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CMA Intermediate · Financial Accounting · Financial Statements of Not-for-Profit Organisations

A club receives Rs 50,000 as life membership fees during the year. As per the usual treatment taught for not-for-profit organisations, how should this amount appear in the Balance Sheet prepared from the Receipts and Payments Account?

Life membership fees are capitalised in a Life Membership Fund shown as a liability in the Balance Sheet, and a fair portion is transferred to the Income and Expenditure Account every year, because the benefit extends over many years.

  1. ACredited to Income and Expenditure Account in full
  2. BShown as a liability in Life Membership Fund, with a proportionate part transferred to income each yearCorrect
  3. CDeducted from the Fixed Assets of the club
  4. DShown on the assets side as Membership Fees Receivable

Explanation

Life membership fees are a capital receipt that benefits several years. They are credited to a Life Membership Fund (liability) and a portion is transferred to Income and Expenditure each year. Crediting all to income overstates current-year surplus.

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