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CA Foundation · Accounting · Financial Statements of Not-for-Profit Organisations

A society received a donation of ₹5,00,000 for constructing a new hall. Construction cost incurred during the year was ₹3,00,000. How is this correctly shown in the Balance Sheet at year-end?

A donation for a specific capital purpose goes to a Building Fund on the liabilities side at ₹5,00,000, and the hall is shown as an asset at its cost of ₹3,00,000. The two are not netted, and the donation is not treated as income.

  1. ABuilding ₹3,00,000 on assets side; Building Fund ₹5,00,000 on liabilities sideCorrect
  2. BBuilding ₹5,00,000 on assets side; donation as income
  3. CBuilding ₹3,00,000 on assets side; donation as income of ₹2,00,000
  4. DBuilding Fund ₹2,00,000 on liabilities side only

Explanation

A specific donation for a capital purpose is a capital receipt credited to a Building Fund. The fund is not reduced by spending; the asset appears at cost ₹3,00,000 and the fund remains at ₹5,00,000. Netting off the two understates both sides.

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