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

Lakeview Sports Club received Rs 60,000 as donation for a specific purpose: building a new pavilion. How should this be treated?

A donation received for building a pavilion is a capital receipt for a specific purpose. It is credited to a specific fund shown on the liabilities side of the Balance Sheet, while the pavilion is capitalised as an asset. It is not treated as revenue income.

  1. ACredited to Income and Expenditure Account as revenue income
  2. BCredited to Capital Fund after deducting pavilion cost
  3. CShown as a liability and the pavilion expense charged to Income and Expenditure Account
  4. DCapitalised: added to a Building Fund/specific fund on the liabilities side of the Balance SheetCorrect

Explanation

A donation for a specific capital purpose is a capital receipt. It is shown as a specific fund on the liabilities side, and the pavilion is shown as an asset. Taking it to Income and Expenditure Account would wrongly inflate the year's surplus.

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