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

A not-for-profit hospital trust received a donation of Rs 5,00,000 specifically for constructing a new building. How should it be treated in the final accounts?

A donation received for a specific purpose like constructing a building is a capital receipt. It is added to a specific fund, such as the Building Fund, and shown in the Balance Sheet, not credited to the Income and Expenditure Account.

  1. ACredited to Income and Expenditure Account as revenue income
  2. BShown as a capital receipt and added to the Building Fund in the Balance SheetCorrect
  3. CDeducted from the subscriptions of the year
  4. DShown only in the Receipts and Payments Account and ignored elsewhere

Explanation

Donations given for a specific purpose such as building construction are capital receipts. They are credited to a specific fund and shown on the liabilities side of the Balance Sheet. Treating them as revenue income would wrongly inflate the surplus for the year.

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