tandon commerce academy # 1831, ff, nirvana … general format of a income and expenditure account...

Tandon Commerce Academy (Redefining Success- A Ladder to Ascend)

# 1831, FF, Nirvana Society, Opp. Ryan School, Sector 49B, Chandigarh Phone : 098159-84228, 094654-84228

Classes By RRAASSEESSHH TTAANNDDOONN ((++11,,++22,, BB..CCOOMM,, CCAA,,CCSS,,CCMMAA))

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NON-PROFIT

ORGANISATIONS

Dear Students. The following questions have been taken from the last 10 years’ question paper and other different books for your Practice. Endeavour has been made to make this compilation error–free, yet mistakes may have crept in for which I am apologetic. Suggestions are welcome for improving this compilation from every walk of the society. Readers should feel free to write me about their queries at

my email [email protected]. Or

https://www.facebook.com/pages/Tandon-Commerce-Academy/160054464075436?ref=hl

MEANING OF NOT FOR PROFIT ORGANISATIONS Not for profit organizations refer to those organizations which : a) are formed for the purpose of promoting commerce, art, science, religion, charity or any other useful object. b) Intend to spend their income in promoting their objectives, and c) Prohibit the payment of any dividend to their members. The examples of such organizations include sports clubs, social clubs, libraries, charitable hospitals, educational institutions, temples, churches, gurudwaras, masjids and professional bodies (e.g. The Institute of Chartered Accountants of India, The Institute of Cost and Works Accountants of India, The Institute of Company Secretaries of India). Such entities may or may not have trading activities. If trading activities are carried on by such entities, then the profit arising therefrom is used for the purposes of promoting the objectives for which such entities were formed. For example, if a sports club also runs a restaurant, the profit of such a restaurant is used to promote the service objectives.

Distinction Between a Profit Seeking Organisation and a Not For Profit Organisation A Profit seeking organization may be distinguished from a Not for profit organization as under :

Basis of Distinction Profit Seeking Organisation No t for Profit Organisation 1. Primary Motive The primary motive of such an entity is

to earn profit. The primary motive of such an entity is to provide services.

2. Owner's Fund Vs. Capital Fund

Interest of owners is known as owner's fund which represents the owner's investment plus accumulated reserves and surplus.

Interest of members is known as capital fund which represents the accumulated surplus of subscription, donations and net profits from activities carried on by such an entity.

3. Net result of activities The net result of the activities of such an entity is known as the profit/loss.

The net result of the activities of such an entity is known as the surplus/deficit.

4. Accounting Statements The accounting statements of such type of entity include : a) A Manufacturing A/c b) A Trading A/c; c) A Profit and Loss A/c; d) A Balance Sheet.

The accounting statements of such an entity includes : a) A Receipts ad Payments A/c; b) An Income and Expenditure A/c; c) A Trading A/c; d) A Balance Sheet.

ACCOUNTING FOR NOT FOR PROFIT ORGANISATION The following books are generally kept by every not for profit organization: a) Cash book with or without Analysis Column. b) Member's Register




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c) Register of Assets In case of large not for profit organizations, almost the same accounting system is followed as in the case of profit seeking organizations. In case of small not for profit organizations usually, the cash book is prepared and with the help of such a cash book, a Receipts and Payments Account is prepared and with the help of such account and additional information, an Income & Expenditure Account and a Balance Sheet are prepared.

Receipts and Payments account

Meaning The 'Receipts and Payment Account' is an asset account (or Real Account) which shows the classified summary of transactions of a CASH BOOK along with the Cash & Bank balances in the beginning and at the end of an accounting period.

Features The main features of Receipts & Payments Account are as under : � It starts with the opening balance of cash in hand and cash at bank. � It is debited with all sums received. � It is credited with all sums paid out. � It records all receipts and payments whether they are of revenue nature or capital nature. � It records all receipts and payments whether they relate to the previous, current or following accounting year. � It does not record non–cash items (e.g. depreciation). � It ends with closing balance of Cash in hand and Cash at bank.

Format A general format of a receipts & payments account is given below :

Format of receipts & payments account Receipts & Payments Account

for the period ending on … Dr. Cr.

Receipts Rs. Payments Rs. To Cash b/d By Balance b/d (Bank overdraft) xxx Cash xxx By Annual Sports Expenses xxx Bank xxx xxx By Salaries & Wages xxx To Subscription By Rent, Rates & Taxes xxx for previous year xxx By Insurance xxx for current year xxx By Furniture xxx for next year xxx xxx By Sports Equipments xxx To Entrance Fees xxx By Books & Periodicals xxx To Donation for Building xxx By Audit Fees xxx To General Donations xxx By Printing & Stationery xxx To Life Membership Fees xxx By Honorarium xxx To Legacy xxx By Bank Charges xxx To Grant from Government xxx By Postage & Telegrams xxx To Contribution for Annual Dinner xxx By Water & Electricity xxx To Dividend xxx By Conveyance & Travelling xxx To interest xxx By Repairs & Maintenance xxx To Rent xxx By Sundry Expenses xxx To Receipt on Annual Sports xxx By Annual Dinner Expenses xxx To Sale of Old Sports Materials xxx By 12% Investments xxx To Sale of Old Magazines xxx By Balance c/d xxx To Sundry Receipts xxx Cash xxx To balance c/d (Bank overdraft) xxx Bank xxx xxx xxx xxx




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Q.1 From the information given below, prepare receipts & payments account of Tulsian Club, Delhi for the year ending on December 31, 20X2.

Rs. Rs. Cash as at 1.1.20X2 1025 Sale of Old Bats etc. 50 Subscription received 2150 12% General Investments

(including Rs.40 for 20X1 and Rs.60 for 20X3),

(made on 1.8.20X2) 12% Tournament Fund Investments

500

Upkeep of fields 220 (made on 1.8.20X2) 1500 Admission Fees 40 Tournament Expenses 1200 Salaries 600 Sale of old furniture (cost Rs.100) 60 Drama Expenses 450 Bats and Balls purchased 700 Life membership Subscription 100 Proceeds of drama tickets 950 Newspapers purchased 150 Interest on 12% General Investment Books Purchased 100 Received 12.50 Donations received (on 1.8.20X2) 500 Interest 12% Tournament Fund &

Investment received 37.50

Subscription for Tournament received on (1.8.20X2)

1500 Printing and Stationery 100

Municipal Tax 40 Furniture 250 Charity given 350 Subscription received for Sale of old newspapers 45 Governor's Party 3450

INCOME AND EXPENDITURE ACCOUNT

Meaning An Income and Expenditure Account is a final account like Profit and Loss Account, which shows the classified summary of incomes, expenses and losses for current accounting period alongwith the excess of income over expenditure or excess of expenditure over income which is transferred to the Capital Fund.

Features � It is debited with the expenses and losses. � It is credited with the incomes. � It records only those incomes, expenses and losses which are of revenue nature. � It records only those incomes, expenses and losses which relates to current accounting year. � It records non–cash items also (e.g. depreciation). � It balance at the end which represents either the net surplus (if credit side exceeds debit side0 or net deficit (if debit

side exceeds credit side) is transferred to the Capital Fund in the Balance Sheet. Format A general format of a Income and Expenditure Account is given below :

Format of Income and Expenditure Account Receipts & Payments Account for the period ending o n …

Dr. Cr. Expenditure Rs. Income Rs.

To Salaries and Wages paid xxx By Subscription Received Add. Outstanding at the end Add : Outstanding at the end Less : Prepaid at the end Less : Advance at the end Add : Prepaid in the beginning Less : Advance at the beginning Less : Outstanding in the beginning xxx Less : Outstanding in the beginning xxx To Rent, Rates and Taxes xxx By Entrance Fees (only that portion To Insurance Premium xxx which is to be treated as revenue) xxx To Depreciation on Furniture and xxx By General Donations xxx Sports equipments xxx By Life membership Fees (only that portion

which is to be treated as revenue xxx




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To Books and Periodicals xxx To Audit Fees xxx To Printing and Stationery xxx By Profit from Annual Dinner To Honorariam xxx Contribution To Bank Charges xxx Less : Expenses xxx To Postage & Telegram xxx By Profit on Annual sports To Electricity & Water xxx (Receipts – expenses) xxx To Conveyance and Travelling xxx By Profit on sale of provisions To Sundry Expenses xxx (Sale + Closing Stock–Purchases–

Opening Stock)

xxx To Surplus i.e., excess of income over expenditure xxx By Rent of Club Hall xxx By Dividend & Interest xxx By Sundry Receipts xxx By* Deficit i.e. Excess of expenditure over

income xxx

xxx xxx

MEANING AND ACCOUNTING TREATMENT OF SOME PECULIAR ITEMS

TREATMENT OF SUBSCRIPTION This is the major source of revenue income of a non–profit seeking entity. Subscriptions are the amounts paid by the members of such entity to maintain their membership. Subscriptions may be paid periodically (usually on yearly basis) or as a lump sum for lifetime membership. The accounting treatment is summarized as under :–

a) Periodical Subscriptions These are treated as revenue receipts. b) Life Membership Subscriptions These may be treated in any one of the following ways :– a) These subscriptions may be treated as a capital

receipt and thus be transferred to a "Special Account" which shall be shown in the Balance Sheet till the membership ceases when the same may be transferred to the Capital Fund Account.

b) These subscriptions may be treated as deferred revenue receipts. In such a case, an amount representing the normal annual subscription is treated as a revenue receipt and the balance appears in the Balance Sheet till the amount is exhausted or till the membership ceases, whichever is earlier.

Where the accrual basis of accounting is used, only that amount of subscriptions which relates to current accounting period, should be treated a revenue income of that period. In order to calculate this amount, the amount of subscriptions received during the current accounting period should be adjusted in the light of outstanding and advanced subscriptions in the beginning and at the end of the current accounting period. The subscription income for current accounting period may be computed in any of the following three ways : a) In Statement Form, b) In Account Form, and c) In Equation Form.

(a) In Statement Form Statement showing Computation of Subscriptions Inco me for the Year

Particulars Rs. A. Subscriptions received during the current year xxx B. Add : (i) Outstanding subscriptions at the end of current year xxx (ii) Advance subscriptions in the beginning of current year xxx xxx C. Less : (i) Outstanding subscriptions in the beginning of current year xxx (ii) Advance subscriptions at the end of current year xxx xxx D. Subscription Income to be credited to Income and Expenditure Account (A+B–C) xxx




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(b) In Account Form Dr.

Particulars Rs. Particulars Rs. To Outstanding Subscription A/c (Outstanding subscription in the beginning)

xxx By Advance Subscription A/c (Advance subscription in the beginning)

xxx

To Income & Expenditure A/c (balancing figure)

xxx By Bank A/c (Total Subscription received during the current year)

xxx

To Advance Subscription A/c (Advance Subscription at the end)

xxx By Outstanding Subscription A/C (Outstanding subscription at the end)

xxx xxx

(c) In Equation Form The entire process of computation of subscription income for the current year may be described through the following equation :

SI = SR + OS2 + AS1 – OS1 – AS2 Where SI = Subscription Income for the current accounting period. SR = Subscription received during the current accounting period. OS2 = Outstanding Subscription at the end of the current year. AS1 = Advance Subscription in the beginning of the current year. OS1 = Outstanding Subscription in the beginning of the current year. AS2 = Advance Subscription at the end of the current year. Q.2 Subscription received during the year 20X2 Rs.60,000. How will you show the relevant items in the final accounts

in each of the following alternative cases : Case (a) If no other information is given Case (b) If subscription Rs.30,000 is still outstanding. Case (c) If subscription Rs.20,000 was received in advance for the year 20X4. Case (d) If subscription Rs.40,000 was outstanding at the end of the previous year. Case (e) If subscription Rs.90,000 was received in advance at the end of the previous year. Case (f) 20X1 20X2

Outstanding Subscription Rs.40,000 Rs.30,000 Advance Subscription Rs.90,000 Rs.20,000 Q.3 Compute the income from subscription for the year 20X2 from the following particulars relating to a club :

1.1.20X2 31.12.20X2 Outstanding subscription Rs.9,500 Rs.7,000 Advance Subscription Rs.2,800 Rs.5,200

Q.4 How will you deal with the following items while preparing the Income and Expenditure Account for the year ended December 31, 20X2 and the Balance Sheet as on that date ?

Particulars Rs. Particulars Rs. To Subscription

20X1 250 20X2 1,000 20x3 200 1,450

Information: The club has 50 members, each paying annual subscription of Rs.25. Subscriptions outstanding on December 31, 20X2 were Rs.300.

Q.5 From the following extracts of Receipts & payments account and the additional information, you are required to calculate the Income from Subscriptions for the year ending December 31, 20X2 and show them in the Income & Expenditure Account, and the Balance Sheet of a Club.

Particulars Rs. Particulars Rs. To Subscriptions

20X1 5,000 20X2 30,000 20x3 6,000 41,000

Information : i) Subscription outstanding on 31.12.20X1 Rs.6,000 ii) Subscription outstanding on 31.12.20X2 Rs.5,000 iii) Subscription received–in–advance on 31.12.20X1 Rs.6,000




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Q.6 How will you deal with the following case while preparing the final accounts for the year 20X2: a) Subscription received during 20X2 : for 20X1 Rs.5000, for 20X2 Rs.30,000, for 20X3 Rs.6,000 b) Subscription received in advance as at 31.12.20X1 Rs.6,000 c) Subscription outstanding as at 31.12.20X1 Rs.6,000 d) Subscription outstanding for the year 20X2 Rs.4,000

Q.7 Prepare the Subscription Account from the following items for the year ending on March 31, 20X3 : a) Subscription in arrears on 31.3.20X2 Rs.500. b) Subscription received in advance on 31.3.20X2 Rs.1100. c) Total Subscription received during 20X2–20X3 (including Rs.400 for 20X1–20X2, Rs.900 for 20X3–20X4

and Rs.300 for 20X4–20X5), Rs.35,400. d) Subscription outstanding for 20X2–20X3 Rs.400.

Q.8 From the following extracts of the receipts & payments account and the additional information, you are required to compute the income from subscription for the year ending on December 31, 20X2 and show the subscription for items in the Income and Expenditure Account and the balance sheet as on 31.12.20X2.

Particulars Rs. Particulars Rs. To Subscriptions

20X1 9,000 20X2 1,34,400 20X3 5,200

Information : Subscription outstanding as on 31.12.20X1 Rs.9,200. Subscription received in advance as on 31.12.20X1 Rs.2,800 (including Rs.800 for 20X2). There are 1,440 members each paying an annual subscription of Rs.100.

Q.9 How will you deal with the following items while preparing the Income and Expenditure Account for the year ending on 31st December, 20X3 and the Balance Sheet as on that ?

Subscription outstanding as on 31.12.20X2 : Rs.9,500 (including Rs.500 fr 20X1) Subscription received in advance as on 31.12.20X2: Rs.3,000 (including Rs.200 for 20X4) Subscription received during 20X3 : for 20X1 Rs.400, for 20X2 Rs.8,900, for 20X3 Rs.1,34,400, for 20X4

Rs.4,000 for 20X5 Rs.1,200. Subscription outstanding as on 31.12.20X3 : Rs.7,000.

TREATMENT OF ENTRANCE FEE/ADMISSION FEE This is an initial amount payable at the time of seeking admission by a person who intends to become a member of a club, association, or society. The fees may be accounted for in any of the following two ways :

a) It may be treated exclusively as a revenue receipt and thus, be transferred to the credit of Income & Expenditure Account.

b) It may be treated exclusively as a capital receipt and this, be added to the Capital Fund on the liabilities side of the balance sheet.

Q.10 How will you deal the Entrance fees while preparing the final accounts for the year ending on 31st March 20X2 in

each of the following alternative cases : Case (a) During the year 20X1–20X2, Entrance fees received Rs.1,00,000. Case (b) During the year 20X1–20X2 Entrance fees received Rs.1,00,000. The accounting policy of the club is

to treat the entrance fees as of revenue nature. Case (c) During the year 20X1–20X2 Entrance fees received Rs.1,00,000. The accounting policy of the club is

to treat the entrance fees as of capital nature. Case (d) During the year 20X1–20X2 Entrance fees received Rs.1,00,000. According to accounting policy of

the club, 40% of the entrance fees is to be capitalized. There was no pending membership as on 31st March 20X2.

TREATMENT OF DONATIONS AND LEGACIES Donations represent the amount donated by any person (whether member or outsider) to the organization for a general or specific purpose. Legacies represent the donations which are given under a will on the death of a donor. The accounting treatment is summarized as follows :




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Types of Donations and Legacies Accounting Treatmen t a) General Donations and Legacies a) These donations are treated as revenue receipts

and thus, are transferred to the credit of Income and Expenditure Account.

b) Specific Donations and Legacies b) These donations are treated as capital receipts and thus, are transferred to a 'Special Fund Accountant' (e.g., Building Fund) maintained for the purpose. Any income relating to such 'Special Fund Account' is added to the respective fund. Any revenue expenditure relating to 'Special Fund Account' is deducted from the respective fund. However, any expenditure of capital nature on account of this Special Fund (e.g., expenditure on the construction of building out of Building Fund) should be shown on the assets side of the Balance sheet and an equal amount should be transferred from that Special Fund to the Capital Fund.

Q.11 Show how will you deal with the following items while preparing the final accounts for the year ending on March

31, 20X2 in each of the following alternative cases: Case (a) Prizes awarded Rs.2,000 Case (b) Prizes awarded Rs.2,000, Prize Fund as at 31.3.20X1 Rs.12,000. Case (c) Prizes awarded Rs.2,000, Prizes Fund as at 31.3.20X1 Rs.12,000, Donations for prizes received

during the year 20X1–20X2 Rs.2,800. Case (d) Prizes awarded Rs.2,000 Prize Fund as at 31.3.20X1 Rs.12,000, Donations for prizes received during

the year 20X1–20X2 Rs.2,800, 10% Prize Fund Investments as at 31.3.20X1 Rs.12,000. Interest received on Prize Fund Investments Rs.1,200.

Q.12 Show how will you deal with the following items while preparing the final accounts for the year ending on 31st

March 20X2. Case (a) Expenditure on Construction Pavilion Rs.3,00,000. The construction work is in progress and has not

yet completed. Capital fund is at 31.3.20X1 Rs.9,00,000. Case (b) Expenditure on construction of Pavilion Rs.3,00,000. The construction work is in progress and has

not yet completed. Pavilion Fund as at 31.3.20X1 Rs.4,00,000. Capital Fund on at 31.3.20X1 Rs.9,00,000.

Case (c) Expenditure on construction of Pavilion Rs.3,00,000. The construction work is in progress and has not yet completed. Pavilion Fund as at 31.3.20X1 Rs.4,00,000. Donation for Pavilion received on 30.4.20X1 Rs.5,00,000. Capital Fund as at 31.3.20X1 Rs.9,00,000.

SALE OF OLD NEWSPAPERS AND PERIODICALS The sale proceeds of old newspapers and periodicals are treated as revenue receipts and thus are credited to the Income and Expenditure Account.

TREATMENT OF SALE OF OLD FIXED ASSETS The sale proceeds of old fixed assets are treated as Capital receipts and thus, are credited to thus are credited to the respective Fixed asset account. However, the profit or loss on sale of fixed assets is shown in the Income and Expenditure Account. Q.13 Prepare the Furniture account for the year ending on March 31, 20X2 in each of the following alternative cases :

Case (a) Furniture as on 31.3.20X1, Rs.1,10,000, 1,10,000, Furniture (having a book value as on 1.4.20X1 of Rs.10,000) sold at a profit of 20% on 31.12.20X1. Furniture purchased on 1.10.20X1 Rs.50,000 furniture is to be depreciated @10% p.a.

Case (b) Furniture as on 31.3.20X1 Rs.2,20,000. Furniture (having a book value as on 1.4.20X1 of Rs.20,000) sold at a loss of 20% on 31.12.20X1. Furniture is to be depreciated @10% p.a. Furniture cost Rs.1,50,000 was also purchased on 1.10.20X1.




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TREATMENT OF AID FROM GOVERNMENT AND OTHER INSTITUTIONS Type of Aid Accounting Treatment

a) General Aids a) These aids are treated as revenue receipts and thus, are transferred to the credit of the Income and Expenditure Account.

b) Special Aids b) These aids are treated as capital receipts and thus are added to the Capital Fund.

TREATMENT OF CONSUMABLE ITEMS CONSUMED DURING THE YEAR Sometimes non–profit seeking institutions consume some consumable item e.g. Stationery, Sports Material, Medicines. In such a case, a separate Stock Account for each of the consumable items should be prepared to ascertain the amount of consumable item consumed during the year and such amount should be transferred to the debit of Income and Expenditure Account. Stock Account is prepared in the same manner as the commercial organizations prepare. Sometimes the figure of credit purchases is missing in the question, in such a case Total Creditors Account should be prepared to ascertain credit purchases. Q.14 How will you deal with the following items while preparing the Income and Expenditure Account for the year

ending on March 31, 20X2 and a balance sheet as on that date in each of the following alternative cases? Case (a)

As at 1.4.20X1 As at 31.3.20X2 Creditors for Sports Materials 2,000 1,300 Stock of Sports Materials 3,000 500

During 20X1–20X2, the payment made to these creditors was Rs.10,800. There was no cash purchase. Case (b)

As at 1.4.20X1 As at 31.3.20X2 Amount due to suppliers of Sports Materials 15,000 9,750 Advances to suppliers of Sports Materials 5,000 3,250 Stock of Sports Materials 15,000 2,500

During 20X1–20X2, the payment made to the suppliers of Sports Materials was Rs.54,000. There was no cash purchase.

Case (c) As at 1.4.20X1 As at 31.3.20X2

Creditors for Sports Materials 2,300 5,900 Stock of Sports Materials 7,500 15,200

During 20X1–20X2, the payment made to these creditors amounted to Rs.28,400 and cash purchases amounted to 20% of total purchases.

TREATMENT OF PROFIT/LOSS FROM TRADING ACTIVITIES Sometimes non–profit making institutions carry on trading activities e.g. A restaurant/bar run by a club, Chemist shop by a hospital, Book–shop by a library. In such a case, a separate Trading Account for each of trading activities and such profit/loss should be transferred to Income and Expenditure Account. Trading Account is prepared in the same manner as in commercial organizations. Sometimes the figures of credit purchases and credit sales are missing in the questions, in such case Total Creditors' Account and Total Debtor's Account should be prepared to ascertain credit purchases and credit sales respectively. Q.15 Bharat Club provides you the following information : Stock in Restaurant on 31.3.20X1 Rs.3,900, and on

31.3.20X2 Rs.4,500, Restaurant Takings Rs.3,61,600, Restaurant Purchases Rs.2,04,800, Wages (including Rs.50,000 for Restaurant) Rs.92,300, Fuel Rs.17,700, China Glass Cutlery on 31.3.20X1 on 31.3.20X1 Rs.2,500. Depreciation @20% is to be provided on China Glass Cutlery. Required: Show how will you deal with the above item while preparing Restaurant Trading Account, Income and Expenditure Account and Balance Sheet




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DISTINCTION BETWEEN RECEIPTS & PAYMENTS ACCOUNT AND INCOME AND EXPENDITURE ACCOUNT A 'Receipt and Payment Account' and 'Income and Expenditure Account' can be distinguished as under : Basis of Distinction Receipts and Payments Account Income and Expenditure Account 1. Nature of account It is real account. It is a nominal account. 2. Basic s tructure It is basically a summarized Cash

Book It is like a Profit and Loss Account

3. Object It is prepared to present a summary of cash transactions during an accounting period

It is prepared to ascertain the net results of all the transactions during accounting period.

4. Opening balance Opening balance represents cash or bank balances (or Bank Overdraft) in the beginning of the accounting period.

It has no opening balance.

5. Items of Debit side It is debited with all the sums received. It is debited with the expenses and losses.

6. Items of Credit side it is credited with all the sums paid out. It is credited with the incomes. 7. Closing balance Closing balance represents cash or

bank balance (or bank overdraft) at the end of the accounting period.

Its closing balance represents either net surplus or net deficit.

8. Treatment of closing balance Its closing balance is carried forward in the same account of the next period.

Its closing balance is transferred to the Capital Fund in the Balance Sheet.

9. Non–cash items Non–cash items are not shown in this account.

Non–cash items such as depreciation, bad debts, etc., are shown.

10. Period to which items relate It records the receipts and payments whether they relate to previous, current or following accounting periods.

It records only those incomes, expenses and losses which relate to current accounting period.

11. Nature of items recorded – Revenue Vs. Capital

It records the receipts and payments whether of capital or revenue nature

It records the incomes, expenditures and losses of revenue nature.

DISTINCTION BETWEEN INCOME AND EXPENDITURE ACCOUNT AND PROFIT AND LOSS ACCOUNT Income and Expenditure Account differs from Profit and Loss Account in the following respects : Basis of Distinction Income and Expenditure Account Profit and Loss Account 1. Object The main object of Income and

Expenditure Account is to ascertain excess of income over expenditure or excess of expenditure over income.

The main object of Profit and Loss Account is to ascertain net profit or net loss.

2. Who prepares? This account is prepared by non–profit organizations.

This account is prepared by trading institutions.

3. Basis of Preparation This account is prepared on the basis of Receipts and Payments Account and other information.

This account is prepared on the basis of trial balance.

4. Balance The balance of this account represents surplus or deficit.

The balance of this account represents net profit or net loss.

PREPARATION OF AN INCOME AND EXPENDITURE ACCOUNT The practical steps involved in the preparation of an Income and Expenditure Account from the Receipts and Payment Account are given below :

Practical Steps involved in the preparation of an Income and Expenditure Account from the Receipts & Payments Account Step 1 Ascertain the Revenue Income (e.g. Subscriptions) for the current accounting period as under and show on the

credit side of Income and Expenditure Account : Rs. A Revenue receipts during the current year XXX B Add : a) Outstanding income at the end of current year XXX . b) Advance income in the beginning of current year XXX XXX




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C Less : a) Outstanding income at the end of current year XXX b) Advance income in the beginning of current year XXX XXX D Revenue income for the current year (A+B–C) XXX Step 2 Ascertain the Revenue Expense (e.g. Rent) for the current accounting period as under and show on the debit

side of Income and Expenditure Account : A Revenue payments during the current year XXX B Add : a) Outstanding expenses at the end of current year XXX b) Prepaid expenses in the beginning of current year XXX XXX C Less : a) Outstanding expenses in the beginning of current year XXX b) Prepaid expenses at the end of current year XXX XXX D Revenue Expenses for the current year (A+B–C) XXX Step 3 Ascertain the non–cash Expenses (e.g. Depreciation on fixed assets) from the additional information and show

such charges on the debit side of Income and Expenditure Account. Step 4 Calculate the amount of profit/loss on trading activities and show the amount of profit on the credit side of

Income and Expenditure Account or the amount of loss on the debit side of Income and Expenditure Account separately.

Step 5 Calculate the difference between the total of debit side and the total of credit side. If the total of credit side exceeds the total of debit side, show the excess of Income over Expenditure on the debit side. If the total of debit side exceeds the total of credit side, show the excess of Expenditure over Income on the credit side of Income and Expenditure Account.

Tutorial Note

The following items appearing in the Receipts & Payments Account are not shown in the Income and Expenditure Account : (a) Opening Cash and Bank Balances (b) Closing Cash and Bank Balances (c) Capital receipts (e.g. Special Donations, Sale Proceeds of Fixed Assets) (d) Capital Payments (e.g. Purchase of fixed Assets) (e) Expenses paid for the previous year(s) or following year(s) (f) Incomes received for the previous year(s) or following year(s). Q.16 From the following Receipts & Payments Account, prepare the Income and Expenditure Account for the year 31st

December, 20X2.

Receipts Rs. Payments Rs.

To Balance b/d 10,000 By Rent (including Rs.1,500 for 20X1) 6,000

To Entrance Fees : By Insurance Premium

20X1 1,000 (including Rs.1,500 for 20X3) 6,000

20X2 5,000 By Sports Materials 5,000

To Subscriptions: By Sports Equipment 6,000

20X1 1,000 (Purchased on 31.12.20X2)

20X2 9,000 By 8% Fixed Deposits 12,000

20X3 500 (made on 1.7.20X2)

To Life Membership Subscription 2,000 By Tournament Expenses 1,000

To Donations 12,000 By Purchase of Books 2,000

To Donation for Tournament 5,000 By Postage Stamps 500

To Subscription for Governor's Party 1,500 By Printing & Stationery 1,500

To interest on 8% Fixed Deposit 240 By Newspapers & Periodicals 2,000

To Sale of Old Sports Materials 30 By Balance c/d 6,000

To Sale of Old Sports Equipments

(Book Value Rs.120) 50

To Locker Rents

(including Rs.60 for 20X1) 500

To Sale of Old Newspapers

& Periodicals 180

48,000 48,000




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BALANCE SHEET OF A NON–PROFIT SEEKING ENTITY

Meaning A Balance Sheet is the statement of assets and liabilities of an accounting unit at a given date. It is prepared at the end of an accounting period after the Income and Expenditure Account has been prepared. It is called a Balance Sheet because it is a sheet of balances of ledger accounts which are open even after the preparation of Income and Expenditure Account. In such organizations, the excess of total assets over total outside liabilities is known as Capital Fund. While preparing the Balance Sheet, the excess of income over expenditure is added to the opening Capital Fund and the excess of expenditure over the income is deducted from the opening Capital Fund.

Format A general format of a Balance Sheet of a non–profit seeking organization is given below :

Format of Balance Sheet of Non–Profit Seeking Entit y Balance Sheet of …as at…

Liabilities Rs. Assets Rs.

Capital Fund : Fixed Assets

Opening Balance xxx Building

Add : Surplus xxx Opening Balance xxx

(or Less : Deficit) xxx Add: Additions xxx

Add: Entrance Fees xxx Less: Depreciation xxx xxx

(to the extent capitalized) Furniture

Add: Life Membership Opening Balance xxx

Subscriptions xxx Add: Additions xxx

(to the extent capitalized) Less: Sale xxx

Add: Amt. of Capital Expenditure Less: Depreciation xxx xxx

transferred from A Special Sports Equipment xxx

Fund (e.g. Building Fund) xxx xxx Less: Depreciation xxx xxx

Prize Fund: Investments:

Opening Balance xxx xxx Prize Fund Investments xxx

Add: Donation for prizes xxx Building Fund Investments xxx

Add: Income from 10% Government Securities xxx

Prize Fund Investments xxx Fixed Deposits xxx

Less: Expenses xxx xxx Current Assets: xxx

Building Fund : ___ Sports Materials xxx

Add: Donation for Building xxx Outstanding Subscriptions xxx

Add: Income from Acrued Interest xxx

Building Fund Investments xxx Accrued Rent xxx

Less: Transfer to Capital Fund xxx xxx Cash in hand xxx

Current Liabilities: Cash at bank xxx

Subscription received in Advance xxx

Outstanding Expenses xxx

Bank Overdraft xxx

Creditors xxx

xxx xxx




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Q.17 From the following information, prepare Opening and Closing Balance Sheets : 31st Dec. 20X1 31st Dec 20X2 Rs. Rs. Building (subject to 10% depreciation) 30,000 ? Furniture (subject to 10% depreciation) – 10,000 Stock of Sports Materials 2,500 1,000 Prepaid Insurance 1,500 3,000 Outstanding Subscription 6,000 4,000 Advance Subscription 3,000 2,000 Outstanding Locker Rent – 3,000 Advance Locker Rent received – 1,000 Outstanding Rent for Godown 3,000 1,500 12% General Fund Investments 1,00,000 ? Accrued Interest on above – 2,000 Cash Balance 500 32,000 Bank Balance 1,000 – Bank Overdraft – 1,000

Note : Entrance Fees received Rs.10,000, Life Membership Fees received Rs.10,000, Surplus from Income and Expenditure Account Rs.30,000. It is the policy of the club to treat 60% of entrance fees and 40% of Life Membership Fees as of revenue nature.

Q.18 The following is the Receipts & Payments Account of the Bombay Club for the year ending 31st Dec., 20X2. :

Dr. Receipts & Payments Account for the year 20X2 Cr. Receipts Rs. Payments Rs.

To Balance b/d 300 By Rent 5,200 To Entrance Fees 550 By Stationery, Expenses etc. 3,068 To Subscriptions: By Wages 5,330 20X1 200 By Billiards Table 3,900 20X2 16,900 By Repairs and Renewals 806 20X3 300 17,400 By Interest 1,500 To Locker Rents 500 By balance c/d 2,396 To Special Subscriptions for Governor's party 3,450 22,200 22,200

Locker rents, Rs.60, related to 20X1 and Rs.90 is still owing : rent Rs.1,300 pertained to 20X1 and Rs.1,300 is still owing: stationery expenses etc., Rs.312 related to 20X1; still owing Rs.364; subscriptions unpaid for 20X2 Rs.868; special subscriptions for Governor's party outstanding Rs.550. The club owned sports materials of the value Rs.16,000 on 1 January 20X2. This was valued at Rs.13,500 on 31 December, 20X2. The club took a loan of Rs.20,000 in 20X1. Treat Entrance Fees as of revenue nature. Required : Prepare the Income and Expenditure Account for 20X2 and Balance Sheet as at 31 December 20X2. Q.19 From the following information of a club, prepare Income and Expenditure Account for the year ending 31st March,

20X2 and a Balance Sheet as on that date : Dr. Cash Book Cr.

Receipts Rs. Payments Rs. To member's Subscription 5,000 By Upkeep of Pavilion 2,000 To Member's admission Fees 300 By Expenses regarding To Sale of Old Balls, Bats, etc. 50 Tournaments 700 To Hire of ground 300 by Rates and Insurance 200 To Subscription for Tournament 1,000 By Telephones 50 To Drawn from Bank 4,000 By Printing & Stationery 100 To Donations 10,000 By General Charges 50 By Secretary's Honorarium 170 By Grass Seeds 20 By Bats, Balls, etc. 710




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By Deposit in Bank 16,650 20,650 20,650

Assets on 1.4.20X1: Rs. Cash at bank 3,000 Stock of balls and Bats, etc. 1,500 Printing & Stationery (Stock) 200 Subscription due 500

Surplus on account of Tournament and Donations should be kept in reserve for a permanent pavilion. Subscriptions due on 31 March, 20X2 Rs.750. Write–off 50 per cent of Bats, balls Account and 25 per cent of Printing & Stationery Account. Treat admission fees as of revenue nature. Q.20 From the following Receipts & Payments Account of a cricket club and the additional information, prepare an

Income and Expenditure Account for the year ended 31st Dec., 20X2 and a Balance Sheet as on that date. Receipts & Payments Account

for the year ended 31st Dec., 20X2 Receipts Rs. Payments Rs.

To Balance : Cash 352 By Crockery purchased 265 Bank 2,738 By Maintenance 682 Fixed Deposit at 6% 3,000 6,090 By Match Expenses 1,324 To Membership Subscription By Salaries 1,100 (including Rs.600 for 20X1) 4,000 By Conveyance 82 To Entrance Fees 275 By Upkeep of Lawn 424 To Donation 501 By Postage Stamps 105 To Interest on Fixed Deposits 90 By Purchase of Cricket goods 972 To Tournament Fund 2,000 By Sundry Expenses 200 To Sale of Crockery 200 By Investments 570 (Book Value Rs.120) By Tournament Expenses 1,880 By Balance: Cash 220 Bank 2,332 Fixed Deposit 3,000 5,552 13,156 13,156

Information : a) Monthly Salary is Rs.100. b) The value of unused postage stamps is as follows: 31st Dec., 20X1 Rs.75, 31st Dec., 20X2 Rs.90. c) Stock of cricket equipment is as follows: 31st Dec., 20X1 Rs.321, Rs.31st Dec., 20X2 Rs.280. d) Arrears of Membership Subscription : 20X1 Rs.660, 20X2 Rs.800. e) Donation and entrance fees are not to be capitalized.

Q.21 From the following particulars relating to Rama Krishna Mission Charitable Hospital, prepare Income and

Expenditure Account for the year ended 31st Dec, 20X2 and Balance Sheet as on that date: Receipts Rs. Payments Rs.

To Cash in hand on By Medicines 30,590 1st January, 20X2 7,130 By Doctor's Honorarium 9,000 To Subscriptions 47.996 By Salaries 27,500 To Donations 14,500 By Petty Expenses 461 To Interest on investments By Equipments 15,000 @7% for full year 7,000 By Expenses on Charity show 750 To Proceeds from Charity show 10,450 By Cash in hand on 31st Dec., 20X2 3,775 87,076 87,076

On 1st Jan., 20X2 On 31st Dec., 20X2 a) Subscription Due 240 280




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b) Subscription Received in advance 64 100 c) Stock of Medicines 8,810 9,740 d) Estimated value of Equipments 21,200 31,600 e) Buildings (Cost less depreciation) 40,000 38,000 f) Investments 1,00,000

Q.22 Prepare the Income and Expenditure Account and the Balance Sheet from the following information : Receipts Rs. Payments Rs.

To Balance b/d Cash 1,025 To Upkeep of fields 220 To Subscription: By Salaries 600 20X1 40 By Drama Expenses 450 20X2 2,050 By Newspapers 150 20X3 60 2,150 By Books 100 To Admission Fees 40 By Municipal Taxes 40 To Life Membership Subscription 100 By Charity 350 To Donations (on 1.8.20X2) 500 By 12% General Investments To Subscription for Tournament (on 1.8.20X2) 500 (on 1.8.20X2) 1,500 By 12% Tournament Fund To Sales of old newspapers 45 Investments (on 1.8.20X2) 1,500 To Sale of old bats etc. 50 By Tournament Expenses 1,200 To Proceeds of drama tickets 950 By Bats, Balls etc. 700 To Sale of old furniture (costing Rs.100) 60 By Printing & Stationery 100 To Interest on 12% General Investments 12.50 By Furniture 250 To Interest on 12% Tournament By Balance c/d (cash) 3,760 Fund Investments 37.50 To Subscription for Governor's Party 3,450 9,920 9,920

Additional Information: a) There are 500 members each paying an annual Subscription of Rs.5. Rs.50 are still in arrear, for the year 20X1. b) Municipal taxes amounting to Rs.40 per year have been paid upto March 31, 20X3 and Rs.50 are outstanding for

salaries. c) On 1.1.20X2 the club owned building valued at Rs.5,000, Stock of Bats and Balls Rs.1,500, Printing and Stationery

Rs.200, Cash at Bank Rs.3,000, Books Rs.500 and Furniture Rs.600. d) Write off 50% on Bats and Balls (without considering sale), 25% off printing and stationery. e) Special Subscription for governor's party outstanding Rs.550. f) Admission fees to be treated as of revenue nature but Life Membership is to be treated as of Capital nature. Q.23 Following is the Trial Balance of the ideal Public School on 31st March 20X2.

Debit Balances Rs. Credit Balances Rs. Land 50,000 Capital Fund 15,60,000 School Building 15,00,000 Tuition Fees Received 25,10,000 Furniture 3,00,000 Salaries Payable 1,75,000 Salaries: Prize Fund 2,00,000 Teaching Staff 12,00,000 Tournament Fund 3,00,000 Admn. Staff 2,60,000 General Reserve Fund 2,00,000 Investments 7,00,000 Interest Received on Investments 77,000 Stationery, Postage 1,73,000 Donation for School Hall (Liability) 1,50,000 Lightening 36,000 General Expenses 65,000 Prizes awarded 20,000 Tournament Expenses 30,000 Library Books 3,75,000 Bank Balance 4,63,000 51,72,000 51,72,000

Depreciation is to be provided as follows : Building 2%, Furniture 10% and Library Books 20%. The investments were made against the various funds commonly. Prepare the Income and Expenditure Account for 20X1–20X2 and the Balance Sheet as at March 31, 20X2.




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Q.24 The following is the Receipts & Payments Account of the Calcutta Club for the year ending 31.12.20X2. Receipts Rs. Payments Rs.

Opening Balance Salaries 6,000 Cash 1,025 Sports Expenses 6,900 Stamps 50 Electricity 1,000 Bank F.D. 10,000 Telephone 1,200 S.B. Account 4,200 Postage Expenses 200 Current Account 2,100 General Body Expenses 700 10% Government Securities 1,80,000 Printing and Stationery 850 Subscription : Building Purchase Account 12,000 20X1 1,010 Repairs 400 20X2 18,900 Closing Balances: 20X3 900 Cash 1,740 Donations 7,000 Stamps 25 Bank Interest Received 1,340 Bank F.D. 11,000 Receipts from Sports 2,600 S.B. Account 22,310 Telephone Recoveries 900 Current Account 3,700 Interest on Government Securities 18,000 10% Government Securities 1,80,000 (After T.D.S. 10%) 2,48,025 2,48,025

A building costing one lac of rupees was purchased during the last year and Rs.88,000 was paid for it. Subscription outstanding for 20X2 Rs. 1,100 Salaries outstanding Rs. 200 Interest accrued on bank deposits but not received Rs. 200 The government Securities of the face value of Rs.2,00,000 (cost Rs.1,80,000) present investment of the Endowment Fund. Required : From the above, prepare Income and Expenditure Account for the year 20X2 and also the Balance Sheet as on 31.3.20X2 of the Calcutta Club.

Q.25 Prepare Income and Expenditure Account and Balance Sheet of Tulsian Sports Club, Delhi from the following

information : Receipts & Payments Account of Tulsian Sports Club, Delhi

for the year ending on 31st March, 20X2 Dr. Cr.

Receipts Rs.'000 Payments Rs.'000 To Balance b/d:Cash 150 By Balance b/d (Bank Overdraft) 3,000 Stamps 50 By Insurance (paid up to 30.6.20X2) 300 To Subscription 7,000 By Miscellaneous Expenses 3,875 To Entrance fees 200 By Postage Expenses 200 To Life Membership Subscription 500 By Refreshment Room Expenditure 2,100 To General Donations 2,000 By Furniture (Purchased on 600 To Cricket Fees 250 1.10.20X1) To Refreshment Room Receipts 3,100 By Honorarium to Cricket coach 600 To Sale of Old periodicals 72 By Sports Equipments 2,200 To Interest on government Securities 144 (on 1.10.20X1) (T.D.S. @ 20%) By 10% RBI Tax Free Bonds To Donation for Club Pavilion (on 1.1.20X2) (Pavilion) 10,000 (on 1.1.20X2) 10,000 By Balance c/d: Cash in hand 52 Cash at bank 514 Stamps 25 591 23,466 23,466




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Information : Particulars 1.4.20X1 Rs.'000 31.3.20X2 Rs.'000 Club Pavilion Fund 5,000 ? Sports Equipments 4,500 ? Furniture 3,200 ? Stock of Foodstuff 120 80 6% Government Securities (Face Value Rs.30,00,000) 2,580 ? Subscription Outstanding 600 250 Subscription in Advance – 300 Outstanding Miscellaneous Expenses 200 250

Accounting policies followed by Tulsian Sports Club, Delhi are, provide as under : a) The sports equipments and furniture are to be depreciated @25% and 19% p.a. respectively. Provide

depreciation on Sports equipment for full year and on furniture as per the dates given. b) One half of the entrance fees and life membership fee are to be treated as income. Q.26 Prepare Income and Expenditure Account and Balance Sheet of Bhagat Singh College Sports Club, Delhi from

the following information: Receipts & Payments Account of Bhagat Singh College Sports Club, Delhi

for the year ended on 31st March, 20X3 Receipts Rs. Payments Rs.

To Balance b/d:Cash 500 By Rent 9,750 Bank 4,000 By Miscellaneous Expenses 28,800 Stamps 300 By Postage Expenses 1,200 To Subscription By Furniture 8,000 20X1–20X2 4,650 By Creditors for Sports Material 12,200 20X2–20X3 67,200 By Cost of prizes (to be awarded) 4,150 20X3–20X4 2,600 74,450 By Cash purchase of Sports Material 2,000 To Entrance Fees 8,000 By Match Expenses 7,030 To General Donations 4,050 By Balance c/d: To Donations for Prize Fund 2,800 Cash 545 To Sale of old Sports Material 5,200 Bank 26,000 To Interest on Prize Fund Investments 300 Dtamps 150 To Miscellaneous Receipts 225 99,825 99,825

Information : Particulars 1.4.20X2 Rs. 31.3.20X3 Rs. Sports Material 4,000 5,000 Furniture 40,000 ? 5% Prize Fund Investments (Face Value Rs.12,000) 11,700 ? Creditors for Sports Material 1,400 2,950 Subscription in arrears 4,750 ? Subscription in advance 1,400 ? Prize Fund 12,200 ? Rent paid in advance – 750 Outstanding Rent 750 – Outstanding Miscellaneous Expenses 2,280 4,020 Miscellaneous Expenses paid in advance 750 850

Book Value of Sports Material sold was Rs.4,000. Depreciation on furniture is to be provided @10%. Half of entrance fees to be capitalized. There are 720 members, each paying an annual Subscription of Rs.100. Q.27 The following balances have been extracted form the books of XYZ Club for the year ended on 31st March, 20X3. Furniture as on 31st March, 20X2: Rs.8,400, Additions to Furniture during the year Rs.5,400, Billiard Table and other accessories as on 31st March, 20X2: Rs.8,900, China Glass Cutlery and Linex as on 31st March, 20X2: Rs.2,500, Restaurant receipts during the year: Rs.3,61,600, Restaurant stock as on 31st March, 20X2: Rs.3,900, Receipts from Billard room during the year; Rs.25,600, Subscription received during the year Rs.31,500, Interest on deposit received




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during the year: Rs.1,500, Secretary's honorarium; Rs.30,000, Purchases for restaurant : Rs.2,07,800, Rent and Rates: Rs.34,900, Wages (restaurant Rs.50,000) Rs.92.300, Repairs and Renewals: Rs.17,900, Fuel: Rs.17,700, Lightening: Rs.2,200, Sundry Expenses: Rs.13,400, Cash in Hand as on 31st March, 20X2: Rs.1,350, Bank Balances as on 31st March, 20X2: Rs.9,150, bank Deposit at 10% as n 31st March, 20X2: Rs.30,000. The payment for purchases includes Rs.3,000 for the year ending on 31st March, 20X2. Restaurant stock on 31st March, 20X3: Rs.4,500. Included in the Subscription received were Rs.4,800 for the previous year and Rs.1,200 for the year ending on 31st March, 20X4. Subscriptions outstanding on 31st March, 20X3 were Rs.5,000. Depreciation should be provided as follows : China glass and cutlery at 20%. Furniture 10% and Billiard Table and Accessories 15%. The cost of the boarding expenses of the staff is estimated at Rs.27,500 of which Rs.20,000 is to be charged to the restaurant. Cash in hand on March 31, 20X3: Rs.2,600. Required : Prepare the Receipts & Payments Account, Income and Expenditure Account and the Balance Sheet showing the working of the restaurant separately.

PREPARATION OF A RECEIPTS & PAYMENTS ACCOUNT The practical steps involved in the preparation of a Receipts & Payments Account from an Income and Expenditure Account are given below:

Practical Steps involved in the preparation of an Receipts & Payments Account from an Income and Expenditure Account Step 1 Ascertain the Opening Cash and Bank Balances (or Bank Overdraft) from the additional information or from the

opening Balances Sheet (if available) and show the Cash and Bank Balance on the debit side and Bank Overdraft on the credit side of Receipts & Payments Account.

Step 2 Ascertain 'Revenue Receipts' (e.g. Subscript ion) received during the current accounting period as under and show on the debt side of Receipts & Payments Ac count:

Rs. A Revenue income from the current year XXX B Add : a) Outstanding income in the beginning of current year XXX b) Advance income at the end of current year XXX XXX C Less : a) Outstanding income at the end of current year XXX b) Advance income in the beginning of current year XXX XXX D Revenue income for the current year (A+B–C) XXX Step 2 Ascertain the Revenue Expense (e.g. Rent) made during the current accounting period as under and show on

the credit side of Receipts & Payments Account. A Revenue payments during the current year XXX B Add : a) Outstanding expenses at the end of current year XXX b) Prepaid expenses in the beginning of current year XXX XXX C Less : a) Outstanding expenses in the beginning of current year XXX b) Prepaid expenses at the end of current year XXX XXX D Revenue Expenses for the current year (A+B–C) XXX Step 3 Ascertain Revenue Payments' (e.g. rent) made during the current accounting period as under and show on the

credit side of Receipts & Payments Account. A Revenue expenses during the current year XXX B Add : a) Outstanding expenses in the beginning of current year XXX b) Prepaid expenses at the end of current year XXX C Less : a) Outstanding expenses at the end of current year XXX b) Prepaid expenses in the beginning of current year XXX XXX D Revenue Payments for the current year (A+B–C) XXX Step 4 Ascertain all capital receipts (e.g. Life Membership Fees/Entrance Fees) and capital payments (e.g. purchase of

fixed assets) from the additional information or Balance Sheets (if available) or by preparing the Account of Capital Items such as fixed assets, special funds and show the capital receipts on the debit side and the capital payments on the credit side of the Receipts & Payments Account.

Step 5 Calculate the difference between the total of debit side and the total of credit side. If the total of debit side exceeds the total of credit side, show the Cash Balance (if the Bank Balance is given) or the Bank Balance (if the Cash Balance is given) on the credit side of the Receipts & Payments Account. If the total of credit side exceeds the total of debit side, show the Bank Overdraft on the debit side of Receipts & Payments Account.




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Note: The following items appearing in the Income and Expenditure Account are not shown in the Receipts & Payments Account: (a) Non–Cash items (e.g. Depreciation, Loss on sale of a fixed asset) (b) Outstanding or Prepaid Expenses (c) Accrued or Unaccrued Incomes (d) Surplus or Deficit. Q.28 The club has 120 members, each paying an annual Subscription of Rs.1,000. How will you show the relevant

items in the Receipts & Payments Account and the closing Balance Sheet in each of the following alternative cases: Case (a) If no other information is given. Case (b) If Subscription from 30 members is still outstanding. Case (c) If Subscription from 20 members was received in advance. Case (d) If Subscription from 40 members was outstanding at the end of the previous year. Case (e) If Subscription from 90 members was received in advance at the end of the previous year.

20X1 20X2 Case (f) Outstanding Subscription Rs.40,000 Rs.30,000

Advance Subscription Rs.90,000 Rs.20,000 Q.29 From the following extracts of Income and Expenditure Account and the additional information, you are required

to calculate the Subscription received for different years and show them in Receipts & Payments Account for the year ended Dec. 31, 20X2 and the Balance Sheet as on that date.

An Extract of Income and Expenditure Account for the year ended on 31st Dec., 20X2


By Subscription 25,000 Information : Subscription outstanding as at 31.12.20X1 and at 31.12.20X2 Rs.7,000 and Rs.10,000 respectively. Subscription received in advance as at 31.12.20X1 and at 31.12.20X2 Rs.200 and Rs.600 respectively. Q.29 A building has been let out at a monthly rent of Rs.10,000 p.m. How will you show the relavant items in the epa

and the closing Balance Sheet in each of the following alternative cases? Case (a) If no other information is given. Case (b) If Rent for 3 months' is still outstanding. Case (c) If Rent for 2 months' was received in advance. Case (d) If Rent for 4 months' was outstanding at the end of the previous year. Case (e) If Rent for 9 months' was received in advance at the end of the previous year. 20X1 20X2 Case (f) Outstanding Rent Rs.40,000 Rs.30,000 Advance Rent Rs.90,000 Rs.20,000

Q.31 From the following Income and Expenditure Account, prepare the Receipts & Payments Account for the year 20X2:

Income and Expenditure Account Dr. Cr.

Receipts Rs. Payments Rs. To Loss on Sale of Sports Material By Subscription (Book value Rs.500) 300 Received 10,000 To Rent: Add: O/s at the end 4,000 Paid 6,000 Add: Advance in the beg. 3,000 Add: O/s at the end 1,500 Less: O/s in the beg. 6,000 Less: O/s in the beg. 3,000 4,500 Less: Advance at the end 2,000 9,000 To Insurance Premium: By Entrance Fees 6,000 Paid 6,000 (40% capitalized) Add: Prepaid in the beginning 1,500 By Life Membership Fees Less: Prepaid at the end 3,000 4,500 (60%) capitalized) 4,000 To Sports Material 4,000 By General Donations 10,000 Add: Opening Stock 2,000 By Locker Rent: Less: Closing Stock 1,000 5,000 Received 4,000




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To Newspapers & Periodicals 1,200 Add: Outstanding at the end 3,000 To Depreciation @ 10% on old Building 3,000 Less: Advance at the end 1,000 6,000 To Depreciation @10% on By Interest on 12% New Furniture General Fund Investments: (Purchased on 1.1.20X2) 1,000 Received 10,000 To Salaries 4,500 Add: Accrued 2,000 12,000 To Surplus 30,000 By Sale of Newspapers 100 By Income from Charity Show: Charity show Proceeds 10,900 Less: Show Expenses 4,000 6,900 54,000 54,000

Note : Cash Balance as on 1.1.20X2 and on 31.12.20X Rs.500 and Rs.32,000 respectively. Bank Balance as on 1.1.20X2 Rs.1,000. Q.32 Jalan Cricket Club provides you the following formation:

Income and Expenditure Account for the year ended 31st March, 20X2


To remuneration to coach 18,000 By Donation and Subscription 1,00,000 To Salaries and Wages 24,000 By Bar Room: To Rent 23,000 Receipts 24,000 To Miscellaneous expenses 7,000 Less: Expenses 20,000 4,000 To Honorarium to Secretary 18,000 By Bank Interest 2,000 To Depreciation on Equipment 5,000 By Hire–Club–Hall 14,000 To Surplus 25,000 1,20,000 1,20,000

Balance Sheets Liabilities 31.03.X1

(Rs.) 30.3.X2

(Rs.) Assets 30.3.X1

(Rs.) 30.2.X2

(Rs.) Capital Fund 48,000 48,000 Equipment 25,000 20,000 Add: Entrance Fees 10,000 Outstanding Subscription 6,000 6,000 Add: Surplus 25,000 Cash in hand 4,000 2,000 Subscription in advance 4,000 3,000 Cash at bank 2,500 10,000 Miscellaneous expenses 5,500 5,000 Fixed Deposit 20,000 50,000 Salaries & Wages – 1,000 Accrued Hire charges Honorarium to Secretary 1,000 – of Club Hall – 2,000 Prepaid Rent 1,000 2,000 58,500 92,000 58,00 92,000

Required: Prepare the Receipts & Payments Account of the Club for the year ended March 31, 20X2. Q.33 The Lok Kalyan Dispensary had the following :

Income and Expenditure Account for the year ended on 31st March, 20X2


Salaries 23,500 Subscription 25,000 Surgery & Dispensary 3,000 Interest 9,000 Rent and Taxes 500 Donations 4,000 Insurance 200 Miscellaneous Receipts 300 Office expenses 800 Depreciation: Building 3,750 Furniture 120




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Instruments 100 3,970 6,330 38,300 38,300

Information : Particulars 31.3.20X1 Rs. 31.3.20X2 Rs. Cash in hand at bank ? 18,700 4.5% Tax free Government securities (Face value Rs.2,00,000)

1,80,000 1,80,000

Subscription outstanding 7,000 10,000 Subscription received in advance 200 600 Salaries unpaid 1,000 1,500 Furniture 2,000 1,980 Land & Buildings 1,00,000 96,250 Instruments 3,500 3,900 Surgery expenses due 200 300 Stock of medicines 300 100

Prepare Receipts & Payments Account for 20X1–20X2 and also the Balance Sheet.

PREPARATION OF A BALANCE SHEET The practical steps involved in the preparation of a Balance Sheet are given below:

Practical Steps involved in the preparation of Balance Sheet Step 1 Open only one account for each of the various items given in Receipts & Payments Account, Income and

Expenditure Account and additional information avoiding duplication (i.e. no account should be opened twice) Step 2 Post the following items in various ledger accounts as under : (a) Receipts shown on the debit side of Receipts & Payments Account Show on the credit side of respective

account (b) Payments shown on the credit side of Receipts & Payments

Account Show on the debit side of respective account

(c) Revenue Expenses and losses shown on the debit side of Income and Expenditure Account

Shown on the credit side of respective account

(d) Revenue Incomes shown on the credit side of Income and Expenditure Account

Show on the debit side of respective account

Step 3 Calculate the difference between the total of debit side and the total of credit side of each account. Show the difference as Opening Balance (if the credit side exceeds the debit side) or as Closing Balance (if debit side exceeds the credit side).

Step 4 Prepare Opening Balance Sheet on the basis of Opening Balances (including Opening Cash and Bank Balances) and Closing Balance Sheet on the basis of Closing Balances (including Closing Cash and Bank Balances).

Tutorial Note

Expenses paid for the current year and income received for the current year will not appear in the Balance Sheet. Q.34 Taking the same information as given in Q.31, prepare Opening and Closing Balance Sheets: Q.35 The following particulars relate to a sports club's Income and Expenditure Account for the year ended 31st

December 20X2: Income and Expenditure Account


To Salaries 1,500 By Entrance Fees 10,100 To printing and Stationery 2,200 By Subscription 15,600 To Advertising 1,600 By Rent 4,000




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To Audit Fees 100 To Fire Insurance 1,000 To Depreciation on Sports Equipments 9,000 To Excess of Income over Expenditure 14,300 29,700 29,700

Receipts & Payments Account for the year ended 31st December, 20X2

Dr. Cr. Receipts Rs. Payments Rs.

To balance b/d 4,200 By Salaries 1,000 To Entrance Fee 10,100 By Printing and Stationery 2,600 To Subscription By Advertising 1,600 20X1 600 By Fire Insurance 1,200 20X2 15,000 By Investments 20,000 20X3 400 By Balance c/d 7,400 To Rent Received 3,500 33,800 33,800

The assets on 1st January, 20X2 included club grounds and pavilion Rs.44,000, sports equipments Rs.25,000 and furniture and fixture Rs.4,000. Subscription in arrears on that date was Rs.800. Prepare Balance Sheet as at 31.12.20X1 & 31.12.20X2. Q.36 The following particulars relate to Hanuman Sports Club:

Income and Expenditure Account for the year ending on 31st December, 20X2


To Secretary's Salary 1,500 By Entrance Fees 10,500 To Printing and Stationery 2,200 By Subscription 15,600 To Advertising 1,600 By Rent 2,800 To Audit Fees 500 By Interest on Investments 1,200 To Fire Insurance 1,000 To Depreciation on Sports Equipments 9,000 To Depreciation on Furniture 500 To Surplus 13,800 30,100 30,100

Receipts & Payments Account for the year ended 31st December, 20X2

Dr. Cr. Receipts Rs. Payments Rs.

To Balance b/d 4,200 By Secretary's Salary 1,000 To Entrance Fee 20X1 1,000 By Printing and Stationery 2,600 20X2 10,000 By Advertising 1,600 To Subscription By Fire Insurance 1,200 20X1 600 By 12% Investments 20X2 15,000 (purchased on 1.7.20X2) 20,000 20X3 400 By Furniture 2,000 To Rent Received 2,400 By Balance c/d 5,800 To Interest received 600 34,200 34,200

The assets on 1st January, 20X2 included club grounds and pavilion Rs.44,000, sports equipments Rs.25,000 and furniture and fixture Rs.4,000. Subscription in arrears on that date was Rs.800. Subscription received in advance on that date were Rs.200. Creditors for Printing and Stationery on that date were Rs.500. Requirements: Prepare Balance Sheet as at 1.1.20X2 & 31.12.20X2.




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EXTRA QUESTIONS FOR PRACTICE Q.1 From the following particulars, prepare Income and Expenditure Account. Fees collected, including Rs.80,000 on account of the previous year Rs.3,80,000; Fees for the year outstanding

Rs.10,000; Salary paid, including Rs.3,000 on account of the previous year Rs.28,000; Salary outstanding at the end of the year Rs.1,000; Entertainment expenses Rs.3,000; Tournament expenses Rs.12,000; Meeting expenses Rs.18,000; Traveling expenditure Rs.6,000; Purchase of books and periodicals, including Rs.19,000 for purchase of books Rs.29,000; Rent Rs.10,000; Postage, telegrams and telephones Rs.15,000; Printing and stationery Rs.4,000; Donations received Rs.20,000.

Q.2 From the following Trial Balance and the necessary information given below for a public school, prepare Income

and Expenditure Account for the year 20X2, and a Balance Sheet as at March 31, 20X2. Debit Balances Rs. Credit Balances Rs.

Buildings 2,50,000 Admission fees 5,000 Furniture and Fittings 40,000 Tuition and other fees received 2,00,000 Library Books 60,000 Creditors for supplies 6,000 9% Investments 2,00000 Rent for the Hall 4,000 Salaries 2,00,000 Miscellaneous Receipts 12,000 Stationery 15,000 Government Grant 1,40,000 General expenses 8,00 general Fund 4,00,000 Annual Sports–Expenses 6,000 Donation received for purchase of Cash at Bank 30,000 library books 25,000 Cash in hand 1,000 Sale of Old Furniture 8,000 8,00,000 8,00,000

Fees yet to be received for the year Rs.10,000. Salaries yet to be paid amount to Rs.12,000. Furniture costing Rs.12,000. Furniture costing Rs.15,000 was purchased on 1.10.20X1. The book value of the Furniture sold (on 30.9.20X1) was Rs.20,000 on 1.4.20X1. Depreciation is to be charged @10% per annum on Furniture and Fittings; 15% on Library Books and 5% on Buildings. Q.3 The following is the Income and Expenditure Account of the Red Roses Club for the year ended on March, 31

20X2. Expenditure Rs. Income Rs.

To Salaries 24,000 By Subscription 72,000 To Rent 10,800 By Entrance Fees 8,000 To Rates and Taxes 600 By Surplus on Publication of To Postage and Telephones 720 brochure 4,500 To Affiliation fees to the All–India By Profit on sale of old sports Lawn Tennis Association 1,200 as sets 1,200 To Sports Material 15,750 By Interest on 4% investments 600 To Electricity Charges 1,200 By Miscellaneous Income 225 To Repairs and Maintenance to tennis court 9,600 To Depreciation on assets at 10% of gross book value at end of year 4,800 To Surplus carried to Capital Fund 17,855 86,525 86,525

The following further information is made available:

Balances on 31.3.20X1 (Rs.)

Balances as at 31.3.20X2 (Rs.)

a) Sundry assets 44,000 ? Bank Balance 4,800 ? Subscription in arrear 4,750 3,500 Subscription received in advance 1,400 2,600 4% Investments [Face value Rs.15,000] 12,000 12,000 b) Expenses Outstanding:




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Salaries 600 1,200 Rent 900 1,800 Rates & Taxes Nil 600 Tennis court maintenance 780 320 c) Outstanding for purchase of Sports Material 1,400 2,950 d) Prize Fund 4,600 3,250 e) The book value, as on 1.4.20X1 of sports goods sold in the year was Rs.4,000. f) Prize Fund is separately maintained. All receipts are credited to it separately and

expenditure is met out of the fund directly. During the year, credits to the account amounted to Rs.2,800.

g) Interest received this year was only for two quarters. h) The club was admitted as a member of the All India Lawn Tennis Federation on

1.10.20X1 when it paid Subscription till 30.9.20X2. i) Advertisement charges on brochure – yet to be collected – Rs.450. j) A fixed deposit of Rs.25,000 was made on 31st March, 20X2.

Required : Prepare the Receipts & Payments Account for the year ended on March 31, 20X2 and the Balance Sheet as on that of the Red Roses Club. Q.4 The following is the Receipts & Payments Account of the Social Club in respect of the year ended 31st March,

20X3. Receipts Rs. Payments Rs.

To Balance b/d 10,250 By Salaries 20,800 To Subscription: By Stationery 4,000 20X1–20X2 450 By Rates 6,000 20X2–20X3 21,100 By Telephone 1,000 20X3–20X4 750 22,300 By Investment 12,500 To Profit on sports meet 15,500 By Sundry expenses 9,250 To Income from investments 10,000 By Balance c/d 4,500 58,050 58,050

The following additional information is provided to you: i) There are 450 members each paying an annual Subscription of Rs.50; Rs.500 were in arrears for 20X1–20X2 as

on 1st April, 20X2. ii) On 31t March, 20X3, the rates were prepaid to 30th June, 20X3; the charge paid every year being Rs.6,000. iii) There was an outstanding telephone bill for Rs.350 on 31st March, 20X3. iv) Outstanding sundry expenses as on 31st March, 20X2 totalled Rs.700. v) Stock of stationery on 31st March, 20X2 was Rs.500; on 31st March, 20X3 it was Rs.900. vi) On 31st March, 20X2, building stood in the books at Rs.1,00,000 and it was subject to Depreciation at 5% per

annum. vii) Investments on 31st March, 20X2 stood at Rs.2,00,000. viii) On 31st March, 20X3 income accrued on investments purchased during the year amounted Rs.375. Required: Prepare an Income and Expenditure Account for the year ended 31st March, 20X3 and the Balance Sheet as at that date. Q.5 The accountant of City Club gave the following information about the receipts and payments of the Club for the

year ended on 31st March, 20X2: Receipts: Subscription : Rs.62,130; Fair Receipts: Rs.7,200; Variety Show Receipts (net): Rs.12,810; Interest: Rs.690; Bar Collections: Rs.22,350. Payments: Premises: Rs.30,000; Rent: Rs.2,400; Rates and Taxes: Rs.3,780; Printing and Stationery: Rs.1,410; Sundry Expenses: Rs.5,350; Wages: Rs.2,520; Bar Purchases (Payments): Rs.17,310; Repairs: Rs.960; New Car (less proceeds of old car Rs.9,000): Rs.37,800, Fair Expenses Rs.7,170, Honorarium to Secretary Rs.11,000.

Information:

Particulars 1.4.20X1 (Rs.) 31.3.20X2 (Rs.) Cash in Hand 450 Nil Bank Balance as per cash book 24,420 10,350 Cheque issued for Sundry Expenses not presented to the bank (entry has been duly made in the cash book) 270 90




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Subscription Due 3,600 2,940 Premises (at cost) 87,000 1,17,000 Provision for Depreciation on Premises 56,400 Car (at cost) 36,570 46,800 Accumulated Depreciation on Car 30,870 Bar Stock 2,130 2,610 Creditors for Bar Purchases 1,770 1,290

Annual Honorarium to Secretary is Rs.12,000. Depreciation on Premises is to be provided at 5% on written down value. Depreciation on new Car is to be provided at 20%. You are required to prepare the Receipts & Payments Account and Income and Expenditure Account for the year ended on 31.3.20X2. Q.6 From the following Receipts & Payments Account of Excellent Recreation Club for the year ended 31.3.20x3 and

additional information given, prepare an Income and Expenditure Account for the year ended 31.3.20x3 and Balance Sheet as on 31.3.20x3:

Receipts Rs. Payments Rs.

Opening Balance : Secretary's Salary 12,000 Cash in hand and at bank 3,180 Salaries to Staff 25,000 Subscription 18,000 Charities 1,000 Sale of Old Newspapers 2,500 Printing and Stationery 600 Legacies 4,000 Postage Expenses 120 Interest on Investments 2,000 Rates and Taxes 1,500 Endowment Fund Receipts 20,000 Upkeep of the Land 2,000 Proceeds of Sport and Concerts 4,020 Purchase of Sports Material 10,000 Advertisement in the Year book 5,000 Telephone Expenses 3,480 Closing Balance : Cash in hand and at bank 3,000 58,700 58,700

Assets and Liabilities as on 31.3.20x2 and 31.3.20x3 were as follows: Particulars 31.3.20X2

(Rs.) 31.3.20X3 (Rs.)

Subscription in arrears 2,000 1,000 Subscription received in advance 500 400 Furniture 2,000 1,800 Land 10,000 10,000

Depreciation shall be charged at 10% p.a. under the diminishing value method. Legacies received shall be capitalized. investments were made in Securities, the rate of interest being 12% p.a., the date of investment was 1.6.20x1 and the amt of investments was Rs.20,000. Due date of interest is 31st March every year. Stock of Sports Material on 31.3.20x3 were useless and valued at NIL price. Q.7 From the following Receipts & Payments Account of Mumbai Club, prepare Income and Expenditure Account for

the year ended 31.12.20x1 and its Balance Sheet as on that date:

Receipts Rs. Payments Rs. Cash in Hand 4,000 Salary 2,000 Cash at Bank 10,000 Repair Expenses 500 Donations 5,000 Purchase of Furniture 6,000 Subscription 12,000 Miscellaneous Expenses 500 Entrance Fees 1,000 Purchase of Investments 6,000 Interest on Investments 100 Insurance Premium 200 Interest Received from Bank 400 Billiard Table 8,000 Sale of Old Newspaper 150 Paper, Ink, etc. 150 Sale of Drama Tickets 1,050 Drama Expenses 500 Cash in Hand (Closing) 2,650




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Cash at Bank (Closing) 7,200 33,700 33,700

Information: (a) Subscription in arrears for 20x1 Rs.900 and Subscription in advance for 20x2 Rs.350, (b) Insurance premium Outstanding Rs.40, (c) Miscellaneous Expenses Prepaid Rs.90, (d) 50% of donation is to be capitalized, (e) Entrance Fees are to be treated as revenue income, (f) 8% interest has accrued on interest for five months, (g) Billiard Table costing Rs.30,000 was purchased during the last year and Rs.22,000 were paid for it. Q.8 The following information were obtained from the books of Delhi Club as on 31.3.20x1 at the end of the first year

of the Club. You are required to prepare Receipts & Payments Account, Income and Expenditure Account for the year ended 31.3.20x1 and a Balance Sheet as at 31.3.20x1 on mercantile basis:

(i) Donations received for Building and Library Room Rs.2,00,000 (ii) Other revenue income and actual receipts:

Revenue Income (Rs.)

Actual Receipts (Rs.)

Entrance Fees 17,000 17,000 Subscription 20,000 19,000 Locker Rents 600 600 Sundry Income 1,600 1,060 Refreshment Account – 16,000

(iii) Other revenue expenditure and actual payments:

Revenue Expenses (Rs.)

Actual Payments (Rs.)

Land (cost Rs.10,000) – 10,000 Furniture (cost Rs.1,46,000) – 1,30,000 Salaries 5,000 4,800 Maintenance of Playgrounds 2,000 1,000 Rent 8,000 8,000 Refreshment Account – 8,000

Donations to the extent of Rs.25,000 were utilized for the purchase of Library Books, Balance was still unutilized. In order to keep it safe, 9% Government Bonds of Rs.1,60,000 were purchased on 31.3.20x1. Remaining amount was put in the Bank on 31.3.20x1 under the term deposit. Depreciation at 10% p.a. was to be provided for the whole year on Furniture and Library Books. Q.9 Mahaveer Sports Club gives the following Receipts & Payments Account for the year ended March 31, 20x2.

Receipts Rs. Payments Rs. To opening Cash & Bank Balances 5,200 By Salaries 15,000 To Subscription 34,800 By Rates and Taxes 5,400 To Donations 10,000 By Electricity Charges 600 To Interest on Investments 1,200 By Sports Goods 2,000 To Sundry Receipts 300 By Library Books 10,000 By Newspapers & Periodicals 1,080 By Miscellaneous Expenses 5,400 By Closing Cash & Bank Balances 12,020 51,500 51,500

Liabilities As on 31.3.20x1

(Rs.) As on 31.3.20x2

(Rs.) Outstanding Expenses : Salaries 1,000 2,000 Newspapers & Periodicals 400 500 Rates and Taxes 600 600 Electricity Charges 800 1,000 Assets :




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Library Books 10,000 Sports Goods 8,000 Furniture and Fixtures 10,000 Subscription Receivable 5,000 12,000 Investment – Government Securities 50,000 Accrued Interest 600 600 Provide Depreciation on: Furniture & Fixtures @10% p.a. Sports Goods @20% p.a. Library Books @10% p.a.

You are required to prepare Club's opening Balance Sheet as on 01.04.20x1, Income and Expenditure Account for the year ended on 31.3.20x2 and the Balance Sheet as on that date. Q.10 Summary of Receipts & Payments Account of Bombay Medical Aid Society for the year ended 31.12.20x2 are as

follows: Opening Cash Balance in hand Rs.8,000, Subscription Rs.50,000, donation Rs.15,000. Interest on Investments @ 9% p.a. Rs.9,000, Payments for medicine supply Rs.30,000, Honorarium to Doctors Rs.10,000, Salaries Rs.28,000 sundry Expenses Rs.1,000, Equipment purchase Rs.15,000, Charity show expenses Rs.1,500, Charity show collections Rs.12,500.

Liabilities 1.1.20x2 31.12.20x2 Subscription due 1,500 2,200 Subscription received in advance 1,200 700 Stock of medicine 10,000 15,000 Amount due for medicine supply 9,000 13,000 Value of equipment 21,000 30,000 Value of building 50,000 48,000

Required: Prepare Receipts & Payments Account and Income and Expenditure Account for the year ended 31.12.20x2 and Balance Sheet as at 31.12.20x2. Q.11 Excellent Library Society showed the following position on 31st December 20X1:

Liabilities Rs. Assets Rs. Capital Fund 7,93,000 Electrical Fittings 1,50,000 Expenses Due 7,000 Furniture 50,000 Books 4,00,000 Investments in Securities 1,50,000 Cash at Bank 25,000 Cash on Hand 25,000 8,00,000 8,00,000

The Receipts & Payments Account for the year ending on 31st December, 20X2 is given below: Receipts Rs. Payments Rs.

To Balance b/d By Electricity Charges 7,200 Cash at Bank 25,000 By Printing and Stationery 5,000 Cash on hand 25,000 50,000 By Telephone Charges 5,000 To Entrance Fees 30,000 By Books purchased (on 1–1–20X2) 60,000 To Membership Subscription 2,00,000 By Outstanding Expenses Paid 70,00 To Sale proceeds of old Papers 1,500 By Rent Account 88,000 To Hire of Lecture Hall 20,000 By Investment in Securities 40,000 To Interest on Securities 8,000 By Salaries 66,000 By Balance c/d Cash at Bank 20,000 Cash on Hand 11,300 8,00,000 8,00,000

You are required to prepare an Income and Expenditure Account for the year ending 31–12–20x2 and a Balance Sheet as on that date after making the following adjustments: (a) Membership Subscription included Rs.10,000 received in advance. (b) Provide for Outstanding rent Rs.4,000 and Salaries Rs.3,000. (c) Books to be Depreciated @10%




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including additions. Electrical Fittings and Furniture are also to be depreciated at the same rate. (d) 75% of the Entrance Fees is to be capitalized. () Interest on Securities is to be calculated @5% p.a. including purchase of investments made on 1–7–20x2 for Rs.40,000. Q.12 The Accountant of Diana Club furnishes you the following Receipts & Payments Account for the year ending 30th

September, 20x3: Receipts Rs. Payments Rs.

Opening Balance : Honoraria to Secretary 9,600 Cash and Bank 16,760 Miscellaneous Expenses 3,060 Subscription 21,420 Rates and Taxes 2,520 Sale of Old Newspapers 4,800 Groundman's Wages 1,680 Entertainment Fees 8,540 Printing and Stationery 940 Bank Interest 460 Telephone Expenses 4,780 Bar Receipts 14,900 Payment for Bar Purchases 11,540 Repairs 640 New car (Less–sale Proceeds of Old Car Rs.6,000) 25,00 Closing Balance: Cash and Bank 6,920 66,880 66,880

Additional Informations :

01.10.20x2 30.09.20x3 i) Subscription due (not received) 2,400 1,960 ii) Cheque issued, but not presented for payment of

printing 180 60

iii) Club premises at cost 58,000 – iv) Depreciation on club premises provided so far 37,600 – v) Car at cost 24,380 – vi) Depreciation on car 20,580 – vii) Value of Bar stock 1,420 1,740 viii) Amount unpaid for bar purchases 1,180 860 ix) Depreciation is to be provided @5% p.a. on the written down value of the club

premises and @15% p.a. on car for the whole year. Required: Prepare an Income and Expenditure Account of Diana Club for the year ending 30th September, 20X3 and Balance Sheet as on that date. Q.13 Following is the Income and Expenditure Account of Victoria Club for the year ending 31st March, 2006:

Expenditure Rs. Income Rs. To Salaries and Wages 19,000 By Subscription 30,000 To Miscellaneous Expenses By Entrance Fees received 1,000 (including Insurance) 2,000 By Annual Sports income To Audit Fees 1,000 Income 6,000 To Chief Executives' Honorarium 4,000 Less: Expenses 3,000 3,000 To Printing and Stationery 1,800 To Annual Day Celebration Expenditure. 6,000 Less: Donation 4,000 2,000 To Interest on Bank loan 600 To Depreciation on Sports Equipment 1,200 To Excess of Income over Expenditure 2,400 34,000 34,000




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Additional Information: 31.03.2005 31.03.2006 i) Subscription outstanding 2,400 3,000 ii) Subscription received in advance 1,800 1,080 iii) Salaries outstanding 1,600 1,800 iv) Sports Equipment (after deducting Depreciation) 10,400 10,800 v) Prepaid Insurance – 240 vi) Cash in Hand ? 6,400 vii) The Club owned a Sports' ground of Rs.40,000 6,400 viii) The Club took a loan of Rs.8,000 from a bank during the year 2004–05 which was

paid in 2005–06. ix) Audit Fee of 2005–06 was outstanding, but Audit fees of Rs.800 for 2004–05 was

paid in 2005–06. Required : Prepare Receipts & Payments Account for the year ending 31st March, 2006 and a Balance Sheet on that date.




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Q1. How will you distinguish between capital expenditure, revenue expenditure and Deferred Revenue expenditure? Give suitable examples

OR Define ‘Capital Expenditure and revenue Expenditure and state their consideration which would guide you in deciding whether any particular item should be regarded as capital or revenue

OR (a) Explain briefly (i) Capital Expenditure (ii) Revenue Expenditure (b) The following expenses have been incurred (i) Interest paid by a company on capital

during construction period. (ii) Expenses incurred on research of a product resulting in success. How would you treat these two amounts in the accounts?

OR Why is the distinction between capital and Revenue so important in book- keeping. State the considerations, which should be taken into account in deciding whether a particular item is of a capital or of a revenue nature

Capital and Revenue items: While preparing accounts or making out the final accounts it sis very important for the accountant to know the distinction between capital and revenue items. The fundamental principles of accounting are based on the proper distinction between capital and revenue items as regards to expenditure payments profits, receipts, gains or losses. If this distinction is not properly observed the accounts will not reversal correct figure of profits or loss. For example: if sale of assets is credited to sales account the profit and loss account will show larger amount of profits whereas balance sheet will show assets account at an unadjusted figure. In such a case both the profit and loss account and balance sheet would be misleading. Similarly if drawings are treated as business expenses, the figure of profits as well as capital would be incorrect. As a rule, all revenue item should go to the trading and profit and loss account and all capital items to the balance sheet, it is necessary that while preparing final account capital and revenue items would be properly distinguished so as to reveal correct financial position of the business Capital and Revenue Receipts: Capital receipts for a business may relate to the receipts on account of capital, loan additions to capital and receipts on the sale of an assets of a business, etc. on the other hand, cash sales of goods, receipts regarding the amount of discount commission, dividends, interest, transfer fees etc. items of revenue receipts. As a rule, revenue receipts are transferred to the credit side of trading and profit and loss account whereas capital receipts are shown to affect the balance sheet The following items may treated as capital receipts 1. Money contributed by the proprietor or partners as capital 2. Money raised and received by way of loan 3. Money received by sale of fixed assets or investments 4. Money received by conversion of an asset (except goods). For example amount received from sundry debtors is

an amount of capital receipts The following items of receipts may be treated as revenue receipts

1. Money realised by sale of goods 2. Money earned and received by way of remuneration, commission, interest on investment, discount etc. 3. Money realised by rendering service to other

Capital and revenue receipts may distinguished form capital and revenue profits. Capital and Revenue profits includes all those amounts which have become due to the business, whether received or not. On the other hand, capital and revenue receipts are only that portion of capital and revenue profits, payment of which has been received by the firms. In other words the realised amount of capital profits is called as capital receipt and the realised amount of revenue profit is called revenue receipt. Ti may also be possible that an item of capital or revenue receipts may not be items of capital or revenue profits. For example if assets, the books value of which is Rs. 4,000 are sold at Rs.4, 000 there is no capital profit from this transaction but there is a capital receipt of Rs.4, 000. But if these assets are sold at Rs.4, 500, the capital profit will be Rs.500 (4,500- 4,000) and the capital receipt will be Rs.4, 500.

Just like revenue receipt revenue profits are to be transferred to the credit side of trading and profit and loss account but capital profit should be transferred to capital reserve in the balance sheet

Profit on sale of goods, commission, rent, discount, interest earned etc. are items of revenue profit. Premium on sale of share or debenture, transfer fees etc. are items of capital profits Capital and Revenue Expenditure: There is no hard and fast rule to distinguish between items of capital and revenue expenditure. It may be possible that expenditure is capital expenditure for one firm but revenue expenditure for another firm. For example purchase of machinery by a textile mill is an items of capital expenditure for the mill but if a firm, which is dealing in purchase or sale of such machinery, purchases the same machinery this item will be an items of revenue expenditure. But there are certain rules which serve as a discussing these rules; we should discuss the nature of capital and revenue items of expenditure




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Capital Expenditure: Capital expenditure is that expenditure which results in the acquisition of an asset which can be later sold and converted into cash or which result in an increase in the earning capacity of the business or which affords some other advantages to the firm for a period of time which extends over the current accounting period. In simple words we can say that the benefit of capital expenditure are likely to accrue for a longer period of time Characteristics Of Capital Expenditures 1. A capital expenditure result in the acquisition of an asset, which can be later, disposed of and converted into

cash. For example purchase of land, building, machinery etc. 2. Capital expenditure result in a benefits for the firm which lasts for more than one year 3. Capital expenditure result in an increase in the earning capacity of the business, or 4. Capital expenditure results in reduction in the cost of production or installation of extra capacity 5. Capital expenditure adds something to the value of the business

Capital expenditure thus, consists of money spent in purchasing, constructing, equipping, or permanently improving any kind of asset of the business which help either in reducing the cost of production or earning more revenues to the firm Examples of Capital Expenditure 1) Purchase or acquisition of assets lime land, buildings, machinery, patents etc 2) Money paid for goodwill 3) Money spent to reduce cost of production. For example conversion of hand operated machinery to automatic

plant 4) Money spent on installation of extra capacity. It may be noted that expenditure which does not results in increase

in capital expenditure unless there is a tangible asset to prove it 5) Preliminary expenses of incorporation of a business, developmental expenses etc 6) All amount-spent upto the point an asset becomes ready for use. For example overhauling expenses of second-

hand machinery brokerage and commission for procuring long term loans, leases etc 7) Money spent on expansion or improvement of assets of the business for example increasing the seats of a

cinema hall 8) Expenses on the credit installation of machinery etc 9) Expenditure incurred for the purpose of raising capital.

An items of expenditure can not be treated as capital expenditure simply because 1) The amount involved is big 2) Payment is made in a lumpsum or 3) Payment is made out of a fund created with the sales proceeds of an asset Revenue Expenditure: An item of expenditure whose benefit explains within the year or expenditure which merely seeks to maintain the business or keep assets in working condition is revenue expenditure. Such expenditures does not increase the efficiency of the firm nor does it result in acquisition of something permanent. Revenue expenditure is in the nature of an expense or loss. It includes expense incurred on the management and operation of business activities. It is important to note that the benefit of a revenue expenditure in available for a short period of time not exceeding an accounting year Characteristics of Revenue Expenditure 1. It is an expenditure spent for maintaining the value of existing assets of a business such as repairs maintenance

etc

2. It results in a benefit which accrues to the firms for a short period of time not exceeding one year 3. All expenditures of recurring nature are revenue expenditure 4. Expenditure for acquiring goods etc. in which the business deals is revenue expenditure 5. Revenue expenditure does not add to but help only in maintaining the earning power of the firm 6. All losses are to be treated as revenue losses 7. It does not add anything to the value of the business

All items of revenue expenditure are to be shown in the debit side of Trading account or profit and loss account Examples of Revenue Expenditure i) Goods acquired for resale ii) Salaries, Rent, commission, interest, discount etc iii) All Administrating and selling overheads like legal fees, director fees, salesmen salaries, commission,

Advertisement, traveller fee etc iv) All cost and expenses incurred in the production of saleable articles such as raw material and wages furnace oil

etc v) All expenses incidental to the workings of the firm office expense postage, stationery etc vi) Depreciation (it is an item of revenue loss)




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vii) Interest on loan received by the firm viii) Repairs and renewals expenses ix) Loss of obsolescence x) Bad debts Tests For Distinction In order to distinguish between capital and revenue expenditure the following test may be applied 1. Whether the expenditure is of recurring nature or not? If it of recurring nature it is a revenue expenditure. But if it

is of a non recurring nature it is a capital expenditure 2. Whether it result in acquisition or maintenance of an asset? If the expenditure results in acquisition of a new

asset, it is capital expenditure. If it result in maintenance of an asset, it is revenue expenditure 3. Whether it adds to the earning capacity of the business? If the expenditure adds to the earning capacity of the

business it is a capital expenditure. If not, it is a revenue expenditure 4. Whether the benefit to the expenditure accrues for a short period or for a long period? If the benefit accrues for a

short period, it is revenue expenditure. If it accrues for a long period, it is a capital expenditure 5. Whether it result in reduction in cost of production or not? If it result in reduced cost of production it is a capital

expenditure otherwise a revenue expenditure But it is not always easy to make distinction between capital and revenue expenditures. In actual practice there is

a goods deal of difference or opinion as to whether a particular item of expenditure is of capital nature or revenue nature. For example a cinema converts its ordinary screen into one for cinema scope. Is the expenditure capital or revenue? One may say that sine the eating capacity of the hall does not change the expenditure should be treated as revenue expenditure. On the other hand, it may be argued that often then before. It will therefore result in higher earnings and should be problems may be posed where it is very difficult to determine whether the expenditure is revenue or capital expenditure When Revenue Expenditure Becomes Capital Expenditur e? Many instances may be given when expenditures of revenue nature becomes capital expenditure. The followings are some important example 1. Wages and salaries: these are revenue expenditures but if wages and salaries are paid for the construction or

for installation of some asset it becomes capital expenditure and should be debited to assert account to form a part of the cost of the asset

2. Repairs and Renewals: these expenses are of revenue nature and are debited to the profit and loss account of the firm. But in case a second hand plant or machinery so purchased and is repaired to bring it in workable condition it becomes capital expenditures and should be added to the cost of the plant or machinery

3. Cartage, freight etc: usually these are revenue charges but when incurred for the transportation of some asset for the business these becomes capital expenditure

4. Interest on capital: such interest if paid during the gestation period or out of capital during the period of construction or buildings or plant becomes a capital expenditure

5. Raw materials and goods: these are items of revenue nature but if raw materials is supplied out of stores of firm to be used in the construction of an asset for the firms it becomes capital expenditure

6. Legal expenses, audit fee etc: if such expenses are paid at the time of acquisition of some business or incorporation of a new company it becomes capital expenditure.

7. Brokerage etc: brokerage paid under ordinary circumstances are revenue expenditure but when paid at the time of issuing shares or debentures or acquisition of new assets, it becomes capital expenditure

8. Expenses incurred or research: Expenses incurred on research are normally charged to revenue in the period in which they are incurred. This is because when research is undertaken it is difficult to forecast whether the research will be a success or not. Even if the research is proved successful concerned. Therefore, research expenditure should be charged to revenue as and when incurred

Deferred Revenue Expenditure When heavy expenditure of a revenue nature is incurred the benefit of which is likely to extend beyond the year in which it is incurred, it is legitimate to allow such expenditure to be spread over the number of years for which its benefit is likely to accurse firm. Such expenditure is therefore temporarily capitalised and charged off to revenue account by installment over a number of years in proportion to the expected benefit to be realised each year. Such an expenditure is called as deferred revenue expenditure and appears as amount not written off in the balance sheet Examples of Deferred Revenue Expenditure 1. Expenditure wholly or partly paid in advance, the benefit of which will be derived in future like prepaid expenses

etc 2. Expenditure where a proportion of the benefit has been derived within the period under review the balance being

as yet unused and therefore shown in the balance sheet as a fictitious is asset such as heavy advertising expenses incurred in introducing a new line or developing a new market

3. Preliminary expenses of a company is a typical example of deferred revenue expenditure




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4. The amount representing loss of an exceptional nature. For example property confiscated in a foreign country and heavy loss of non-insured assets through fire

5. The expenditure in respect of service rendered which is considered as an asset for any sound reason such as i) Development cost in mines and plantations ii) Discount on debenture of a limited company iii) Cost of experiments which is spread over several years

6. Alterations and improvements to the extent they result in higher capacity or productive are to be capitalised therefore these are also to be treated as deferred revenue expenditure

Q2. Discuss Giving examples the Distinction Between Capital and Revenue Expenditure ? It is very difficult to give a clear out rule as to distinction between capital and revenue items (expenditures or incomes) but the nature of items must be distinguished so as to ascertain whether that particular item relates only to expenses or to the acquisition of assets what so ever, the following may be stated as the criteria l for assets what so ever, the following may be stated as the criteria for ascertaining the fact there an expenditure is capital or revenue 1. Capital expenditure is an expenditure which is incurred for the purpose of increase profit either positively by way

of increasing earning capacity or indirectly by decreasing working expenditure. Example: Acquisition of fixed assets like land and buildings. Plant and machinery and furniture and fittings are

examples of capital expenditure. Revenue expenditure on the other hand is an expenditure, which is incurred for the maintenances of earning

capacity including the upkeep of fixed asserts in a fully efficient state Examples: depreciation and repairs to fixed assets are revenue expenditure.

2. When an expenditure, whether increasing the earning capacity or not produces an asset comparatively permanent in character, it must in that case be treated as a capital expenditure. For example: on account of heavy demand for seats in a cinema hall the cinema auditorium is completely

reconstructed or renovated, such expenditure is a case of capital expenditure But the salaries paid to the additional staff for the maintenance of the cinema hall is goods working condition, are nothing but revenue expenditure Example : When distinction is difficult: Changing the screen of a cinema hall to 70 M.M. Revenue expenses : because seating capacity is not changed. Capacity expense : because 70 M.M. screens attract more audiences. 3. Development expenditure or expenditure of construction during gestation period or interest on capital allowed

during such period are all examples of capital expenditure. Similarly additions to assets are capital expenditure but repairs of assets are revenue expenditure. Example: for a cinema hall if few more exists are provided to comply with govt rules it is revenue expenditure. But

if a gallery is constructed to provide few more seats it is capital expenditure. 4. The expenditure the benefit of which is expected to accrue for a long time is a case of capital expenditure: but if

the benefit is derived immediately it should be treated as revenue expenditure. Example: purchasing of a book on accountancy is a case of capital expenditure because it will render services to

the students for many years to come but if that amount is spent on acquiring papers notebooks etc; to take down notes from that book it will be a case of revenue expenses as the benefit is immediately exhausted. 5. The distinction between capital revenue expense is similar to that between fixed and current assets

Capital expenditure is all expenditure incurred in acquiring fixed assets and in placing the business in a position in which it is able to commence or continue operations.

Revenue expenditure is incurred in the purchase of goods for resale, in selling these goods and in administering and carrying on the business.

Q3. Explain the difference between Receipt and Payments Account and Income and Expenditure Account. How would you Convert Receipts and Payments Account into an Incomes and Expenditure Account ?

OR

Write a Short note on Income and Expenditure Account ? There are two types of organizations: - (i) Trading organisation and (ii) non trading organizations. Non-trading organization are those concerns which transact without a motive of profit lime those of trading organisation. Non-trading organisation may be: i) Institutions like schools, colleges, and libraries medical and charitable institutions. ii) Clubs and association like trade association etc.




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iii) Societies like trade unions welfare bodies etc. iv) Professional bodies like institute of chartered accountants of India, institution of engineers etc. These on trading organizations are also called as non-profit making institutions. But it is always desirable and necessary for them to maintain proper account so as to prevent and detect frauds, misappropriation or errors in accounts. The type of subsidiary book kept by this organisation differs from concern to concern depending upon their utility and requirements. But the following books of accounts are usually maintained by all these organizations 1. Cash book in the form of detailed receipts and payments account. 2. Journal proper and 3. Ledger

The account are usually kept on doubt entry system and at the end of the accounting period the following account and statements are prepared 1. A receipt and payment account 2. An income and expenditure account 3. A balance sheet as on that date.

As these organizations do not trade for profit, their activities are limited only to receive the income which is derived from donations subscriptions entrance fees, membership fees etc. which is spent is achieving the object for which they are started. The receipt and payment account thus present a summary of all incomes received either by cash or cheque and all amounts spent in incomes received either by cash or cheque and all amount accounting period an income and expenditure is prepared on lines similar to those for the preparation of profit and loss account. At the end of the those for the preparation of profit and loss account. These two accounts should present no difficulties to students in preparations if the functions of each account are clearly understood. RECEIPTS AND PAYMENTS ACCOUNT

This is nothing more than a summery of the cash book (of cash and bank transactions) over a certain period. This presents in brief the working result of the clubs associations, societies, and institutions etc. for the accounting period. In this account, a separate column for bank transactions is usually not provided. All receipts whether of cash or cheques are recorded on the debit side of this account, similarly, all payment whether by cash or cheques are recorded on the credit side of the receipts and payment account. The debit side is thus the ‘receipts side’ and the credit side, the payments side.’ The opening and closing balances of cash or bank etc. are shown in the usual way. The special features of receipts and payments account are given as under 1. It is a summary of the cash transaction that took place during the year. As this is a summary of cash transactions

and not cashbook itself the transactions do not appear in it in chronological order. 2. Usually cash and bank transactions are merged in receipts and payments account so that contra entries do not

appear in it. 3. The items are entered in it on the same side as they appear in a simple cashbook receipts on the debit side and

payment on the credit side. 4. All receipts and payments whether of capital or revenue nature are included in it. 5. Unless there is a bank overdraft, the balance of this accounts must be debit 6. This account does not disclose gain or loss arising out of the transaction summarised in it. 7. This account includes all receipts and payment whether due or not (e.g.; whether they relate to present, past or

future period). 8. The account does not take into account amount in arrear or outstanding expenses or accrued incomes etc. It is

prepared purely an cash basis. Unless cash is received or paid or a transaction, nothings will be recorded herein 9. This is real account and the principle ‘Debit comes in credit goes out’ applies.

(For format refer above given notes) It may be noted that if closing balance of cash/bank exceeds the opening balances it does not mean that incomes is more than expenditure. For example; sale of an assets may result in large cash balance but the does not mean income. To know that figure of excess of income over expenditure or vice both these appear in receipts and payments account. INCOME AND EXPENDITURE ACCOUNT:

An income and expenditure account may be described as the equivalent of the profit and loss account drawn up For a non-trading concern, this performs the same functions and is prepared on exactly the same principles. It is a nominal account and the principle ‘Debit all expenses credit all profit and gains’ applies. This account records losses and expenses on the debit side and gain on the credit and thus complete the double entry system. The special features of an incomes and expenditure account are given below 1. It is a nominal account and is prepared on lines on which a profit and loss account is prepared 2. This account has no opening balance 3. This account differentiates between capital and revenue receipts and payments. Being a nominal account, it

records only revenue items, that too relating to the year for which the account are prepared. 4. It is always accompanied by a balance sheet.




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5. It provides for outstanding, accrued, prepaid or received in advance items. 6. It reveals either the excess of incomes over expenditure or vice versa. The balance of this account is transferred

to capital fund or capital in the balance sheet. DISTINCTION BETWEEN A RECEIPT AND PAYMENT ACCOUNT A ND INCOME AND EXPENDITURE ACCOUNT The difference between Receipt and payment and Income and Expenditure account has been summarised as follows

RECEIPTS AND PAYMENT ACCOUNT INCOME AND EXPENDITURE ACCOUNT

1. It is a real account. 1. It is a nominal account

2. It is a summarised statement of cash transaction for a particular period.

2. It is like a trading and profit and loss account

3. It commence with an opening balance of cash brought over from the preceding period, if any.

3. There is no balance in the beginning.

4. This account restricts itself to cash transactions only and does not take into account any outstanding income or expense.

4. This account includes all in comes whether received or accrued and all expenses whether paid or outstanding.

5. It records receipts and payments of both capital and revenue nature.

5. It records income and expenditure of only revenue nature.

6. Debit side of this account records receipts and credit side records payments

6. Debit side of this account records expenditure and credit side records income.

7. This account includes receipts and payment of previous, current and succeeding period.

7. Only receipts or expenses belonging to the period under review are taken into consideration.

8. Difference between two sides would represent cash in hand at the end or cash over spent.

8. Difference between two sides would represent excess of income over expenditure or vice –versa.

9. Receipts and payment account must not necessarily be accompanied by a balance sheet.

9. Income and expenditure account must always be accompanied by balance sheet.

10. It does not form an integral part of the double entry system of accountancy.

10. It is an integral part of the double entry system.

Conversion of Receipts and payment account into Inc ome Expenditure Account It order to covert a receipt and payment account into an income and expenditure following adjustment will be made 1. The opening and closing balances of cash and bank as shown in the receipts and payments accounts will be

excluded from the Income and Expenditure account 2. All capital items of receipts and payments are excluded 3. Revenue items appearing on the receipts side are to be shown on the credit side of income expenditure account.

Similarly revenue items appearing on the payments side of receipts and payments account will be shown on the debit side of income and expenditure.

4. Only those items which relate to the accounting year under consideration will be included in the income and expenditure account

5. Items relating to accrued incomes or outstanding expenses relating to the accounting year are shown as adjustment to the main accounts in the incomes and expenditure account

6. Provisions for depreciation doubtful debts and any other item s are to be made in the income and expenditure account. The account thus prepared will show excess of income over expenditure or vice versa

Q4. How will you Treat the Following Items Appearing in Receipt and Payments Account while Preparing an Income and Expenditure Account. ? i. Legacies

ii. Subscriptions iii. Donation iv. Life Membership v. Entrance fees

vi. Sale of old assets TREATMENT OF RECEIPTS TO NON-TRADING ORGANISATIONS 1. Legacies: sometime non-trading concern receive some amount as per the will of some individuals. This amount

when received appears on the receipts and payments account. It is an item of non-recurring and hence capital




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nature. But if the amount involved is small it may be treated as income to be shown on the credit side of incomes expenditure account

2. Subscriptions: this is a principal item of receipts appearing in the receipt side of the receipts and payments account of a non-trading concern. The amount of subscriptions received and payments account. But the amount received may relate to the past, current or future accounting periods. All such the amount of received, therefore cannot be treated as income. In order to determine the amount in the income and expenditure account, the following adjustments need be made in subscriptions account.

Subscription as shown in Receipts and payment Account Add: subscriptions outstanding at the end pf the year Add: subscription received in advance at the beginning of the year

Amount

Less: subscription outstanding at the beginning of the year Less: subscription received in advance at the end of the year

Subscription to be shown in Income and expenditure Account

3. Donation: donation means the amount received from some persons firm or company or any other person as a gift. It appears on the receipts side of the receipts and payments account. It depends upon the nature of donation as to whether it is to be treated as revenue or capital receipts. If the donation is received for a specific purpose (building construction or for furniture or donation of are library etc.) it must be treated as capital receipt and shown on the liabilities side of the balance sheer till it is spent out. If the donation is for a general purpose and the amount involved is large one it should be treated as capital receipt but if the amount involved is small it may be treated as an income. If in examination question, nothing is clear about the nature of this items it should be treated as a capital receipts with a note to this respect.

4. Life Membership fees: it appears on the receipts side of the Receipts and payment account. As this items is of non-recurring nature and the service has to be provided for a long period of time this items should always be treated as a capital receipt.

5. Entrance fees: it is also an item of receipts side, opinions differ as to whether it should be treated as a revenue items or a capital receipts. Some accountants prefer to treat it as item of capital nature as it is a non-recurring item and is paid by a member once for all when he joins the membership of the concern. On the other hand, some persons argue that it should be treated as a revenue items as there as there are constant changes in the membership and it is received with more or less regularity. The student may treat this item in the way he likes but is advised to give a note regarding its treatment at the end of the solution to the question.

6. Sale of old assets: this amount should be treated as capital receipt and be credited to the asset account. But the profit or loss on the sale of asset should be treated as revenue profit or loss and should be shown in the income and expenditure account. Thus if some assert worth Rs.400 is sold at Rs.500 the asset account should credited by Rs.400 and Rs.100 should be shown on the credit side of income and expenditure account.

Q5. How would you Prepare a Receipts and Payment Account from Income and Expenditure

Account? Where it is required to prepare a receipts and payment account from an income and expenditure account, the problem will necessitate the opening of a ledger account to find out the balance amount representing the cash receipts or payment. Thus if income and expenditure account show an item of expenditure says salaries at Rs.4,000 along with the following information

Amount

Salaries outstanding at the beginning of the period 500

Salaries outstanding at the end of the period 1,000

The salaries account will appear as follow Salaries Account

Amount Amount

Dce.31 To Cash (balance figure) 3,500 Jan.1 By balance b/d 5,000

To balance c/d 1,000 Dec.31 By Income & Exp. A/c 4,000

Total 4,500 Total 4,500

Jan.1 To balance b/d 1,000

Cash paid here is Rs. 3,500 which should appear in the payments side of the receipts and payment account. Thus, if all the account relating to the expenditure and incomes, as shown in the income and expenditure account are prepared in the above manner it becomes possible to know cash amount of receipt and payment and consequently becomes easy to prepare a receipts and payments accounts. The procedure is just the reverse to the ordinary way. Thus instead of posting from receipts and payments




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account, hence finding the balance to transfer. Income and expenditure account the latter figure is given so that one post from the credit of income and expenditure account back to the debit and credit of ledger accounts the resulting balance being either cash received or paid during the year which is then posted back to the receipts and payment account.

Q6. Given the Receipts and Payment account and the Income and Expenditures Account, How would you Prepare Balance Sheet for the Current as well as Previous Accounting Year?

When Receipts and Payment account and Income and Expenditure account with are given and balance sheet for the current and last accounting periods are to prepared the points should be kept into mind 1. The opening balance sheet may be prepared from the figure of opening cash and bank balance assets liabilities

as are available from the receipts and payment and income and expenditure account as well as the information supplied in addition there to. Out of the balance sheet so prepared the balance figure would be called as the capital fund which is to be shown in the current year balance sheet.

2. While preparing current year balance sheet, the items of assets and liabilities may be taken from last year balance sheet and the following adjustment should be provided for

3. Compare the receipts side of the receipts and payment account with the income side of the income and expenditure in order to calculate (i) Subscription in arrear at the beginning and end of the accounting period. (ii) Subscription received in advance. (iii) Accrued and outstanding income. (iv) Addition to asset during the year.

4. Compare the payment side of the receipts payment account with the expenditure side of the income and expenditure account in order to calculate (i) Outstanding expenses. (ii) Prepaid expenses. (iii) Stock of stationery or good of the end of the year. (iv) Depreciation on assets and (v) Sale of an asset during the year.

Wishing You All The Best Remember You Can Do Wonders , Nobody Can Stop You From Achieving Success Except You

Get Up and Keep Going, World Is Waiting For You — Rasesh Tandon

Believe me it’’ll work. So be ready to face such situations

tandon commerce academy # 1831, ff, nirvana … general format of a income and expenditure account...

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