Skip to content

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

In the books of a club, a donation of Rs 50,000 is received for a specific purpose, namely construction of a new pavilion. How is this donation treated in the final accounts?

A donation received for a specific purpose such as building a pavilion is a capital receipt. It is shown as a specific fund or added to the Capital Fund in the Balance Sheet, not credited to Income and Expenditure Account, since it is not meant for regular activities.

  1. ACredited to Income and Expenditure Account as revenue income
  2. BAdded to the Capital Fund or shown as a specific fund on the Liabilities side of the Balance SheetCorrect
  3. CDeducted from the subscriptions receivable
  4. DShown on the Assets side as a receivable

Explanation

Donations received for a specific purpose are capital receipts and are not credited to Income and Expenditure Account. They are shown as a specific fund or added to the Capital Fund on the liabilities side. Treating it as revenue income would overstate the surplus for the year.

Did you get it right without looking?

One question tells you little. A timed set on Financial Statements of a Not-for-Profit Organisation shows your real accuracy, how long you take and where you lose marks.

Practise Financial Statements of a Not-for-Profit OrganisationFree diagnostic mock

More Financial Statements of a Not-for-Profit Organisation questions