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ACCA Applied Knowledge · Business and Technology · The purpose and types of business organisation

A registered charity runs shelters for homeless people and is funded by donations. Its trustees want to judge whether it is using its funds well. Which of the following is the most appropriate primary measure of its success?

The best measure is whether the charity achieves its social objectives economically, efficiently and effectively, known as value for money. A charity does not exist to distribute profit to donors, and market share is a commercial measure that does not capture its mission.

  1. AThe level of profit it makes for distribution to its donors
  2. BWhether it achieves its social objectives economically, efficiently and effectivelyCorrect
  3. CThe growth in the market share it holds against other charities

Explanation

Not-for-profit organisations exist to achieve social objectives, so success is assessed by value for money: economy, efficiency and effectiveness. Distributing profit to donors is not the purpose of a charity, so the first option is wrong. Market share is a commercial measure and does not reflect the charity's mission.

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