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

Greenfield Club had a Specific Prize Fund of ₹1,00,000 with Prize Fund Investments of equal amount. During the year, interest of ₹8,000 was earned on these investments and prizes of ₹6,000 were awarded. What is the correct treatment?

For a specific fund, income earned on its investments is added to the fund and expenses of its purpose are charged to the fund. Here 1,00,000 plus interest 8,000 less prizes 6,000 gives a closing Prize Fund of ₹1,02,000, without passing through Income and Expenditure Account.

  1. AAdd interest of ₹8,000 to the Prize Fund and deduct prizes of ₹6,000 from it, so the fund shows ₹1,02,000 at year-endCorrect
  2. BCredit interest to Income and Expenditure Account and debit prizes to it, leaving the fund at ₹1,00,000
  3. CDebit prizes to Income and Expenditure Account only and add interest to the fund
  4. DAdd interest to the fund and show prizes as an asset

Explanation

Income from investments of a specific fund is added to that fund, and expenses for the fund's purpose are deducted from it. Closing fund = 1,00,000 + 8,000 − 6,000 = 1,02,000. Treating both through Income and Expenditure Account is wrong for a specific fund.

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