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

Which of the following best describes a distinguishing feature of a not-for-profit organisation (NPO) as taught in CA Foundation Accounting?

A not-for-profit organisation is formed to serve members or society, not to earn profit for owners. Any surplus is applied to its own objectives rather than distributed among members. Profit maximisation and distribution is the feature of business entities, so it does not describe an NPO.

  1. AIts main objective is to maximise profit for distribution among its members
  2. BIt is formed for service to members or society, and any surplus is applied to its objectives rather than distributed as profitCorrect
  3. CIt is never required to maintain any books of account
  4. DIt cannot receive donations or subscriptions

Explanation

An NPO is set up for charity, education, sports, culture or similar service. Any surplus is retained and used for its objectives and is not shared among members as profit. Option A describes a profit-seeking business, so it is wrong.

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