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

A club's Receipts and Payments Account for the year shows 'By Purchase of investments ₹1,50,000'. While preparing the Income and Expenditure Account from it, how should this item be treated?

Purchase of investments is a capital payment, so it is shown as an asset in the Balance Sheet and excluded from the Income and Expenditure Account, which records only revenue items of the period.

  1. AShown on the expenditure side of the Income and Expenditure Account
  2. BShown as an asset in the Balance Sheet and not in the Income and Expenditure AccountCorrect
  3. CDeducted from subscription income
  4. DShown on the income side as a capital receipt

Explanation

Purchase of investments is a capital payment. It creates an asset, so it is added to investments in the Balance Sheet. It does not appear in the Income and Expenditure Account, which records only revenue items. Showing it as expenditure would wrongly reduce the surplus.

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