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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of a Not-for-Profit Organisation

A charitable hospital trust received ₹2,00,000 as a donation specifically earmarked for constructing a new ward. How should this be treated in its final accounts?

The ₹2,00,000 earmarked donation is a capital receipt. It is credited to a specific fund, such as a building fund, on the liabilities side of the Balance Sheet, not to the Income and Expenditure Account, because it is meant for creating an asset.

  1. ACredited to the Income and Expenditure Account as revenue income
  2. BTreated as a capital receipt and shown as a separate fund on the liabilities side of the Balance SheetCorrect
  3. CDeducted from the hospital's medicines expenses
  4. DIgnored because donations are not recorded until spent

Explanation

A donation given for a specific purpose such as a building is a capital receipt. It is added to the relevant fund, such as a Building Fund, in the Balance Sheet and does not pass through the Income and Expenditure Account. Treating it as revenue income would overstate the year's surplus.

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