Question 1 OR (b)

College: Income and Expenditure Account and Balance Sheet

10 marks

Time to write
About 20 minutes

From an older CBCS paper

Question

Question 1 OR (b) · 10 marks

From the information below, prepare a College's Income and Expenditure Account for the year ended 31st March, 2017 and its Balance Sheet as on that date: 10

Receipts₹Payments₹
Cash (1-4-2016)60,000Pay and Allowances26,40,000
Postage Stamps (1-4-2016)840Books for Library60,000
Tuition Fees2,40,000Postage and Stationery14,400
Fines12,600Newspapers2,400
Annual Grant from Government36,00,000Science Lab Equipment26,400
Interest on Securities33,600Repairs and Maintenance21,600
Rent from use of Hall84,000Audit Fees9,600
Grant for Building Fund24,00,000Additions to college building36,00,000
Cash in hand (31-3-2017)55,920
Postage Stamps (31-3-2017)720
64,31,04064,31,040

On 31st March, 2016 the College had these assets:

Furniture, ₹ 3,60,000; College Building, ₹ 4,80,00,000; Library Books, ₹ 96,000; Science Equipment, ₹ 3,60,000; 10% Investments, ₹ 3,60,000 and Oustanding Tuition fees, ₹ 26,400.

Provide Depreciation on the closing balances of these assets:

Land and Buildings @ 5%; then Furniture @ 15%; and Library Books and Science Equipment, each @ 20%.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

20 minfor 10 marks

Read from the question

  • prepare … AccountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

  1. The grant for the building fund is credited to a building fund; the addition to the college building exceeds it, and the excess is met from general funds.
  2. "Oustanding" is kept as printed.
  3. Depreciation is on the closing balances, as instructed; "Land and Buildings" is the college building.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 1 min
  2. 1 Readings and opening capital fund 2 marks 4 min
  3. 2 Income and Expenditure Account 4 marks 7 min
  4. 3 Balance Sheet, with depreciation and the building fund 4 marks 7 min
  5. Check: every adjustment used, both sides agree, dates in 1 min

Try it first. About 20 minutes for 10 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Readings.

  • Postage stamps. The Receipts and Payments Account treats stamps in hand as cash: opening cash and stamps (60,000 + 840) plus receipts less payments equals closing cash and stamps (55,920 + 720) exactly. So the ₹14,400 shown as paid for postage is the postage consumed, and the stamps in hand (₹720) are an asset.
  • Tuition fees. The ₹26,400 outstanding at the start is taken as collected within the year's receipts (no closing arrears are given), so the year's fee income is 2,40,000 − 26,400.
  • Interest: 10% on ₹3,60,000 = ₹36,000; ₹2,400 is accrued.
  • Building fund (paper note): the grant of ₹24,00,000 is credited to a building fund; the addition to the building (₹36,00,000) uses it in full, the excess coming from general funds, so the fund is transferred to the capital fund. Grants for a specific capital purpose are capital receipts, not income.
  • Depreciation on the closing balances: building 5%, furniture 15%, library books and science equipment 20%.

The Income and Expenditure Account takes only the revenue items of the year, whether received or not; receipts of earlier years settle assets.

Capital fund on 1 April 2016

Asset₹
Furniture3,60,000
College Building4,80,00,000
Library Books96,000
Science Equipment3,60,000
10% Investments3,60,000
Outstanding tuition fees26,400
Cash60,000
Postage stamps840
Capital fund4,92,63,240

Income and Expenditure Account for the year ended 31 March 2017

Expenditure₹Income₹
To Pay and Allowances26,40,000By Tuition Fees (2,40,000 − 26,400)2,13,600
To Postage and Stationery14,400By Fines12,600
To Newspapers2,400By Annual Grant from Government36,00,000
To Repairs and Maintenance21,600By Interest on Securities (33,600 + accrued 2,400)36,000
To Audit Fees9,600By Rent from use of Hall84,000
To Depreciation: College Building (5% × 5,16,00,000)25,80,000By Excess of expenditure over income14,84,280
To Depreciation: Furniture (15% × 3,60,000)54,000
To Depreciation: Library Books (20% × 1,56,000)31,200
To Depreciation: Science Equipment (20% × 3,86,400)77,280
54,30,48054,30,480

Balance Sheet as at 31 March 2017

Liabilities₹₹Assets₹₹
Capital fund (1.4.2016)4,92,63,240College Building (4,80,00,000 + 36,00,000)5,16,00,000
Add: Building fund transferred24,00,000Less: Depreciation25,80,0004,90,20,000
5,16,63,240Furniture3,60,000
Less: Excess of expenditure over income14,84,2805,01,78,960Less: Depreciation54,0003,06,000
Library Books (96,000 + 60,000)1,56,000
Less: Depreciation31,2001,24,800
Science Equipment (3,60,000 + 26,400)3,86,400
Less: Depreciation77,2803,09,120
10% Investments3,60,000
Interest accrued on securities2,400
Postage stamps in hand720
Cash in hand55,920
5,01,78,9605,01,78,960

The other reading. If the opening tuition arrears were still unpaid, fee income would be ₹2,40,000, the excess of expenditure ₹14,57,880, and ₹26,400 would remain an asset; the capital fund would be ₹5,02,05,360.

Where the 10 marks sit

#ComponentMarks
1Readings and opening capital fund2
2Income and Expenditure Account4
3Balance Sheet, with depreciation and the building fund4
Total10
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