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CMA Intermediate · Corporate Accounting and Auditing · Auditing of Different Types of Undertakings

In auditing a club's receipts and payments account and income and expenditure account, which statement is correct regarding life membership fees received?

Life membership fees are capitalised or spread over years according to the club's rules or its consistent policy. The auditor checks the constitution and verifies that the treatment is followed consistently. Automatically taking the whole amount to income in the year of receipt ignores the rules and is incorrect.

  1. AThey are always treated as income of the year of receipt
  2. BThey are never shown in the financial statements
  3. CThey are capitalised or spread over years as per the club's rules or consistent policy, and the auditor verifies the treatment against the constitutionCorrect
  4. DThey are treated as an expense of the year

Explanation

Life membership fees may be capitalised or amortised over time as the rules and consistent policy of the club provide. The auditor reads the rules and checks the treatment for consistency. Treating them as income of the year of receipt regardless of the rules would be wrong.

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