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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 'Receipt of entrance fees ₹60,000'. The club's rules state that entrance fees are to be capitalised. In preparing the Income and Expenditure Account from this Receipts and Payments Account, how should the entrance fees be treated?

Entrance fees that the club's rules require to be capitalised are a capital receipt. They are added to the Capital Fund in the Balance Sheet and are not credited to the Income and Expenditure Account, so the surplus for the year is not inflated.

  1. ACredited to the Income and Expenditure Account as income
  2. BAdded to the Capital Fund in the Balance Sheet and not shown in the Income and Expenditure AccountCorrect
  3. CDeducted from expenditure in the Income and Expenditure Account
  4. DShown as a liability in the Balance Sheet

Explanation

Where the rules require entrance fees to be capitalised, they are treated as a capital receipt. They are therefore added directly to the Capital Fund and left out of the Income and Expenditure Account. Crediting them as income would overstate the surplus.

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