10. How will the following items appear in the final accounts of a club for the year ending 31st March 2017? Received subscription of Rs 40,000 during the year 2016-17. This includes subscription of Rs 5,000 for 2015-16 and Rs 3,000 for the year 2017-18. subscription of Rs 1,000 is still outstanding for the year 2016-17.
Answer:

For the year ending 31st March 2017, the Income and Expenditure Account will show a subscription income of Rs 33,000. This is determined by adjusting the total subscription received (Rs 40,000) for previous year's subscription included (Rs 5,000), next year's subscription included (Rs 3,000), and current year's outstanding subscription (Rs 1,000). The Balance Sheet will present the Rs 3,000 subscription received in advance as a liability and the Rs 1,000 outstanding subscription as an asset. These adjustments are crucial for showing the true income for the accounting period.
In simple words: The subscription income for the year is Rs 33,000. We get this by taking all the money received, then removing money for last year and next year, and adding money still owed for this year. Money for next year is a debt, and money owed to us for this year is an asset.

🎯 Exam Tip: Always make sure to consider all adjustments for outstanding and advance receipts/payments of subscriptions to calculate the exact income/expense for the current year. This is a common area for errors in NPO accounting.

 

Question 11. Compute income from subscription for the year 2018 from the following particulars relating to a club.
Answer:

The total income from subscription to be shown in the Income and Expenditure Account for the year 2018 is Rs 44,000. This is calculated by taking the subscription received during the year (Rs 45,000), adding current year's outstanding subscription (Rs 5,000) and previous year's advance subscription received for 2018 (Rs 4,000). Then, we subtract last year's outstanding subscription received in 2018 (Rs 3,000) and current year's advance subscription for 2019 (Rs 7,000). This process ensures that only the income related to the current year is recognized.
In simple words: To find the exact subscription money for 2018, we add the money still owed for 2018 and money received early in 2017 for 2018 to the total collected. Then we subtract money collected in 2018 that was for 2017 or for 2019. This gives us Rs 44,000 as the true income.

🎯 Exam Tip: When calculating subscription income, ensure that all adjustments for outstanding and advance amounts for both the current and previous/next years are correctly applied to arrive at the actual income for the current period.

 

Question 12. From the following particulars, show how the item 'Subscription' will appear in the Income and Expenditure Account for the year ended 31.12.2018?
Answer:

The subscription income for the year ending 31.12.2018 is Rs 48,000. This figure is arrived at by taking the total subscription received (Rs 50,000), then subtracting Rs 5,000 for outstanding subscription from 2017 that was received in 2018, and Rs 7,000 received in advance for 2019. We then add Rs 6,000 for the outstanding subscription for 2018 and Rs 4,000 received in advance during 2017 for 2018. This detailed calculation ensures that the Income and Expenditure Account accurately reflects only the income earned during the specific financial year.
In simple words: To get the correct subscription income for 2018, we start with the total money received. We remove money that was for last year or next year, and add money that was owed for this year or received early last year for this year. This gives us the accurate income for just 2018.

🎯 Exam Tip: Always make a clear working note for subscription calculations, detailing the adjustments for opening/closing outstanding and advance subscriptions to avoid mistakes.

 

Question 13. How the following items appear in the final accounts of Thoothukudi Young Pioneers Association?
Answer:

For the Thoothukudi Young Pioneers Association, the Income and Expenditure Account will show a total subscription income of Rs 2,500. This is calculated based on 100 members paying Rs 25 each, including Rs 250 for outstanding subscriptions for the current year. The Balance Sheet will list Rs 100 as a liability for subscriptions received in advance for the next year (4 members x Rs 25) and Rs 250 as an asset for outstanding subscriptions for the current year (10 members x Rs 25). This ensures that the financial statements accurately reflect all relevant subscription figures.
In simple words: The association expects Rs 2,500 from subscriptions each year. Some of this money is still owed, and some was paid early for next year. The Income Statement will show the Rs 2,500 total, while the Balance Sheet will show the money still owed as an asset and the money paid early as a debt.

🎯 Exam Tip: Always calculate the total expected subscription from all members for the year first, then adjust for any outstanding or pre-received amounts to find the exact figure for the Income and Expenditure Account.

 

Question 14. How will the following appear in the final accounts of Marthadam Women Cultural Association?
Answer:

For the Marthadam Women Cultural Association, the Income and Expenditure Account for the year ended 31.3.2019 will show Rs 90,000 as the value of sports materials consumed. This is calculated by adding the opening stock of Rs 16,000 to the purchases of Rs 84,000, and then subtracting the closing stock of Rs 10,000. On the Balance Sheet as of 31.3.2019, the remaining stock of sports materials, valued at Rs 10,000, will be shown as an asset. This approach properly accounts for the usage of inventory and its remaining value.
In simple words: The club used Rs 90,000 worth of sports materials during the year, which is shown as an expense. The materials still left at the end of the year, worth Rs 10,000, are listed as an asset on the balance sheet.

🎯 Exam Tip: Consumption of materials is calculated by (Opening Stock + Purchases - Closing Stock). Only the consumed amount is an expense in the Income and Expenditure Account, while closing stock is an asset on the Balance Sheet.

 

Question 15. How will the following appear in the final accounts of Vedaranyam Sports Club?
Answer:

For the Vedaranyam Sports Club, the Income and Expenditure Account will show Rs 16,000 as the value of bats and balls consumed during the year. This is calculated by adding the opening stock of Rs 3,000 to purchases of Rs 17,000, and then subtracting the closing stock of Rs 4,000. The sale of old bats and balls, amounting to Rs 2,000, will be recorded as income. On the Balance Sheet, the closing stock of bats and balls (Rs 4,000) will be listed as an asset. This detailed accounting ensures proper recognition of expenses and assets.
In simple words: The club used Rs 16,000 worth of bats and balls this year, which is an expense. They also earned Rs 2,000 from selling old ones. The bats and balls left over at year-end, worth Rs 4,000, are listed as assets.

🎯 Exam Tip: When dealing with consumable items like sports materials or stationery, always remember to show the *value consumed* as an expense and the *closing stock* as an asset.

 

Question 16. Show how the following items appear in the income and expenditure account of Sirkazhi Singers Association?
Answer:

For the Sirkazhi Singers Association, the Income and Expenditure Account for the year ended 31.3.2018 will show Rs 6,900 as the amount of stationery consumed. This is calculated by taking the opening stock of stationery (Rs 2,600), adding the purchases made during the year (Rs 6,500), and then subtracting the closing stock of stationery (Rs 2,200). The difference represents the actual value of stationery used as an expense.
In simple words: The association used Rs 6,900 worth of stationery this year. We found this by starting with what they had, adding what they bought, and then taking away what was left at the end.

🎯 Exam Tip: For consumables like stationery, always calculate the 'amount consumed' by adjusting opening stock with purchases and closing stock. This consumed amount is the actual expense for the Income and Expenditure Account.

 

Question 17. Chennai tennis club had Match fund showing credit balance of Rs 24,000 on 1st April, 2018. Receipt to the fund during the year was Rs 26,000. Match expensed incurred during the year was Rs 33,000. How these items will appear in the final accounts of the club for the year ended 31st March, 2019?
Answer:

For the Chennai Tennis Club, the Match Fund balance will appear on the Liabilities side of the Balance Sheet as Rs 17,000 as of 31st March 2019. This is calculated by taking the opening balance of the Match Fund (Rs 24,000), adding the receipts to the fund during the year (Rs 26,000), and then subtracting the match expenses incurred (Rs 33,000). The Match Fund is a restricted fund, meaning all related incomes and expenses are adjusted within the fund itself, rather than being shown in the Income and Expenditure Account.
In simple words: The club has a special Match Fund. We start with the money in it, add any new money received for matches, and then take out the money spent on matches. The final amount, Rs 17,000, is shown as a debt on the balance sheet.

🎯 Exam Tip: Always remember that specific funds like 'Match Fund' are capital in nature. All related income (receipts) and expenses are directly adjusted within the fund on the liabilities side of the Balance Sheet, not treated as income or expenditure in the Income and Expenditure Account.

 

Question 18. How will the following appear in the final accounts of Karaikudi sports club for the year ending 31st March, 2019?
Answer:

For the Karaikudi Sports Club, the Tournament Fund will appear on the Liabilities side of the Balance Sheet as Rs 49,000. This is calculated by taking the opening Tournament Fund balance (Rs 90,000), adding the interest received on its investment (Rs 9,000) and donations specifically for the tournament fund (Rs 10,000), and then subtracting the tournament expenses (Rs 60,000). On the Assets side, the Tournament Fund Investment will be shown as Rs 90,000. This method ensures that restricted funds and their related transactions are correctly presented in the financial statements.
In simple words: The special Tournament Fund, after adding new money and interest and subtracting expenses, will show Rs 49,000 as a debt on the balance sheet. The actual investment made with this fund, Rs 90,000, will be shown as an asset.

🎯 Exam Tip: Remember to treat specific funds (like Tournament Fund) on the Liabilities side of the Balance Sheet. All income and expenses directly related to that fund should be adjusted within it, and the fund's investments should be shown on the Assets side.

 

Question 19. Compute capital fund of Salam Sports Club as on 01.4.2019?
Answer:

The Capital Fund of Salam Sports Club as on 01.04.2019 is calculated as Rs 80,000. This is found by preparing an opening Balance Sheet where total assets are summed up and total liabilities are subtracted. Assets include sports equipment (Rs 30,000), computer (Rs 25,000), outstanding subscription (Rs 5,000), prize fund investment (Rs 10,000), cash in hand (Rs 7,000), and cash at bank (Rs 21,000), totaling Rs 98,000. Liabilities include subscription received in advance (Rs 8,000) and prize fund (Rs 10,000), totaling Rs 18,000. The difference (Assets - Liabilities) gives the Capital Fund.
In simple words: To find the club's starting capital fund, we add up all its assets (like equipment, cash, and money owed to it) and subtract all its debts (like money received early or specific funds). The remaining amount is the capital fund, which is Rs 80,000.

🎯 Exam Tip: To calculate the opening Capital Fund of a Not-for-Profit Organisation, always prepare an Opening Balance Sheet by listing all assets and liabilities at the beginning of the period. The balancing figure will be the Capital Fund.

 

Question 20. From the following Receipts and Payment account and from the information given below of Ramanathapuram Sports Club, prepare Income and Expenditure account for the year ended 31st December, 2018 and the balance sheet as on that date.
Answer:

The Ramanathapuram Sports Club's Income and Expenditure Account for 2018 shows a surplus of Rs 2,300, meaning its income exceeded its expenses. Key income sources were subscriptions (Rs 33,000), entrance fees (Rs 6,000), general donations (Rs 7,000), sale of old sports material (Rs 1,000), and miscellaneous receipts (Rs 500). Expenses included rent (Rs 11,000), entertainment (Rs 11,200), sports materials consumed (Rs 11,000), and match expenses (Rs 12,000). The Balance Sheet on 31.12.2018 has a total of Rs 48,300, with a capital fund of Rs 30,000 plus the Rs 2,300 surplus. Assets include cash, bank, investments, stock, and furniture, while liabilities include pre-received subscriptions.
In simple words: The club earned more than it spent, creating an extra Rs 2,300. The income statement shows all money earned and spent. The balance sheet lists what the club owns (assets) and what it owes (liabilities), including its main capital fund plus the extra money earned.

🎯 Exam Tip: Always ensure that all revenue items for the current year are recorded as income and all capital receipts are directly added to the Capital Fund on the Balance Sheet. Similarly, revenue expenses are recorded in the Income and Expenditure Account, and capital expenditures are shown as assets.

 

Question 21. From the following Receipts and Payments account of Yarcaud Youth Association, prepare Income and expenditure account for the year ended 31st March, 2019 and the balance sheet as on the date.

Additional information:
(i) Opening capital fund Rs 20,000.
(ii) Stock of books on 1.4.2018 Rs 9,200.
(iii) Subscription due but not received Rs 1,700.
(iv) Stock of stationery on 1.4.2018 Rs 1,200 and stock of stationery on 31.3.2019, Rs 2,000

Solution: Income & Expenditure A/c for the year ended 31.3.19

Balance Sheet As on 31.3.19

Answer: Surplus: Rs 7,800; Balance Sheet total: Rs 37,800
In simple words: After preparing the Income and Expenditure Account, the club has a surplus of Rs 7,800. The total value of the assets and liabilities in the Balance Sheet comes to Rs 37,800.

🎯 Exam Tip: Remember to clearly distinguish between capital and revenue items when preparing the Income and Expenditure Account and Balance Sheet.

 

Question 22. Following is the Receipts and Payments account of Neyveli Science Club for the year ended 31st December, 2018.

Additional information:
(i) Opening capital fund Rs 6,400.
(ii) Subscription includes Rs 600 for the year 2019.
(iii) Science equipment as on 1.1.2018 Rs 5,000.
(iv) Surplus on account of exhibition should be kept in reserve for new auditorium. Prepare income and expenditure account for the year ended 31st December, 2018 and the balance sheet as on that date.

Solution: Income & Expenditure A/c for the year ended 31.12.18

Balance Sheet As on 31.12.18

Answer: Deficit: Rs 1,400; Balance Sheet total: Rs 10,600
In simple words: The club had a deficit of Rs 1,400, meaning expenses were more than income. The total value of everything the club owned and owed was Rs 10,600.

🎯 Exam Tip: Remember that a deficit means the expenses are higher than the income, reducing the capital fund.

 

Question 23. From the following Receipts and Payments account of Sivasasi Pensioner's Recreation Club, prepare income and expenditure account for the year ended 31st March, 2018 and the balance sheet as on that date.

Additional information:
(i) The club had 300 members each paying Rs 100 as annual subscription.
(ii) The club had furniture Rs 10,000 on 1.4.2017.
(iii) The subscription still due but not received for the year 2016 - 2017 is Rs 1,000.

Solution: Income & Expenditure A/c for the year ended 31.3.18

Balance Sheet As on 31.3.18

Note: Calculation of Subscription

Balance Sheet as on 1.4.17

Answer: Surplus: Rs 4,000; Opening capital fund Rs 46,000; Balance sheet total: Rs 99,000
In simple words: The club earned Rs 4,000 more than it spent, which is called a surplus. When the club started, it had Rs 46,000 as its main fund. By the end, all assets and liabilities added up to Rs 99,000.

🎯 Exam Tip: Always make sure to include all outstanding and prepaid items for the correct year in the Income and Expenditure Account, and reflect them correctly in the Balance Sheet.

 

Question 24. Following is the Receipts and payments account of Virudhunagar Volleyball Association for the year ended 31st December, 2018.

Additional information:
(i) On 1.1.2018, the association owned investments Rs 10,000, premises and grounds Rs 40,000, stock of bats and balls Rs 5,000.
(ii) Subscription Rs 15,000 related to 2017 is still due.
(iii) Subscription due for the year 2018, Rs 6,000.
Prepare income and expenditure account for the year ended 31st December, 2018 and the balance sheet as on that date.

Solution: Balance Sheet As on 1.1.2018

Income & Expenditure A/c for the year ended 31.12.18

Balance Sheet As on 31.12.2018

Answer: Surplus: Rs 52,000; Opening capital fund Rs 75,000; Closing balance sheet total: Rs 1,32,000
In simple words: The association earned Rs 52,000 more than it spent for the year. The capital fund at the start was Rs 75,000. At the end of the year, the total value of all assets and liabilities shown on the balance sheet was Rs 1,32,000.

🎯 Exam Tip: When dealing with specific funds like Match Fund, remember that related expenses are first set off against the fund. Only any excess expense or receipt is transferred to the Income and Expenditure Account.

 

12th Accountancy Guide Accounts of Not-For-Profit Organisation Additional Important Questions and Answers

I Multiple Choice Questions

 

Question 1. Receipts & payments A/c records receipts & payments of
(a) Current year only
(b) Previous & future period only
(c) Both (a) and (b)
Answer: (c) Both (a) and (b)
In simple words: A Receipts and Payments Account keeps track of all cash coming in and going out, no matter if the money is for this year, last year, or next year.

🎯 Exam Tip: Remember that the Receipts and Payments Account is like a cash book summary and does not distinguish between capital and revenue items or the accounting period.

 

Question 2. Non-cash items such as depreciation, outstanding expenses, and accrued income are not shown in
(a) Receipts & payments A/c
(b) Income & expenditure A/c
(c) Balance sheet
Answer: (a) Receipts & payments A/c
In simple words: Things that don't involve actual money moving, like wear and tear on assets, or bills that haven't been paid yet, are not recorded in the Receipts and Payments Account.

🎯 Exam Tip: Non-cash items are only recorded in the Income and Expenditure Account (for revenue items) and the Balance Sheet (for assets and liabilities), as they reflect the financial position based on the accrual system.

 

Question 3. Only revenue items are recorded in
(a) Income & Expenditure A/c
(b) Receipts & payments A/c
(c) Balance sheet
Answer: (a) Income & Expenditure A/c
In simple words: Only regular income and spending that happen often, like daily sales or salaries, are recorded in the Income and Expenditure Account. It helps to see if the organization had a surplus or deficit from its normal activities.

🎯 Exam Tip: Capital items, such as the purchase of assets or large donations for specific purposes, are excluded from the Income and Expenditure Account and are shown directly in the Balance Sheet.

 

Question 4. Interest on investment received is a
(a) Capital receipt
(b) Revenue receipt
(c) Capital Expenditure
Answer: (b) Revenue receipt
In simple words: Money earned from investments, like interest, is considered a regular income for the organization.

🎯 Exam Tip: Distinguish between capital receipts (one-time, large sums) and revenue receipts (regular, recurring income) to correctly classify them in accounts.

 

Question 5. Grants received towards construction of buildings, acquisition of assets etc. are treated as
(a) Capital receipt
(b) Capital expenditure
(c) Revenue Receipt
Answer: (a) Capital receipt
In simple words: Money given specifically to build something big, like a building, is seen as a major, one-time income for the organization.

🎯 Exam Tip: Grants tied to specific long-term purposes, such as asset acquisition or construction, are always treated as capital receipts and usually shown in the Balance Sheet.

 

Question 6. Grants received towards maintenance of assets, payments of salaries etc. are treated as
(a) Capital receipt
(b) Revenue receipt
(c) Capital Expenditure
Answer: (b) Revenue receipt
In simple words: Money received for daily running costs, like keeping assets in good condition or paying wages, is considered regular income.

🎯 Exam Tip: Grants for routine operational activities, such as maintenance or salaries, directly support the organization's ongoing functions and are classified as revenue receipts.

 

Question 7. Revenue items of current year alone are recorded in
(a) Receipts & Payments A/c
(b) Income & Expenditure A/c
(c) Balance sheet
Answer: (b) Income & Expenditure A/c
In simple words: Only the everyday income and expenses that belong to the current year are put into the Income and Expenditure Account.

🎯 Exam Tip: The Income and Expenditure Account follows the accrual basis of accounting, meaning it records income and expenses when they are earned or incurred, regardless of when cash is received or paid.

III Short Answer Questions

 

Question 1. What are the features of not-for-profit organisations?
Answer: The main features of not-for-profit organizations are:
1. They operate without aiming to make a profit.
2. Their primary goal is to offer services to a particular group or the general public.
3. They generally do not engage in business or trading activities.
4. Their main sources of money are subscriptions from members, donations, government grants, and legacies. These organizations often rely on community support to function.
In simple words: These groups don't try to make money for owners. They help people or the community. They get money from members, gifts, and government aid instead of selling things for profit.

🎯 Exam Tip: When listing features, ensure to mention both the primary objective (service, not profit) and key financial characteristics (sources of income).

 

Question 2. What are the accounts prepared by not-for-profit organisations?
Answer: Not-for-profit organizations typically prepare the following accounts:
1. Receipts and Payments Account: This acts like a cash book summary.
2. Income and Expenditure Account: This is similar to a profit and loss account, showing surplus or deficit.
3. Balance Sheet: This shows the financial position (assets, liabilities, and capital fund) at a specific point in time. These accounts help provide a clear financial picture of the organization.
In simple words: They make three main records: a cash summary, an account to show if they spent more or less than they earned, and a list of what they own and owe.

🎯 Exam Tip: List all three core financial statements. Briefly explain the purpose of each account to show a complete understanding.

 

Question 3. What are the steps in the preparation of Receipts & Payments A/c?
Answer: Here are the steps involved in preparing a Receipts and Payments Account:
* First, record the opening balance of cash in hand and any positive bank balance on the debit side of the account. If there is a bank overdraft, it should be recorded on the credit side.
* Next, all cash receipts that occurred during the year are recorded on the debit side, and all cash payments made during the year are recorded on the credit side. This captures all actual money movements.
* When recording cash receipts and payments, it's important not to differentiate between revenue and capital items. Similarly, there's no need to consider if the amount received or paid relates to the current, previous, or future period.
* If the total of the debit side is greater than the credit side, the difference (balancing figure) will appear on the credit side, representing the closing balance of cash or bank. This indicates funds available.
* Conversely, if the total of the credit side is greater than the debit side, the balancing figure will appear on the debit side, which indicates a bank overdraft. This means the organization has spent more than it had in its bank account.
In simple words: Start with cash balances. Put all money received on the left and all money paid out on the right. Don't worry if it's for this year or not, or if it's a big or small amount. The final balance shows how much cash is left or if the bank account is overdrawn.

🎯 Exam Tip: Emphasize that the Receipts and Payments Account is a summary of cash transactions only, irrespective of their nature (revenue or capital) or the period they relate to.

 

Question 4. Name a few examples capital for expenditure & revenue expenditure.
Answer:

In simple words: Capital expenses are for buying big things that last a long time, like new sports gear or library books. Revenue expenses are for everyday costs, like paying for guest speakers, charity events, or office supplies.

🎯 Exam Tip: Capital expenditures increase the value of assets, while revenue expenditures are for the day-to-day running of the organization.

IV Additional Problems

 

Question 1. The following particulars of a club are available. Prepare Receipts and Payments Account as on 31st March, 2002.

 

Question 2. From the following particulars prepare receipts and payments account of a club for the year 2000:
Cash Balance (1st Jan. 2001) Rs. 4,000; Entry fee received Rs. 400; Subscription received Rs. 800; Last year's arrears Rs. 80; Rent paid Rs. 1,060; Purchase of cricket balls Rs. 525; Purchase of cricket bats Rs. 580; Miscellaneous expenses Rs. 10; Purchase of Stationery Rs. 5; Salary paid Rs. 1,100.
Answer:

In simple words: This table shows all the money the club took in (receipts) and all the money it paid out (payments) during the year. It starts with the cash they had and ends with the cash left.

🎯 Exam Tip: Remember to include the opening cash balance on the debit side and list all cash inflows (receipts) and outflows (payments) to find the closing balance.

 

Question 3. Subscription received by the Health Club during the year 2014 were as under:

Calculate the amount of Subscription to be shown on the income side of Income and Expenditure A/c.
Answer:

In simple words: We calculate the total subscription for the current year (2014) by adding any outstanding amounts for 2014 and advances received for 2014, then subtracting outstanding amounts from previous years and advances for future years. This gives us the correct income for 2014.

🎯 Exam Tip: Always adjust subscription figures to include only the amount related to the current accounting period for the Income and Expenditure Account.

 

Question 4. During the year 2014, subscription received by a sports club were ₹ 80,000. These included ₹ 3,000 for the year 2013 and 16,000 for the year 2015. On December 31, 2013 amount of subscription due but not received was ₹ 12,000. Calculate the amount of subscription to be shown in Income and Expenditure Account as income from subscription?
Answer:

In simple words: To find the correct subscription income for 2014, we start with all the money received and then adjust for amounts that belong to other years, either previous or future. This ensures only 2014's true income is counted.

🎯 Exam Tip: Carefully identify and separate subscriptions related to prior years and future years from the total amount received to accurately calculate the current year's income.

 

Question 5. The Receipts and Payments Account of Harimohan Charitable Institution is given:

Prepare the Income and Expenditure Account for the year ended on March 31, 2014 after considering the following:
(i) It was decided to treat 50% of the amount received on account of Legacies and Donations as income.
(ii) Liabilities to be provided for are: Rent' 800; Salaries' 1200; Advertisement' 200
(iii) '2,000 due for interest on investment was not actually received.
Answer:

In simple words: This account shows how much money the institution earned (income) and how much it spent (expenditure) over the year. It helps to see if they had extra money (surplus) or spent more than they earned.

🎯 Exam Tip: Remember to only include revenue items for the current period in the Income and Expenditure Account. Capital receipts and payments, and items from other periods, are excluded.

 

Question 6. From the following receipts and payments and information given below, prepare Income and Expenditure Account and opening Balance Sheet of Adult Literacy Organization as on December 31, 2013: Receipts and Payments Account for the year ending December 31, 2013

Information:
(i) Subscription outstanding as on 31.12.2012, ₹ 2,000 and for the year ending December 31,2013, ₹ 1,500
(ii) On December 31,2013 Salary outstanding' 600, and one month Rent paid in advance.
(iii) On Jan. 01,2012 organization owned Furniture ₹ 12,000, Books ₹ 5,000.
Answer: