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ACCA Applied Skills · Financial Management · Financial and other objectives in not-for-profit organisations

A charity's trustees want to assess performance when a donor requires the charity to spend at least 85% of income on its charitable activities. Income was $2,000,000, charitable spending was $1,600,000 and fundraising and administration costs were $400,000. What is the proportion spent on charitable activities and is the donor's requirement met?

The charity spent $1,600,000 of $2,000,000 income on charitable activities, which is 80%. Because this is below the donor's 85% minimum, the requirement is not met. The 20% figure represents fundraising and administration costs, not charitable spending.

  1. A80%, requirement not metCorrect
  2. B80%, requirement met
  3. C85%, requirement met
  4. D20%, requirement met

Explanation

Charitable spending ratio is 1,600,000 / 2,000,000 = 80%. This is below the required 85%, so the requirement is not met. The 20% figure is the proportion spent on fundraising and administration, which is the wrong base for the test.

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