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

A charitable society receives a legacy of Rs 2,00,000 with no condition attached to its use. Under the usual treatment taught at this level, how is it dealt with?

A legacy is a non-recurring gift under a will, so it is treated as a capital receipt. Unless the donor says it is for revenue use, it is added to the Capital Fund in the Balance Sheet rather than shown as income.

  1. ACredited to Income and Expenditure Account as a recurring income
  2. BTreated as a capital receipt and added to the Capital FundCorrect
  3. CDeducted from the expenses of the year
  4. DIgnored until it is invested

Explanation

A legacy is a non-recurring receipt and is normally treated as a capital receipt, added to the Capital Fund unless it is stated to be for revenue use. Crediting it to Income and Expenditure would distort the regular surplus.

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