NIOS Class 12 Accountancy Chapter 20 Financial Statements Not for Profit Organisation

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NIOS Class 12 Accountancy Chapter 20 Financial Statements Not for Profit Organisation

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Financial Statements Not for Profit Organisation

Chapter: 20

Module – 3: Financial Statement

INTEXT QUESTIONS 20.1

I. Classify the following items into income and expenditure :

(a) Honorarium.

Ans: Expenditure.

(b) Grant-in-aid.

Ans: Income.

(c) Sale of old newspapers.

Ans: Income.

(d) Subscription.

Ans: Income.

(e) Lockers rent.

Ans: Income.

(f) Insurance Premium.

Ans: Expenditure.

II. Write ‘R’ if the statement is correct and ‘W’ if it is incorrect :

(i) The excess of the income over expenditure is called Net Profit .

Ans: W.

(ii) All items of receipts are entered on income side of Income and Expenditure Account and all items of payments are written on the expenditure side of Income and Expenditure Account.

Ans: W.

(iii) Income and expenditure account is prepared to know the net result of the activities of Not for Profit organisations involving finance.

Ans: R.

(iv) Entrance fees is an item of income.

Ans: R.

(v) Specific donation is an item of revenue income.

Ans: W.

INTEXT QUESTIONS 20.2

Answer the following in one word :

(i) To which side of the Income & Expenditure A/c items of revenue expenses are taken?

Ans: Expenditure (Debit).

(ii) What term is given to the amount by which credit side of Income and Expenditure Account exceeds its debit side?

Ans: Surplus.

(iii) Which side of the Income and Expenditure A/c is the side of Income?

Ans: Credit.

(iv) From which side of Receipts and Payments A/c is taken the item of entrance fees to the credit of Income and Expenditure A/c?

Ans: Receipts.

INTEXT QUESTIONS 20.3

I. A Clubs collects from its 500 members subscription @ Rs. 100 per member every year.

(a) It has received Rs. 1,500 last year on account of current year. 20 members have not paid their due for the current year. Calculate the amount received on account of subscription.

Ans: Total members = 500

Subscription per member = ₹100

Total subscription for the year

= 500 × 100

= ₹50,000

Received last year for current year = ₹1,500

Members not paid this year = 20 × 100 = ₹2,000

Amount received this year

= 50,000 − 1,500 − 2,000

= ₹46,500.

(b) Rent of Rs. 11,000 has been paid in the current year Rs.20,000 is still to be paid. Rs. 9,000 was outstanding last year. Calculate the amount to be written as Rent paid in the current year.

Ans: Rent paid during the year = ₹11,000

Outstanding at the end = ₹20,000

Outstanding last year = ₹9,000

Rent for current year

= Rent paid + Outstanding at end − Outstanding at beginning

= 11,000 + 20,000 − 9,000

= ₹22,000.

II. (a) Closing balance of Receipt and Payment account is transferred to the same account for the next year, where is the balance of Income and Expenditure transferred?

Ans: Balance sheet as surplus / deficit.

(b) Income and Expenditure Account is the summary of Revenue Income and Revenue Expenditure then Receipt and Payment Account is the summary of what?

Ans: Cash / Bank account.

(c) Closing Balance of receipts and Payments Account shows the cash in hand/ bank what does the closing balance of Income and Expenditure Account show?

Ans: Surplus / Deficit.

(d) Income and Expenditure Account does not start with any opening balance. What is the opening balance with which Receipt and Payment Accounts started?

Ans: Cash / Bank.

INTEXT QUESTIONS 20.3

Answer the Following questions:

1. For what the assets need to be adjusted before showing them in the Balance Sheet?

Ans: Sale/purchase in the current year and depreciation provided.

2. On which side of the Balance Sheet loan item appearing on the Receipts side of Receipt and Payment Account will be shown?

Ans: Liability side.

3. For what items the capital fund for the years Balance Sheet will be adjusted?

Ans: For surplus / deficit.

4. At what value the liability of last years balance sheet will be shown in the current years balance Sheet?

Ans: At net value after deducting the amount paid against them.

TERMINAL EXERCISE

1. What is an Income and Expenditure Account?

Ans: Income and Expenditure Account is a financial statement prepared by a not-for-profit organisation to determine the surplus or deficit for a particular accounting period, usually one year. It is similar to a Profit and Loss Account of a business concern.

This account is prepared on the accrual basis of accounting, therefore it includes only those revenue incomes and revenue expenses which relate to the current accounting period, whether received or paid or not. Capital receipts and capital expenditures are not recorded in this account. The balance of this account represents surplus (if income exceeds expenditure) or deficit (if expenditure exceeds income), which is transferred to the Capital Fund.

2. Explain the objectives of preparing Income and Expenditure Account.

Ans: Objectives of preparing Income and Expenditure Account

(i) To ascertain surplus or deficit: It is prepared to determine whether the not-for-profit organisation has earned a surplus or suffered a deficit during a particular accounting period.

(ii) To show true operating results: It shows the actual financial performance of the organisation by matching incomes with related expenses of the same period on accrual basis.

(iii) To apply accrual concept: It ensures that all incomes and expenditures relating to the current period are recorded, whether received or paid or not.

(iv) To exclude capital items: It includes only revenue incomes and revenue expenditures and excludes capital receipts and capital expenditures.

(v) To help in preparation of Balance Sheet: The surplus or deficit ascertained is transferred to the Capital Fund and helps in preparing the Balance Sheet.

(vi) To evaluate financial efficiency: It helps the management and members to assess how efficiently the organisation has used its funds.

3. List the various items of income and expenditure of a Not for Profit Organisations (NPOs).

Ans: Items of Income and Expenditure of a Not-for-Profit Organisation (NPO) Income:

(i) Subscriptions from members.

(ii) Donations (general).

(iii) Entrance fees.

(iv) Grants-in-aid.

(v) Interest on investments.

(vi) Income from sports events, functions, or cultural programmes.

(vii) Sale of old newspapers, scrap, etc.

(viii) Rent received.

Expenditure:

(i) Salaries and wages.

(ii) Rent, rates, and taxes.

(iii) Electricity, water, and telephone expenses.

(iv) Printing and stationery.

(v) Repairs and maintenance.

(vi) Depreciation on assets.

(vii) Honorarium.

(viii) Sports, cultural, or welfare expenses.

4. Describe in brief the steps taken to prepare Income and Expenditure Account.

Ans: Steps to Prepare Income and Expenditure Account:

(i) Start with Trial Balance: Collect all revenue incomes and revenue expenses from the trial balance of the not-for-profit organisation.

(ii) Include adjustments: Incorporate all necessary adjustments such as outstanding expenses, prepaid expenses, accrued incomes, and income received in advance.

(iii) Record only revenue items: Include only revenue incomes and revenue expenditures of the current accounting period. Exclude capital receipts and capital expenditures.

(iv) Match incomes with expenses: List all incomes on the credit side and all expenses on the debit side of the account.

(v) Calculate surplus or deficit: Subtract total expenses from total incomes to find the surplus (income > expenditure) or deficit (expenditure > income).

(vi) Transfer balance to Capital Fund: The surplus or deficit is transferred to the Capital Fund in the Balance Sheet.

5. Differentiate between Receipt and payment Account and Income and Expenditure Account on the basis of (i) Nature (ii) Adjustment (iii) Side (iv) Transfer of closing balance.

Ans:

Basis of Difference	Receipts and Payments A/c	Income and Expenditure A/c
1. Nature	It is a summary of the Cash Book.	It is the summary of Revenue Income and Revenue Expenditure.
2. Side	Debit side of this account shows receipts and credit side shows payments.	Debit side of this account shows expenses and losses and credit side shows incomes and gains.
3. Opening Balance	It starts with the opening balance of cash in hand or cash at bank.	There is no balance in the beginning.
4. Closing Balance	Closing balance of this account shows cash in hand or cash at bank.	Closing balance of this account shows surplus or deficit.
5. Capital and Revenue Items	In Receipts and Payments A/c, both capital and revenue nature of items are recorded.	In Income and Expenditure A/c, only revenue nature items are recorded.
6. Adjustment	Adjustments are not considered while preparing it.	It is necessary to consider adjustments while preparing it.
7. Transfer of Closing Balance	Closing balance of this account is transferred to the Receipts and Payment A/c for the next period.	Closing balance of this account is transferred to the capital fund/general fund in the Balance Sheet.

6. Prepare Receipts and Payments Account from the information given below:

Particulars	₹
Cash in hand on 1.1.2013	3,600
Cash at bank on 1.1.2013	10,000
Subscription	6,000
Entrance Fees	1,000
Wages paid to labourers	800
Salaries paid to clerks	3,000
Electricity	1,500
Conveyance	600
Honorarium to Secretary	1,200
Printing and Stationery	500
Fixed Deposit made with bank	10,000

Ans:

Receipts and Payments Account (for the year ended 31 Dec 2013)

Receipts	Amount (₹)	Payments	Amount (₹)
To Cash in hand (1.1.2013)	3,600	By Wages	800
To Cash at Bank (1.1.2013)	10,000	By Salaries	3,000
To Subscription	6,000	By Electricity	1,500
To Entrance Fees	1,000	By Conveyance	600
		By Honorarium to Secretary	1,200
		By Printing & Stationery	500
		By Fixed Deposit	10,000
		By Balance c/d (Closing)	3,000
Total	20,600	Total	20,600

7. What amount will you post to Income and Expenditure Account from the information given below for the year 2013?

Particulars	₹
Subscription received during 2013	10,000
Subscription due in 2012	2,000
Subscription received in 2012 for 2013	400
Subscription received in 2013 for 2014	600
Subscription due for 2013	1,000

Ans: Formula Used

Subscription for 2013 =

Received during 2013