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

Which of the following best describes the primary objective of a not-for-profit organisation such as a charitable trust or a club?

A not-for-profit organisation exists to provide service to its members or society, not to earn profit for owners. Any surplus is retained and used for its objectives, whereas maximising profit or returns for owners is the aim of commercial businesses.

  1. AMaximising profit for distribution among its members
  2. BProviding service to its members or society without a profit motiveCorrect
  3. CMaximising return on capital employed for the owners
  4. DRaising share capital from the public for trading

Explanation

A not-for-profit organisation exists to serve its members or society in areas such as education, sports, health or charity. Any surplus is not distributed to members as profit but is applied to the objects of the organisation. Profit maximisation is the aim of business entities, so the other options are wrong.

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