Skip to content

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

A club's Receipts and Payments Account shows a payment of ₹60,000 for a new sports equipment purchase and ₹15,000 for repairs to existing equipment. Which treatment is correct in preparing the Income and Expenditure Account?

The ₹60,000 spent on new sports equipment is capital expenditure and appears as an asset in the Balance Sheet, while the ₹15,000 repairs are revenue expenditure debited to the Income and Expenditure Account, because repairs only maintain existing earning capacity.

  1. ADebit both ₹60,000 and ₹15,000 to the Income and Expenditure Account
  2. BShow ₹60,000 as an asset in the Balance Sheet and debit ₹15,000 to the Income and Expenditure AccountCorrect
  3. CShow both amounts as assets in the Balance Sheet
  4. DDebit ₹60,000 to the Income and Expenditure Account and show ₹15,000 as an asset

Explanation

Purchase of new equipment is capital expenditure and is shown as an asset, with depreciation charged later. Repairs to maintain existing equipment are revenue expenditure and debited to the Income and Expenditure Account. Option 0 wrongly expenses the capital item.

Did you get it right without looking?

One question tells you little. A timed set on Financial Statements of a Not-for-Profit Organisation shows your real accuracy, how long you take and where you lose marks.

Practise Financial Statements of a Not-for-Profit OrganisationFree diagnostic mock

More Financial Statements of a Not-for-Profit Organisation questions