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

A library trust's Receipts and Payments Account shows payment of Rs 15,000 for books during the year. Books are treated as a capital asset of the library. In preparing the Balance Sheet, how is this payment treated?

The Rs 15,000 is capital expenditure, so it is added to the Books account on the assets side of the Balance Sheet and not charged to Income and Expenditure. Only depreciation, if any, would later affect the surplus.

  1. AAdded to the Books account in assets, not charged to Income and ExpenditureCorrect
  2. BCharged in full to Income and Expenditure Account
  3. CShown as a liability
  4. DDeducted from the Capital Fund directly

Explanation

Payment for books that form a capital asset is capital expenditure. It is added to Books on the assets side, with depreciation charged if applicable. Charging it fully to Income and Expenditure treats it as revenue expenditure, which is wrong here.

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