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

A club receives ₹50,000 as life membership fees from new members. No instruction is given to spread it over several years. What is the standard treatment for this amount?

Life membership fees are capitalised by adding them to the Life Membership Fund or capital fund in the Balance Sheet. They are a one-time capital receipt and not recurring revenue income, so they are not credited to the Income and Expenditure Account.

  1. AAdded to the Life Membership Fund or capital fund in the Balance SheetCorrect
  2. BCredited in full to the Income and Expenditure Account as income
  3. CDeducted from expenses on the expenditure side of the Income and Expenditure Account
  4. DTreated as subscription outstanding at the year end

Explanation

Life membership fees are in the nature of a capital receipt, as they are received once for lifelong membership. They are therefore added to a Life Membership Fund or the capital fund in the Balance Sheet. Crediting the full amount to income would wrongly treat the receipt as revenue.

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