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CA Foundation · Accounting · Financial Statements of Not-for-Profit Organisations

A club purchased sports equipment costing ₹50,000 on 1 October 2024 and the Receipts and Payments Account shows the payment. The club charges depreciation at 10% per annum on a straight-line basis and the year ends on 31 March 2025. What is the correct treatment in the Income and Expenditure Account for the year?

Debit ₹2,500 as depreciation. The equipment cost is capital expenditure and appears in the Balance Sheet, but depreciation at 10% for the six months from October to March, being ₹50,000 × 10% × 6/12, is a revenue expense.

  1. ADebit ₹50,000 as sports expense
  2. BDebit ₹2,500 as depreciationCorrect
  3. CDebit ₹5,000 as depreciation
  4. DNo entry, as it is a capital payment

Explanation

The purchase is capital and is not debited as an expense, but depreciation is charged for the six months of use: 50,000 × 10% × 6/12 = ₹2,500. Charging the full ₹5,000 ignores the period of use.

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