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CMA Intermediate · Financial Accounting · Financial Statements of Not-for-Profit Organisations

A charitable society received a legacy of ₹5,00,000 under a will, with no condition attached regarding its use. As per the usual treatment in not-for-profit accounting, the legacy should be:

A legacy with no stated condition is a non-recurring receipt and is treated as a capital receipt. It is added directly to the Capital Fund on the liabilities side of the Balance Sheet rather than being credited to Income and Expenditure Account.

  1. ACredited to Income and Expenditure Account as revenue income
  2. BTreated as a capital receipt and added to the Capital FundCorrect
  3. CShown as a current liability until it is spent
  4. DAdjusted against the general expenses of the year

Explanation

Legacies are normally non-recurring and capital in nature. Unless the testator specifies that the amount be used for revenue purposes, a legacy is added to the Capital Fund. Crediting it to Income and Expenditure Account would inflate the year's surplus.

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