Question by CA (Dr.) G.S.GREWAL, Series – 1

True / False

  1. Under NPO, sale of old newspaper is shown as an income.

Fill in the Blanks

  1. Token payment made to a person, who voluntarily undertakes a service which would normally command a fee is _____________________.

Multiple Choice Question

  1. Income and Expenditure Account is based on

(a)    Cash Basis of Accounting.

(b)    Accrual Basis of Accounting.

(c)    Mixed Basis of Accounting.

(d)    Management Accounting.

Answer Series – 1

  1. True

Reason: By selling the old newspaper amount is credited to Income and Expenditure Account. Thus, it is Revenue Receipt and treated as an Income.

2.  Honorarium

3. (b)

Reason: Income and Expenditure Account is based on Accrual Accounting, i.e., it records items of revenue nature whether received or not relating to current accounting year.

Question Series – 9

  1. Income and Expenditure Account shows transactions of revenue nature for the accounting year.
  1. Building Fund, Library Fund etc. is accounted following _____________.
  1. Which of the following is an example of Not-for-Profit Organization?

(a)    Public Hospitals

(b)    Corporation

(c)    Audit Firm

(d)    Insurance Companies.

Answer Series – 9

  1. True

Reason: Income and Expenditure Account is a nominal Account the net result of which is either Surplus (Excess of Income over Expenditure) or deficit (Excess of Expenditure over Income).

  1. Fund Based Accounting
  1. (a)

Reason: Charitable Organizations are Not-For-Profit Organisation since their object is not to earn profit but to render service to the society. Public Hospital is a Charitable Organisation, since it provides medical services to the society at a nominal fee.

Question Series – 11

  1. Surplus or Deficit of a Not-For-Profit Organisation is added to or subtracted from Accumulated Fund.
  1. Amount paid by the members to keep their membership remains alive is termed as __________.
  1. ₹ 1,00,000 received as annual subscription. Out of this, ₹ 20,000 is of previous year whereas ₹ 10,000 is receivable at the end of the current year. Amount of subscription that will be shown in the Income and Expenditure Account will be:

a) ₹ 1,00,000

b) ₹ 90,000

c) ₹ 1,20,000

d) ₹ 80,000

Answer Series – 11

  1. True

Reason General/Corpus/Accumulated Fund is an Unrestricted Fund since it can be used for any of the purposes of the NPO. Surplus earned can be spent by a NPO for any of its objects. Thus, it is credited to Accumulated Fund. It comprises of Opening Balance, which is increased by the Surplus for the year and decreased by the deficit.

  1. Subscriptions

Reason:- Subscription is the amount paid by the member monthly/quarterly/half yearly/yearly so that they can avail the services of the NPO. If they do not pay subscription they may not be allowed to avail the services.

  1. (b)

Reason: ₹ 1,00,000 (Subscription Received During the year) + ₹ 10,000 (Subscription Outstanding at the end of the year) – ₹ 20,000 (Subscription Outstanding in the beginning of the year) = ₹ 90,000.

Question Series – 15

  1. A NPO has a ‘Match Fund’ of ₹ 1,00,000 and Match Expenses of ₹ 40,000,  Match Fund and Match Expenses will be shown in Liabilities side of Balance Sheet, expenses being deducted from fund
  1. Amount received as donation by a NPO under will of a decreased person is termed as ________________.
  1. Surplus of Not-for-Organisations

a) is distributed among members

b) is not distributed among members

c) may be distributed or may not be distributed among members

d) is debited to General Fund

Answer Series – 15

  1. True

Reason: Match Fund is a specific fund and fund amount is more than expense therefore, Expenses will be deducted from the fund and balance amount will be  shown in the liabilities side of Balance Sheet

  1. Legacy

Reason:- Donation may be received by a NPO from a living person or an entity. Legacy is also a Donation, the only difference is that it is received from a deceased person by way of his will or wish.

  1. (b)

Reason: A NPO is set up for the welfare of the society at large and it is not owned by anyone. Thus, unlike in the case of business entity surplus is not distributed among members but it is used further for the objects of the NPO.

Question Series – 19

  1. An advance receipt of subscriptions from members of the Not-For-Profit Organization is a Liability.
  1. Life Membership Fee received by a NPO is a ____________________.
  1. If Life Membership Fee of ₹ 5,000 wrongly treated as revenue receipt then effect of this error on surplus and closing balance of Capital Fund will be:

(a)    Capital Fund increased and Surplus increased by ₹ 5,000.

(b)    Capital Fund decreased and Surplus increased by ₹ 5,000.

(c)    No effect on Capital Fund but Surplus increased by ₹ 5,000.

(d)    Capital Fund decreased by ₹ 5,000 but no effect on Surplus.

Answer Series -19

  1. True

Reason: Subscription is the amount received by NPO from members to keep their membership alive. Subscription for the year whether received or not is credited to Income and Expenditure Account. Subscription received in advance is subscription for the next year or years but received before it is due. Thus, it is a liability in the year, it is received.

  1. Capital Receipt

Reason: Life Membership Fee is a one-time payment received by a NPO from a person to avail the membership of an organisation to avail benefit/services for life without further payment of subscription. Hence it is Capital Receipt.

  1. (c)

Reason: Life Membership Fees is a Capital Receipt item if it is wrongly treated as revenue receipt then wrongly Surplus is also increased by ₹ 5,000 but Capital Fund does not effect at all.

Question Series – 23

  1. Excess of Income over Expenditure in Income and Expenditure Account prepared by a NPO is termed Surplus
  1. Income and Expenditure Account is based on ________________ Basis of Accounting.
  1. Delhi Cricket Club gives the following information:

Opening Stadium Fund is ₹ 10,00,000, Donation for Stadium fund received during the year ₹ 5,00,000, Income from Stadium Fund Investment ₹ 1,00,000. Amount spend during the year on construction of stadium ₹ 6,00,000. Identify which of the following statement is correct in respect to preparation of Balance Sheet.

a) ₹ 6,00,000 is shown as an asset in the Balance Sheet.

b) ₹ 6,00,000 is shown as an asset in the Balance Sheet. Also ₹ 6,00,000 is transferred to the credit of Income and Expenditure Account.

c) ₹ 6,00,000 is shown as an asset in the Balance Sheet and also ₹ 6,00,000 is transferred from Stadium Fund to General Fund in the Balance Sheet.

d) ₹ 6,00,000 is shown as an expense in the Income and Expenditure Account and ₹ 6,00,000 is transferred to the credit of Income and Expenditure Account from Stadium Fund.

Answer Series – 23

  1. True

Reason: The terms profit and loss are used to show the financial performance of a business entity whose objective is to earn profit whereas the objective of NPO is not to earn profit. In line with the activity, excess of Income over Expenditure is termed as Surplus.

  1. Accrual

Reason: Income and Expenditure Account is based on Accrual Accounting because it shows either Surplus or Deficit for the accounting year.

  1. (c)

Reason: Balance in the fund shows the amount yet to be used for the purpose they are received or set aside by the NPO. ₹ 6,00,000 will be transferred from Stadium Fund to General Fund to show that ₹ 10,00,000 (Balance i.e., ₹ 10,00,000 + ₹ 5,00,000 + ₹ 1,00,000 – ₹ 6,00,000) is yet to be applied for construction of Stadium while ₹ 6,00,000 is used which is shown as an asset in the Balance Sheet.

Question Series – 39

  1. Life Membership Fee received by a NPO is a Specific Donation.
  1. Surplus or deficit of the Income and Expenditure Account is transferred to the ____________ .
  1. A NPO has following information:

Prize Fund (Opening) – ₹50,000, Donations received during the year ₹40,000 and Prizes awarded during the year ₹1,00,000. Identify which of the following statement is correct with respect to preparation of Balance Sheet.

a)Prizes awarded of ₹1,00,000 will be shown in Income and Expenditure Account while ₹90,000 will be shown in the Liabilities side of the Balance Sheet.

b)₹1,00,000 (Prize Awarded) will be shown as expense in the debit of Income and Expenditure Account while ₹90,000 will be shown as income in the credit of Income and Expenditure Account.

c)₹10,000 (₹1,00,000 – ₹90,000) will be transferred to General Fund in the Balance Sheet.

d)Prizes awarded (₹1,00,000) is more than the Prize Fund (₹90,000), the difference (₹10,000) will be shown in the debit of Income and Expenditure Account.

Answer Series – 39

  1.  False

Reason: Life Membership Fee is a one-time payment received by a NPO from a person to avail the membership of an organisation to avail benefit/services for life without further payment of subscription. Hence it is Capital Receipt.

  1. Capital Fund
  1. (d)

Reason: Specific Funds are used for the purposes they are received or set aside. Use of specific fund may or may not result in creation of an asset. When it does not result in creation of an asset, expenses incurred in excess of the fund is the expense of the NPO and is shown i.e., debited to Income and Expenditure Account.

Question – Series 48

  1. Billiard Match Expenses of ₹ 50,000 incurred by a NPO will be shown in Liabilities side of Balance Sheet.
  1. In financial analysis __________________ information is considered while _______________________ aspects are ignored.
  1. A member from whom ₹ 10,000 was due as subscription, resigned and did not pay the dues. Journal entry for writing off subscription will be:
  2. a) Subscription written-off A/c ….Dr. 10,000

              To Subscription A/c                          10,000

          b) Subscription A/c …Dr. 10,000

              To Subscription written off A/c           10,000

         c) Outstanding Subscription A/c …Dr. 10,000

             To Subscription written off                   10,000

         d) Subscription Written Off A/c …Dr. 10,000

              To Outstanding Subscription A/c         10,000

Answer – Series 48

  1. False

Reason: Since Specific fund does not exist and expenses incurred are revenue, hence it will be shown in the debit side of the Income and Expenditure Account.

  1. Monetary, Non-Monetary
  2. (d)

Reason: At the time of subscription being made due ‘Outstanding Subscription’ or ‘Subscription Receivable’ is debited while Subscription Account is credited. Therefore, at the time of Writing off subscription, Outstanding Subscription Account is credited and it being a loss to the NPO. Subscription written off Account is debited. The Journal Entry passed is:

Subscription written-off A/c                  ….Dr.

              To Outstanding Subscription A/c

Question – Series 52

  1. Subscription received in advance during the current year is shown as a/an Income.
  1. Government Grant, Endowment Fund, Annuity Fund, Sports Fund are examples of ____________Fund.
  1. Furniture as on 31st March, 2018 Rs 4,40,000. Furniture (having B.V as on 1st April, 2018 of Rs 40,000) was sold at a loss of 20% on 31st December, 2018. Furniture is depreciated @ 10% p.a. Furniture for ₹ 3,00,000 was purchased on 1st October, 2018 ended 31st March, 2019. Loss on sale of furniture is:

(a)     ₹9,400

(b)     ₹6,400

(c)     ₹8,000

(d)     ₹7,400

Answer – Series 52

  1. False

Reason: Subscriptions received in advance means subscriptions received being income of next year. Therefore, it is shown in the liabilities side of Balance Sheet and is transferred to Income and Expenditure in next year.

  1. Restricted
  2. (d)

Reason: Book Value of furniture is ₹ 40,000. Depreciation charged till 31st December, 2018 is ₹ 3,000. Depreciated value at the time of Sale ₹ 37,000. Loss is 20% on sale of asset. Therefore, Loss is ₹ 7,400.

Question – Series 55

  1. Cash Balance in Receipts and Payments account will show Debit or Nil balance.
  2. Amount paid by a person at the time of becoming a member of a Not-for-Profit Organisation is ______.
  3. Income and Expenditure account shows transactions of

a) Revenue Nature

b) Capital Nature

c) Both Revenue and Capital Nature

d) Income of only revenue nature and expenditure of revenue and capital nature.

Answer – Series 55

  1. True

Reason:  Payments cannot exceed the cash in hand. It can at the most equal cash in hand. Therefore, cash balance can be either debit or nil balance.

  1. Entrance Fees
  2. (a)

Reason: Income and Expenditure Account is a nominal account prepared on Accrual Basis of Accounting It therefore includes expenses, losses and incomes for the current accounting year. It results in either surplus (If income is more than expenses) or deficit (If expenses are more than income) of the current accounting period.

Question – Series 68

  1. Balance Sheet of a Not-for-Profit Organisation such as charitable hospital does not have Owner’s Equity.
  1. Outstanding subscriptions at the end are shown in the ___________side of the Balance Sheet. .
  1. Subscription received by a School for Annual Dinner is a:

a) Capital Receipt

b) Revenue Receipt

c) Special Receipt

d) Earned Income

Answer – Series 68

  1. True

Reason: NPO although set up by individual, is not owned by them. Thus, it does not have capital (Owner’s Equity) but has fund called Corpus Fund, Accumulated Fund or General Fund

  1. Assets
  2. (c)

Reason: Subscription received for Annual Dinner is for a special purpose .i.e., Annual Dinner. Thus, it is a special receipt.

Question – Series 72

  1. Expenditure greater than income of a Not-For-Profit Organization give rise to a Profit.
  2. Entrance Fee is shown in debit side of __________ and credited to _____________.                             .
  3. Not-for-Profit Organizations prepare all the following accounts except the

a) Receipts and Payment Accounts

b) Income and Expenditure Account

c) Balance Sheet

d) Profit and Loss Account

Answer – Series 72

  1. False

Reason: Excess of Expenditure over Income is Deficit.

  1. Receipts and Payments Account, Income and Expenditure Account
  2. (d)

Reason:  Final Accounts of an NPO consists of Receipts and Payments Account, Income and Expenditure Account and Balance Sheet. Profit and Loss Account is prepared by an enterprise.

Question – Series 83

  1. A NPO received ₹ 5,00,000 as Legacy Donation to be used for setting up a Library. It will be shown as Library Fund in the Liabilities side of Balance Sheet
  2. Sports material consumed during the year is debited to Income and Expenditure Account and balance amount is carried forward in the ______________.
  3. Salaries paid during the year Rs 36,000 salaries paid in advance at the end of previous year was ₹ 54,000. Salaries Account debited in Income and Expenditure Account will be:

(a)     54,000

(b)     36,000

(c)     90,000

(d)     18,000

Answer – Series 83

  1. True

Reason: The donor has specified the purpose for which the legacy donation is to be used i.e., for setting up the library. Hence it is a capital receipt to be shown as Library Fund.

  1. Balance Sheet
  2. (c)

Reason: Salaries for the Current Year is Salary paid during the year i.e., ₹ 36,000 + Advance Salary of Previous Year ₹ 54,000 = ₹ 90,000

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