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Karnataka 2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not-for-Profit Organisation
2nd PUC Accountancy Accounting for Not-for-Profit Organisation Text Book Questions and Answers
Short Questions and Answers
Question 1.
State the meaning of ‘Not-for-Profit’ Organisations
Answer:
Non – profit organisations refer to those organisations which are formed to render social services and not for making profits such as promotion of education, sports and games, science and technology, culture, religion etc.
Question 2.
State the meaning of Receipt and Payment Account
Answer:
Receipts and payment account is a summary of cash receipts and cash payments of non¬profit organisation relating to a given period of time, usually a year. It is prepared on the cash system of accounting, to find out the closing cash balance.
Question 3.
State the meaning of Income and Expenditure Account.
Answer:
Income and expenditure account is a revenue account of non – profit organisations. It is a summary of incomes and expenses of a non – profit organisations prepared at the end of the accounting year. It is prepared on the accrual system of accounting. It is prepared to find out surplus/’ deficit of income and expenditure.
Question 4.
What are the features of Receipt and Payment Account?
Answer:
Features of receipts and payments are as follows;
(a) It is real account.
(b) It is prepared on cash system of accounting.
(c) It is prepare from the cash book.
(d) It is includes both capital and revenue items.
(e) It is prepared at the end of the accounting year
Question 5.
What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account?
Answer:
The following steps are taken to prepare Income and Expenditure Account (I&E) from Receipts and Payment Account (R&P).
Step 1: All the revenue expenditures paid for the current accounting period are transferred from the Payments side of R&P to the Expenditure side of I&E.
Step 2: All the revenue receipts for the current accounting period are transferred from the Receipts side of R&P to the Income side of I&E.
Step 3: Expenses outstanding for the current period and expenses paid in advance (prepaid expenses) for the current period in the preceding accounting periods are to be added (adjusted) to their related expenses in the Step 1.
Step 4: Income outstanding (accrued income) for the current period and income received in advance for the current period in the preceding accounting periods are to be added (adjusted) to their related incomes in Step 2.
Step 5: Non-cash items like depreciation, appreciation for the current accounting period are to be adjusted in the I&E.
Step 6: After adjusting all the revenue items for the current accounting period, then come and the Expenditure sides are totaled. If the sum total of the Income side exceeds (or is lesser than) the sum total of the Expenditure side, then the balancing figure is termed as surplus (or deficit).
Question 6.
What is subscription? How is it calculated?
Answer:
Subscriptions refer to the amount of money paid by the members on periodic basis for keeping their membership with the organisation alive. It is paid monthly, quarterly, half yearly or annually by the members.
While calculating subscription for the current period, advance subscription received tor the current period in the previous period and outstanding subscription for the current period are added to the subscription received during the current period. Whereas, on the other hand, advance subscription received for the next accounting period during the current period and outstanding subscription for the preceding period are deducted from the subscription received during the current period.
Question 7.
What is Capital Fund? How is it calculated?
Answer:
Capital fund is the excess of NPOs’ assets over its liabilities. In other words, the excess of assets over the liabilities for a profit earning organisation is termed as capital and the same for an NPO is termed as capital fund. Any surplus or deficit ascertained from Income and Expenditure account is added to (deducted from) the capital fund. It is also termed as Accumulated Fund.
Capital fund consists of capitalized receipts such as legacies, life membership fees, entrance fees and donation for the current year and excess of income over expenditure of the current year.
Long Questions and Answers
Question 1.
Explain the statement: “Receipt and Payment Account is a summarised version of Cash Book”.
Answer:
Receipts and Payments Account is a summary of the Cash Book.
This account is prepared by those organisations which maintain their books on cash basis. All cash receipts are recorded on the Receipts side (i.e. Debit side) and all cash payments are recorded on the Payments side (i.e. Credit side) of receipts and Payments Account. Itis prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end ofthe accounting period. It records all the cash and bank transactions both of capital and revenue nature.
It not only records the cash and bank transactions relating to the current accounting period, but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period. This account only helps us to ascertain the closing balance of the cash and bank and helps in assessing the cash position of an NPO. It also forms the basis for the preparation of Income and expenditure Account.
Similarities between Receipt and Payments Account and Cash Book
The following are the features of Receipt and Payment Account that are common to those of Cash Book:
1. Nature: It is a summarised version of the Cash Book. Similar to the Cash Book, the Receipt and Payment Account is also a Real Account.
2. Nature of Transactions: It records only cash and bank transactions similar to a Two – Column Cash Book. Transactions other than cash and bank like depreciation, loss/profit on sale of assets, etc. are not recorded in this account.
3. No distinction between Capital and Revenue items: It records all the cash and bank receipts and payments of both capital and revenue nature. Likewise, the transactions recorded in the Cash Book are also of both capital and revenue nature.
4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.
5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period. Similarly, a Cash Book also helps us to assess the cash position of an organisation.
Thus, on the basis of the above mentioned points and similarities, the statement ‘Receipt and Payment Account is a summarised version of Cash Book’ is justified.
Question 2.
“Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern”. Explain the statement.
Answer:
Income and Expenditure Account (I&E) is similar to Profit and Loss Account (P&L), in the sense that the former is prepared by Not-for-profit-Organisations and the latter is prepared by profit earning organisations. Both the accounts are prepared on the accrual basis.
Similar to the P&L, all the expenses and losses pertaining to the current accounting period are recorded on the debit side (Expenditure side) and all the gains and income of the current accounting period are recorded on the credit side (Income side) of the I&E. The balancing figure of the I&E is surplus or deficit and that of the P&L is net profit ornet loss. Both the accounts record only revenue items which are related to the current accounting period.
Similarities between Income and Expenditure Account and Profit and Loss Account
I&E Account of an NPQ is akin to the Profit and Loss Account of a profit earning business in the following manners.
1. Nature of Account: Both the concerned accounts are nominal in nature.
2. Basis of Recording: Both the accounts record only revenue expenses and revenue income related to the current accounting period. The items of capital nature are not ignored while preparing these accounts.
3. Period: Transactions related to current year are recorded in Income and Expenditure account in the same manner in which profit and loss account is prepared. Transactions related to previous year or next year are excluded.
4. Adjustments: The treatment of adjustments like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, baddebts etc. is same as that in Profit and Loss Account. Thus, both the accounts are prepared on the accrual basis.
Question 3.
Distinguish between Receipts and Payments Account and Income and Expenditure Account.
Answer:
Question 4.
Explain the basic features of Income and Expenditure Account and of Receipt and Payment Account.
Answer:
Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side)and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.
The following are the basic features of Income and Expenditure Account
1. Nature: It is a Nominal Account. The debit side of I&E records all expenses and losses and the credit side records all incomes and gains related to the current accounting period.
2. Basis: It is prepared on the basis of Receipt and Payment Account (R&P). All the revenues items whether incomes or expenditures are transferred from R&P.
3. Excludes Capital Transactions: The transactions those are capital in nature are excluded from this account. For example, only profit or loss on sale of fixed assets is recorded but the total amount of sales is not recorded since sale of fixed asset is considered as a capital receipt.
4. Akin to Profit and Loss Account Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period the latter is prepared to ascertain net profit or net loss incurred during an accounting period.
5. Records only Current Year’s items: This account records only those transactions that are related to current accounting year. In other words, transactions related to the preceding or succeeding accounting period are excluded even if these transactions are realised in the current period.
6. Adjustments: Various cash and non-cash items like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, baddebts, etc. can be adjusted in this account.
7. Balancing Figure: The balancing figure of this account is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes). The surplus balance, if any, is added to the Capital Fund, whereas, the deficit balance, if any, is deducted from the Capital Fund.
Receipts and Payments Account is a summary of the Cash Book. All the cash receipts are recorded on the Receipts side (i.e. Debit side) and all the cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. Itis prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period.
It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period.
The following are the features of Receipt and Payment Account
1. Nature: It is a Real Account. It is a summarised version of the Cash Book.
2. Nature of Transactions: It records only cash and bank transactions. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.
3. No distinction between Capital and Revenue items: It records all cash and bank receipts and payments of both capital and revenue nature.
4. Opening and closing balance: It begins with the opening balance of cash and bankand ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.
5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period.
Question 5.
Show the treatment of the following items by a Not-for-Profit Organisation:
Answer:
1. Annual Subscription:
a) Subscriptions received during an accounting year (whether related to the current year or previous and subsequent year) are shown on the debit side of the Receipts and Payments Account.,
b) Subscription amount related to the current accounting year only, whether received or yet to be received are shown on the credit side of the Income and Expenditure Account.
c) Subscriptions received in advance for the subsequent year are shown on the Liabilities side of the Balance Sheet.
d) Subscriptions due but not received are shown in the Assets side of the Balance sheet.
2. Specific Donation:
a) The amount received for specific donation is shown on the debit side of the Receipts and payments Accounts.
b) The amount received for specific donation is shown on the Liabilities side of the Balance Sheet as it is used for the specific purpose for which it is received.
3. Sale Of Fixed Assets:
a) The amount received from the sale of fixed assets are recorded on the debit side of the Receipts and Payments Account.
b) Profit (or loss) on the sale of fixed assets is credited (or debited) to the Income and ExpenditureAccount.
c) The book value of the fixed assets sold is deducted from its respective assets on the Assets side of the Balance Sheet.
4. Sale Of Old Periodicals:
a) The amount received from the sale of old periodicals are shown on the debit side of the Receipts and Payments Account.
b) As the sale of old periodicals by any organisation is considered as revenue receipts, so it is shown on the credit side of the Income and Expenditure Account.
5. Sale of Sports Materials:
a) The amount received from the sale of sport materials are debited to the Receipt and Payments Account.
b) As the sale of sport materials by any sport club is considered as revenue income, so it is shown on the credit side of the Income and Expenditure Account.
6. Life Membership Fee:
a) The amount paid by a person to become a member of an organisation is called life Membership fees. As this is a receipt for an NPO, so it is debited to the Receipt and Payment Account.
b) Life Membership fees is not recurring in nature and received once for a whole life from a member. Thus, as Life Membership Fees are capital receipts, so these are added to the capital fund on the Liabilities side of the Balance Sheet.
Question 6.
Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.
Answer:
There are various sources of receipts like donations, subscriptions, government grants, etc. to an NPO. Some receipts are specific while others are general. While the former can only be used for the specific purpose for which they are received, the latter can be used for any purpose.
For example, if donation is received for construction of buildings, then this donation is a specific donation and thereby can only be used for construction of the building. The specific receipts are not considered as revenue income for the NPO and hence are not shown in the Income and expenditure Account.
In fact, such receipts are considered as liabilities to the NPO as these amounts are received for specific purpose and cannot be used for any other purpose. Specific receipts are shown in the Liabilities side of the Balance Sheet, until and unless they are fully setoff against the purpose for which they are received.
On the other hand, if these amounts are invested outside the organisations (in the form of shares, debentures, etc.), then these are called funds like, match funds, prize fund, etc. The interest and income earned on such investments are not credited to the Income and Expenditure Account but in fact are credited to the respective Fund Account.
Similarly, the expenses incurred for such funds are not debited to the Income and expenditure Account but, in fact, are debited to the respective Fund Account. These special funds are shown in the Liabilities side of the Balance Sheet.
In case, if the related expenses exceed the related receipts of the fund, then the difference is shown in the income and Expenditure Account.
Question 7.
What is Receipt and Payment Account? How is it different from Income and Expenditure Account?
Answer:
Receipts and Payments Account is a summary of the Cash Book.
All the cash receipts are recorded on the Receipts side (i.e. Debit side) and all the cash payments are recorded on the payment side (i.e. Credit side) of Receipts and Payments Account.
It is prepared on the basis of cash and bank transactions recorded in the Cash Book.
It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all cash and bank transactions both of capital and revenue nature.
It not only records cash and bank transactions relating to the current accounting period, but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period.
Basis of Difference Receipts and Payments Income and Expenditure
2nd PUC Accountancy Accounting for Not-for-Profit Organisation Numerical Questions and Answers
Question 1.
From the following particulars taken from the Cash Book of a health club, prepare a Receipts and Payments Account.
Answer:
Question 2.
The Receipt and Payment Account of Harimohan charitable institution is given: Receipt and Payment Account for the year ending March 31, 2015
Prepare the Income and Expenditure Account for the Year ended on March 31, 2007 after considering the following:
(i) It was decided to treat Fifty percent of the amount received on account of Legacies and Donations as income.
(ii) Liabilities to be provided for are:
Rent Rs 800; Salaries Rs 1,200; advertisement Rs 200.
(iii) Rs 2,000 due for interest on investment was not actually received.
Answer:
Question 3.
From the following particulars, prepare Income and Expenditure account:
Answer:
Question 4.
Following is the information given in respect of certain items of a Sports Club. Show these items in the Income and Expenditure Account and the Balance Sheet of the Club:
Answer:
Question 5.
How will you deal with the following items while preparing for the Bombay Women Cricket Club its income and expenditure account for the year ending 31.3.2015 and its Balance Sheet as on 31.3.2015:
Give reasons for your answers.
Answer:
a) Books of Bombay Women Cricket Club
Question 6.
From the following receipts and payments and information given below, Prepare Income and Expenditure Account and opening Balance Sheet of Adult Literacy Organisation as on December 31, 2015.
Receipt and Payment Account for the year ending as on December 31, 2015
Information:
(i) Subscription outstanding as on 31.12.2014Rs 2,000 and on December 31, 2G15Rs 1,500.
(ii) On December 31,2015 Salary outstanding Rs 600, and one month Rent paid in advance.
(iii) On Jan. 01,2014 organisation owned Furniture Rs 12,000, Books Rs 5,000,
Question 7.
The following is the account of cash transactions of the NariKalayanSamittee for the year ended December 31, 2015:
You are required to prepare an Income and Expenditure Account after the following adjustments:
(a) Subscription still to be received are Rs 750, but subscription include Rs 500 for the year2014,
(b) In the beginning of the year the Sangh owned building Rs 20,000 and furniture Rs3,000 and Books Rs 2,000.
(c) Provide depreciation on furniture @ 5% (including purchase), books @ 10% and building @ 5%.
Answer:
Question 8.
The following is the account of cash transactions of the NariKalayanSamittee for the year ended December 31, 2015:
Receipt and Payment Account for the year ending December 31,2015
Other information:
Subscription outstanding was on December 31, 2014 Rs. 1,200 and Rs.3,200 on December 31,2015. Locker rent outstanding on December 31,2015 Rs.250. Salary outstanding on December 31,2015 Rs. 1,000.
On January 1, 2015, club has Building Rs.36,000, furniture Rs. 12,000, Sports equipments Rs. 17,500. Depreciation charged on these items @ 10% (including Purchase).
Answer:
Question 9.
From the following Receipt and Payment Account of Jan Kalyan Club, prepare In-come and Expenditure Account and Balance Sheet for the year ending March 31, 2015.
Answer:
Question 10.
Receipt and Payment Account of Shankar Sports club is given below, for the year ended March 31, 2015.
Prepare Income and Expenditure Account and Balance Sheet with help of following Information:
Subscription outstanding on March 31, 2014 is Rs.l, 200 and Rs.2, 300 on March 31, 2015, opening stock of postage stamps is Rs.300 and closing stock is Rs. 200, Rent Rs.l, 500 related to 2005 and Rs.l, 500 is still unpaid.
On April 1, 2014 the club owned furniture Rs.15, 000, Furniture valued at Rs. 22,500
On March 31, 2015, the club took a loan of Rs.20,000 (@ 10% p.a) in 2014.
Answer:
Question 11.
Prepare Income and Expenditure Account and Balance Sheet for the year ended December 31, 2015 from the following Receipt and Payment Account and Balance Sheet of culture club:
Answer:
Question 12.
From the following Receipt and Payment Account prepare final accounts of a Unity Club for the year ended March 31, 2015
Receipt and Payment Account for the year ending March 31, 2015
Additional Information:
1. The Club had 500 members each paying an annual subscription of Rs. 150.
2. On 31.3.2015 salaries outstanding amounted to Rs. 1,200 and salaries paid included Rs. 6,000 for the year 2013-14.
3. Provide 5% depreciation on Land and Building.
Answer:
Question 13.
Following is the information in respect of certain items of a Sports Club. You are required to show them in the Income and Expenditure Account and the Balance Sheet.
Answer:
Question 14.
Receipt and Payment Account of Maitrey Sports Club showed that Rs. 68,500 were received by way of subscriptions for the year ended on March 31, 2016.
The additional information was as under:
1. Subscription Outstanding as on March 31, 2015 were Rs. 6,500,
2. Subscription received in advance as on March 31, 2015 were Rs. 4,100,
3. Subscription Outstanding as on March 31, 2016 were Rs. 5,400,
4. Subscription received in advance as on March 31, 2016 were Rs. 2,500.
Show how that above information would appear in the final accounts for the year ended on March 31, 2016 of Maitrey Sports Club.
Answer:
Question 15.
Following is the Receipt and Payment account of Rohatgi Trust
Prepare Income and expenditure account for the year ended December 31, 2015, and a balance sheet as on that date after the following adjustments: Subscription for 2013, still owing were Rs. 7,000. Interest due on defence bonds was Rs.7,000, Rent still owing was Rs. 1,000. The Book value of investment sold was Rs. 80,000, Rs. 30,000 of the investment were still in hand. Subscription received in 2013 included Rs. 400 from a life member. The total furniture on January 1, 2015 was worth Rs.12,000. Salary paid for the year 2014 is Rs.2,000.
Answer:
Question 16.
Following Receipt and Payment Account was prepared from the cash book of Delhi Charitable Trust for the year ending December 31, 2015.
Prepare Income and expenditure account for the year ended December 31, 2014, and a balance sheet as on that date after the following adjustments:
(a) It was decided to treat one-third of the amount received on account of donation as income.
(b) Insurance premium was paid in advance for three months.
(c) Interest on investment Rs.1,100 accrued was not received.
(d) Rent Rs.600: salary Rs.900 and advertisement expenses Rs.1,000 outstanding as on December 31, 2015.
Answer:
Question 17.
From the following Receipt and Payment Account of a club, prepare Income and Expenditure Account for the year ended December 31, 2015 and the Balance Sheet as on that date.
Receipt and Payment Account for the year ending December 31,2015
Additional Information:
(a) The club has 100 members each paying an annual subscription of Rs.900. Subscriptions outstanding on December 31, 2012 were Rs.3,600.
(b) On December 31, 2015, salary outstanding amounted to Rs. 1,000, Salary paid included Rs. 1,000 for the year 2014.
(c) On January 1, 2015 the club owned land and building Rs.25,000, furniture Rs.2,600 and books Rs.6,200.
Answer:
Question 18.
Following is the Receipt and Payment Account of Women’s Welfare Club for the year ended December 31, 2015:
Prepare Income and Expenditure Account for the year ended December 31, 2015 and Balance Sheet as on date.
Answer:
Question 19.
As at March 31, 2015 the following balances have been extracted from the books of the Indian Chartered Accountants Recreation Club and you are asked to prepare
(1) Trading Account for ascertaining gross profit derived from running restaurant and dining room and
(2) Income and Expenditure Account for the year ended March 31, 2015
(3) and a Balance Sheet as at that date.
On March 31,2014 stock of restaurant consisted of Rs. 900 and Rs. 60 respectively. Provide depreciation Rs. 60 on fixtures and fittings, Rs. 390 on billiard table and Rs. 560 on furniture.
Answer:
2nd PUC Accountancy Accounting for Not-for-Profit Organisation Additional Questions and Answers
Question 1.
What are non-profit organisations?
Answer:
Non – profit organisations refer to those organisations which are formed to render social services and not for making profits such as promotion of education, sports and games, science and technology, culture, religion etc.
Question 2.
Give any two examples of on-profit organisations?
Answer:
(a) Hospitals
(b) Schools and colleges
(c) Clubs
(d) Libraries
(e) Charitable instruments etc.
Question 3.
State two features of non-profit organisations?
Answer:
The main features bf non-profit organisations are:
- Such organisations are formed for providing services to public at large such as education, Health,sports, recreation and so on.
- They are organised as trusts/ societies and subscribers are called members.
- Normally, they do not undertake business or trading activities.
- Their affairs are usually managed by managing committee elected by its members.
- The main sources of income of such organisations are subscriptions from members, Donations legacies, grant in aid etc. Normally they do not have credit transactions.
Question 4.
Mention two needs in for maintaining books of accounts by non-profit organizations?
Answer:
a. To avoid or to minimize misappropriation of funds.
b. To keep track of their incomes and expenses for the year.
c. To know their financial position at the need of the financial year.
d. To satisfy legal requirements for obtaining grants.
e. To ensure proper use of resources from government.
Question 5.
What are the books of accounts maintained by non-profit organisations?
Answer:
a) Cash book: In this book all cash receipts and cash payments are recorded.
b) Journal: In this book other than cash transactions are recorded i.e. depreciation, bad debts etc.
c) Ledger: it contains various ledger accounts like, accounts of incomes and expenses and assets and liabilities.
d) Register of members: It is maintained to know the total number of member and to find out arrears of subscriptions and subscriptions received in advance, if any.
Question 6.
Give the meaning of receipts and payments accounts?
Answer:
Receipts and payment account is a summary of cash receipts and cash payments of non – profit organisation relating to a given period of time, usually a year. It is prepared on the cash system of accounting, to find out the closing cash balance.
Question 7.
State any two features of receipts and payment Account?
Answer:
Features of receipts and; payments are as follows:
(a) It is real account.
(b) It is prepared on cash system of ‘ accounting.
(c) It is prepare from the cash book.
(d) It is includes both capital and revenue items.
(e) It is prepared at the end of the accounting year.
Question 8.
What is an income and expenditures account?
Answer:
Income and expenditure account is a revenue account of non – profit organisations. It is a summary of incomes and expenses of a non – profit organisations prepared at the end of the accounting year. It is prepared on the accrual system of accounting. It is prepared to find out surplus/ deficit of income and expenditure.
Question 9.
State any features of income and expenditure account?
Answer:
Features of incomes and expenditure account are:
(a) It is a normal account
(b) It is prepared from the receipts and payments account and other information.
(c) It is prepared at end of the accounting year.
(d) It includes only revenue receipts (incomes) and revenue payment (expenses)
(e) It also includes non-cash items such as depreciation, bad debts etc.
Question 10.
What is capital expenditure?
Answer:
Capital expenditure is an expenditure
whose benefit is not exhausted in just one year, but the benefit is available for more than one year. It can also be defined as that expenditure which results in the acquisition of any asset or which adds to the productivity of an asset.
Question 11.
What is meant by revenue expenditure?
Answer:
Revenue expenditure refers to expenditure whose benefit is exhausted with one year. It is incurred for day – to – day running of the business or for maintaining the fixed assets of the business in an efficient working condition.
Question 12.
What is meant by capital receipts?
Answer:
Capital receipt are the receipts of non recurring in nature. That is, they are not received regularly. They are generally huge in amount. They will appear in the balance sheet.
Question 13.
What is revenue receipt?
Answer:
Revenue receipts are the receipts of recurring in nature. That is, they are generally small in amount. They will appear in the profit and loss account or income and expenditure.
Question 14.
Give the meaning of deferred revenue expenditure?
Answer:
A heavy expenditure of revenue nature incurred for getting a benefit which extends to two or more years is called deferred expenditure.
Question 15.
State two differences between capital receipts and revenue receipts.
Answer:
| Capital receipts | Revenue recepits |
| (a) Capital receipts are of non -recurring nature i.e. not regularly received. | (a) Revenue receipts are recurring nature, i.e. they are received regularly. |
| (b) They include amount realized on account of sale of fixed assets or by contribution of capital. | (b) They include amount realized by sale of goods or any income received. |
| (c) These receipts are taken to balance sheet. | (c) These receipts are taken to income and expenditure account. |
| (d) Capital receipts representing liabilities will have to be paid back. | (d) Revenue receipts need not be paid back. |
| (e) Some of the capital receipts are meant for specific purposes. | (e) Some of the capital receipts are meant for specific purposes. |
Question 16.
Point out any two differences between capital expenditure and revenue expenditure.
Answer:
| Capital receipts | Revenue recepits |
| (a) It is the expenditure incurred for the acquisition of fixed assets which are used in the business. | (a) It is the expenditure for the purchase of goods meant for resale. |
| (b) It gives benefit for long period (i.e. more than one year.) | (b) It gives benefit for short period (i.e. less than one year.) |
| (c) It increases revenue earning capacity of a business. | (c) It does not increase revenue earning capacity of a business. |
| (d) They are shown in the balance sheet. | (d) They are shown in the income and expenditure account. |
Question 17.
Give two examples for revenue expenditure.
Answer:
Example for revenue expenditure are:
(a) Salary paid
(b) Rent paid
(c) Printing charges etc.
Question 18.
Give two examples for capital expenditure.
Answer:
Example for capital expenditure are:
a) Cost of fixed asset such as land, buildings, machineries, furniture etc.
b) Cost of additions or expansion to existing fixed assets, any expenditure incurred in connection with the purchase of fixed assets.
Question 19.
State any two examples for deferred revenue expenditure.
Answer:
Examples or deferred revenue expenditure are:
(a) Huge amount spent on adverting
(b) Heavy amount spend on repairs to the old assets.
(c) Preliminary expenses etc.
Question 20.
State two differences between Receipts and Payments account and Income and Expenditure account are:
Answer:
| Receipts and payments account | Income and Expenditure account |
| (a) It is real account | (a) It is normal account |
| (b) It is the summary of cash transactions relating to particular period. | (b) It is the summary of incomes and expenses relating to a particular period. |
| (c) Receipts of cash are shown on the debit side and payments are shown on the credit side. | (c) Expenses are shown on the debit side and incomes are shown on the credit side. |
| (d) It starts with opening balances of cash orbank or both. | (d) It does not start with any opening balance. |
| (e) It includes items relating to current, pervious and the next year. | (e) It contains items of current year only. |
Question 21.
What is capital fund?
Answer:
Capital fund consists of capitalized receipts such as legacies, life membership fees, entrance fees and donation for the current year and excess of income over expenditure of the current year. Capital fund is the difference between the assets and liabilities of non- profit organisation.
Question 22.
What are legacies?
Answer:
Legacies are gifts or donations received by non- profit organisations under a will on the death of a donor. They are non- recurring nature. So it is treated as capital receipts.
Question 23.
What is Honorarium?
Answer:
Honorarium is the payment to a person for the services rendered by him to the concern. It is revenue expenditure. So, it has to be shown on the debit side of the income and expenditure account.
Question 24.
Give the meaning of endowment fund.
Answer:
Endowment fund is money or property given by way of bequeath or gift by a door to a non – profit organisation so as to provide a permanent means support. It has to be capitalised and shown separately on the liabilities side of the balance sheet.
Question 25.
How do you treat tournament expenses when separate tournament fund maintained.
Answer:
The tournament expenses are deducted from tournament fund on the liability side of balance sheet.
Question 26.
How do you treat prizes awarded, when prize fund maintained.
Answer:
The prizes awarded are deducted from the prize fund on the liability side of balance sheet.