Question 3 OR (a)
Special-fund treatment in NPO final accounts
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 3 OR (a) · 6 marksRiverside Club has following balances as at January 1, 2023
| Sports Fund | Rs. 60,000 |
| 10% Sports Fund Investments (Face value 72,000 fully paid) | Rs. 60,000 |
| Transactions during the year | |
| Donation for Sports Fund received during the year | Rs. 19,200 |
| Sports Prizes awarded during the year | Rs. 9,600 |
| Interest received on Sports Fund Investments during the year | Rs. 6,000 |
| Expenses incurred on sports events during the year | Rs. 4,800 |
| Interest received on General Fund Investments during the year | Rs. 24,000 |
How will you deal with these items while preparing the Income and Expenditure Account for the year that ended 31st, December, 2023, and the Balance Sheet as on that date. Show the extracts of the final statements.
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
Read from the question
- HowHow it works or is done, step by step.
What the paper leaves open
- Interest on the Sports Fund investments is taken on accrual: 10% on the ₹72,000 face value is ₹7,200 for the year, of which ₹6,000 was received, so ₹1,200 is accrued.
- The sports prizes and the expenses on sports events are read as met from the Sports Fund, so they are charged to the fund, not to the Income and Expenditure Account.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Sports Fund Account with accrual of interest 3 marks 5 min
- 2 Balance Sheet and I&E extracts / correct treatment 3 marks 5 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 12 minutes for 6 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.
A not-for-profit body prepares an Income and Expenditure Account in place of a Trading and Profit & Loss Account, together with a Balance Sheet. Amounts tied to a special fund do not pass through the Income and Expenditure Account: the fund's donation, the interest its own investments earn, and the sports prizes and the expenses on sports events met from it are all routed through the Sports Fund, which is shown in the Balance Sheet: as in the DU text's worked example, whose closing Balance Sheet lists the donations to a special fund on its liabilities side. Only income that is not earmarked, here the general-fund interest, is credited to Income and Expenditure. That account records the income and expenditure of the year, including amounts accrued but not yet received or paid.
Interest is taken on accrual. 10% on the ₹72,000 face value = ₹7,200 earned; ₹6,000 was received, so ₹1,200 is accrued interest (a Balance-Sheet asset), and the full ₹7,200 is credited to the fund.
Sports Fund Account (foots ✓)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Sports Prizes awarded | 9,600 | By Balance b/d | 60,000 |
| To Expenses incurred on sports events | 4,800 | By Donation for Sports Fund | 19,200 |
| To Balance c/d (Sports Fund) | 72,000 | By Interest on Sports Fund Investments (accrued) | 7,200 |
| 86,400 | 86,400 |
| Dr | ₹ |
|---|---|
| To Sports Prizes awarded | 9,600 |
| To Expenses incurred on sports events | 4,800 |
| To Balance c/d (Sports Fund) | 72,000 |
| 86,400 | |
| Cr | ₹ |
| By Balance b/d | 60,000 |
| By Donation for Sports Fund | 19,200 |
| By Interest on Sports Fund Investments (accrued) | 7,200 |
| 86,400 |
Balance Sheet extracts as on 31 December 2023
| Liabilities / Funds | ₹ | Assets | ₹ |
|---|---|---|---|
| Sports Fund | 72,000 | 10% Sports Fund Investments | 60,000 |
| Accrued interest on Sports Fund Investments | 1,200 | ||
| Assets held against the Sports Fund | 61,200 |
Income and Expenditure Account extract (year ended 31 December 2023)
| Expenditure | ₹ | Income | ₹ |
|---|---|---|---|
| By Interest on General Fund Investments | 24,000 |
The sports prizes (₹9,600) and the expenses on sports events (₹4,800) are not shown as expenditure in the Income and Expenditure Account: they are met out of the Sports Fund. Sports Fund closes at ₹72,000; ₹24,000 general interest is the only item credited to Income and Expenditure; accrued interest ₹1,200 is an asset.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Sports Fund Account with accrual of interest (₹72,000) | 3 |
| 2 | Balance Sheet and I&E extracts / correct treatment | 3 |
| Total | 6 |
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