CA Foundation Exam  >  CA Foundation Notes  >  Principles and Practice of Accounting  >  Question & Answer: Financial Statements of Not-for-Profit Organizations

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation PDF Download

Multiple Choice Questions

Q.1. Scholarship granted to students out of specific funds provided by the Government will be debited to
(a) Income and Expenditure Account.  
(b) Receipts and payments Account.
(c) Funds.
(d) None of the three.
Ans: (c)

Q.2. In the case of NPO, excess of total assets over liabilities is known as 
(a) Profits.
(b) Surplus.
(c) Capital Fund.
(d) Accumulated Fund.
Ans: (c)
Q.3.  General donations and legacies are credited to 
(a) Receipts and Payments Account.
(b) Income and Expenditure Account.
(c) Capital Fund.
(d) Fund Account.
Ans: (b)
Q.4.  Interest on prize funds is

(a) Credited to Income and Expenditure Account.
(b) Credited to Receipts and Payments Account.
(c) Capital Fund.
(d) Added to prize fund.
Ans: (d)

Q.5.  Special aids are 
(a) Treated as capital receipts.
(b) Treated as revenue receipts.
(c) Added to Capital Fund.
(d) Both (a) and (c)
Ans: (d)


Theory Questions


Q.1. Distinguish Between Receipt and Payment and Income and Expenditure Account.
Ans: 

ParticularsReceipt and Payment A/cIncome and Expenditure A/c
Cash and Noncash transactionOnly cash transactions are recorded here.It is not confined to, cash transactions only, i.e. non-cash transactions are also included in it.
Shows an itemsReceipts are shown on the debit side and payments on the credit side.All revenue incomes appear on the credit side and expenditure on the debit side.
Capital and revenue itemsIt includes both capital and revenue receipts & paymentIt includes only income and expenditure of revenue nature
Balance sheetIt includes both capital and revenue items, so it need not necessarily be accompanied by a Balance Sheet.It includes only revenue items, so it must be accompanied by a balance sheet, the balance sheet contains the remaining balances.
Type of AccountIt is a Real AccountIt is a Nominal Account
Transfer of Closing BalanceIts balance is carried over to Receipts & Payments Account of the next year.Its balance is transferred to Capital Fund.
Opening BalanceThis account shows opening balance except in the first year.It has no opening balance.

Transactions

Transactions relating to past, present and futures are recorded.Transactions relating to current year only are recorded.
AdjustmentAdjustments are not considered, because it is prepared on cash basis of accounting.Adjustments are considered necessary because it is prepared on accrual basis of accounting.
Use of Double Entry SystemThe double entry bookkeeping system is not followed while its preparation.Double entry bookkeeping system is followed strictly while its preparation.


Q.2. Not-for-profit organisations have some distinguishing features from that of profit organisations. State them.
Ans: Some features of NPO are: 

  1. Such organisations are not required to pay income tax on net income.
  2. Service motive, hence earning profit is not their ultimate objective.
  3. Surpluses are not distributed among its members.
  4. Managed by elected members.
  5. Majorly their funds are collected in the form of donations, contributions, membership fees, etc.

Q.3. Differentiate between profit and not-for-profit organisations.
Ans:

 FeatureNPOProfit Organisation
MotiveTo serve the community interestTo earn profit
OwnershipNPO subscribersProprietors of the business
Sources of fundsSubscription amount, donations, contributions, etc.Capital brought in by partners/proprietors, loan.
Final AccountsReceipt and Payments A/c, Income and Expenditure A/c and Balance SheetTrading A/c, Profit and Loss A/c and Balance Sheet
Distribution of profits Surplus or deficit is not distributed between members, else is adjusted in the Capital FundProfit and losses are distributed among the partners of the business.

 

Q.4. Write any four features of Income and Expenditure Account?
Ans: The main features of Income and Expenditure Account are :

  1. It is prepared for an accounting period on the accrual concept following the matching principle. All expenses related to accounting year whether paid or not are recorded.
  2. Only revenue items are considered, while the capital item is excluded.
  3. All items both cash and non cash (depreciation) are recorded.
  4. Expenditure is recorded on the debit side and incomes on the credit side and ends with Surplus or Deficit as the case may be(difference between revenue and expenditure).

Q.5. What is endowment?
Ans: Endowment is a donation with a condition by the donor to use only the income earned from investment of such fund for some specified purpose so that the original donated amount remains intact.


Practical Questions


Q.1. The following is the Receipts and Payments Account of Lion Club for the year ended 31st March 2016.

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

The assets and liabilities as on 1.4.2015 were as follows:


Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

The following adjustments are to be made while drawing up the accounts:

  1. Subscription received in advance as on 31st March, 2016 was Rs 18,000.
  2. Outstanding subscription as on 31st March, 2016 was Rs 7,000.
  3. Outstanding expenses are salaries Rs 8,000 and electricity Rs 15,000.
  4. 50% of the entrance donation was to be capitalized. There was no pending membership as on 31st March, 2016. 
  5. The cost of assets sold net as on 1.4.2015 was Rs 10,000.
  6. Depreciation is to be provided at the rate of 10% on assets.
  7. A sum of Rs 20,000 received in October 2015 as entrance donation from an applicant was to be refunded as he has not fulfilled the requisite membership qualifications. The refund was made on 3.6.2016.
  8. Purchases made during the year amounted Rs 15,00,000.
  9. The value of closing stock was Rs 2,10,000. 
  10. The club as a matter of policy, charges off to income and expenditure account all purchases made on account of crockery, cutlery, glass and linen in the year of purchase.
    You are required to prepare an Income and Expenditure Account for the year ended 31st March, 2016 and the Balance Sheet as on 31st March, 2016 along with necessary workings.

Ans: 
Income and Expenditure Account of Lion Club for the year ended 31st March, 2016
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
Balance Sheet of Lion Club as on 31st March, 2016
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

Working Notes:
 Opening Balance Sheet Balance Sheet of Lion Club as on 1st April, 2015

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
2.  Subscription
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
3.  Entrance donation
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
4.  Loss on sale of asset
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
5.  Depreciation
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation


6.  Salaries
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
7.  Electricity charges
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
8.  Interest
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation


9. Profit from operations
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
10.  Insurance
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
11.  Sundry creditors
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
12.  Outstanding expenses
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
13.  Fixed assets
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
14.  Capital fund
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
Q.2. During the year ended 31st March, 2016, Sachin Cricket Club received subscriptions as follows:
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA FoundationThere are 500 members and annual subscription is Rs 1,500 per member.
On 31st March, 2016, a sum of Rs 15,000 was still in arrears for subscriptions for the year ended 31st March, 2015.  Ascertain the amount of subscriptions that will appear on the credit side of Income and Expenditure Account for the year ended 31st March, 2016. Also show how the items would appear in the Balance Sheet as on 31st March, 2015 and the Balance Sheet as on 31st March, 2017.

Ans: 

Income & Expenditure Account (An extract) of Sachin Cricket Club For the year ended 31st March, 2016
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
Balance Sheet of Sachin Cricket Club as on 31st March, 2015 (An extract)
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation


Balance Sheet of Sachin Cricket Club as on 31st March, 2016 (An extract)
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

Q.3. Summary of receipts and payments of Bombay Medical Aid society for the year ended 31.12.2016 are as follows: 
Opening cash balance in hand Rs 8,000, subscription Rs 50,000, donation Rs 15,000 (raised for meeting revenue expenditure), interest on investments @ 9% p.a. Rs 9000, payments for medicine supply Rs 30,000 Honorarium to doctor 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.
Additional information:
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA FoundationYou are required to prepare receipts and payments account and income and expenditure account for the year ended 31.12.2016 and balance sheet as on 31.12.2016.
Ans: 

Receipts and Payments Account of Bombay Medical Aid Society for the year ended 31st December, 2016
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA FoundationIncome and Expenditure Account of Bombay Medical Aid Society for the year ended 31st December, 2016

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

Balance Sheet of Bombay Medical Aid Society as on 31st December, 2016

Liabilities



Assets



Capital fund:

Opening balance

1,80,300


Building

Less: Depreciation

50,000

(2,000)

48,000

Add: Surplus

10,200

1,90,500

Equipment

21,000


Subscription received in advance

 

700

Add: Purchase

15,000


Amount due for medicine supply

 

13,000

 

36,000


 

 

 

Less: Depreciation

(6,000)

30,000

 

 

 

Stock of medicine


15,000

 

 

 

Investments


1,00,000

 

 

 

Subscription receivable


2,200

 

 

 

Cash in hand


9,000

 

 

2,04,200



2,04,200

 

 






Working Notes:
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation
Balance Sheet of Medical Aid Society as on 1st January, 2016
Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

The document Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation is a part of the CA Foundation Course Principles and Practice of Accounting.
All you need of CA Foundation at this link: CA Foundation
68 videos|160 docs|83 tests

Top Courses for CA Foundation

FAQs on Question & Answer: Financial Statements of Not-for-Profit Organizations - Principles and Practice of Accounting - CA Foundation

1. What are financial statements of not-for-profit organizations?
Ans. Financial statements of not-for-profit organizations are the formal records that show the financial activities of such organizations. They are usually prepared annually and include a statement of financial position, a statement of activities, a statement of cash flows, and notes to the financial statements.
2. What is the difference between financial statements of for-profit organizations and not-for-profit organizations?
Ans. Financial statements of for-profit organizations are prepared to show the financial performance of the business. On the other hand, financial statements of not-for-profit organizations are prepared to show how the organization has used its resources to achieve its objectives. The main difference between the two is the objective of the financial statements.
3. What is the purpose of financial statements of not-for-profit organizations?
Ans. Financial statements of not-for-profit organizations serve several purposes, including providing information about the organization's financial position, showing how the organization has used its resources to achieve its objectives, and helping donors and stakeholders make informed decisions about the organization.
4. What are the common financial ratios used in analyzing financial statements of not-for-profit organizations?
Ans. The common financial ratios used in analyzing financial statements of not-for-profit organizations include the current ratio, the debt-to-equity ratio, the program expense ratio, the fundraising expense ratio, and the administrative expense ratio.
5. What are the steps involved in preparing financial statements of not-for-profit organizations?
Ans. The steps involved in preparing financial statements of not-for-profit organizations include recording transactions, preparing a trial balance, adjusting entries, preparing financial statements, and closing the books. The organization may also need to prepare supporting schedules and notes to the financial statements.
68 videos|160 docs|83 tests
Download as PDF
Explore Courses for CA Foundation exam

Top Courses for CA Foundation

Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev
Related Searches

shortcuts and tricks

,

ppt

,

Viva Questions

,

Objective type Questions

,

Extra Questions

,

Important questions

,

Exam

,

past year papers

,

MCQs

,

Free

,

pdf

,

Previous Year Questions with Solutions

,

mock tests for examination

,

Sample Paper

,

practice quizzes

,

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

,

study material

,

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

,

Summary

,

Question & Answer: Financial Statements of Not-for-Profit Organizations | Principles and Practice of Accounting - CA Foundation

,

video lectures

,

Semester Notes

;