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

A club receives life membership fees of Rs 30,000 during the year. Under the usual capitalisation approach taught at this level, how are these fees treated?

Life membership fees are treated as a capital receipt and credited to the Life Membership Fund, which appears on the liabilities side of the Balance Sheet. They are a lump sum covering many years, so they are not taken wholly to Income and Expenditure Account in the year of receipt.

  1. ACredited wholly to Income and Expenditure Account in the year of receipt
  2. BTreated as a capital receipt and added to the Life Membership Fund, shown as a liabilityCorrect
  3. CShown as outstanding subscription
  4. DDeducted from the expenses of the year

Explanation

Life membership fees are a lump sum covering the member's life, so they are treated as a capital receipt and credited to the Life Membership Fund in the Balance Sheet. Crediting income wholly in one year ignores the benefit to later years.

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