Subscription Income and the Treasurer's Surplus Plan
Sanjibani Memorial Trust, a registered society, keeps its accounts on the accrual basis but prepares its Receipts and Payments Account from the cash book. For 2023–24 the cash book shows subscriptions received of ₹4,80,000. This includes ₹36,000 relating to 2022–23 and ₹24,000 paid in advance for 2024–25. Subscriptions still outstanding for 2023–24 are ₹18,000. Of the ₹30,000 outstanding at the beginning of the year, ₹20,000 was received during the year and ₹10,000 is considered irrecoverable. The trust received a donation of ₹5,00,000 from a member specifically for constructing a new reading room, and general donations of ₹50,000. Ten persons became life members by paying ₹60,000 in total; the trust's stated policy is to treat life membership fees as capital. Entrance fees of ₹15,000 were collected. Sports equipment worth ₹80,000 was purchased on 1 April 2023 and is to be depreciated at 10% per annum. Salaries paid were ₹1,20,000, and ₹10,000 remains unpaid at the year end.
1. Compute the subscription income to be credited to the Income and Expenditure Account for 2023–24, explaining the treatment of every adjustment.
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Subscription income is what the trust has earned for 2023–24, not what it collected.
- Amount received: ₹4,80,000
- Less: received for 2022–23: (₹36,000)
- Less: received in advance for 2024–25: (₹24,000)
- Add: outstanding for 2023–24: ₹18,000
- Subscription income = ₹4,38,000
The ₹20,000 received out of the opening outstanding is already contained in the ₹36,000, so adding it again would double count it. The ₹10,000 treated as irrecoverable is a bad debt of an earlier period; it is written off against the opening balance of subscriptions or the accumulated fund, not against 2023–24 income. Charging it to the current year would understate the current surplus and misstate the year to which the revenue belongs. The accrual concept, not the cash book, governs the figure.
2. State how each of the following should be treated in the final accounts and why: the ₹5,00,000 donation, the ₹50,000 general donation, the ₹60,000 life membership fees, the ₹15,000 entrance fees, the ₹80,000 equipment, and the ₹10,000 unpaid salary.
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- ₹5,00,000 donation: a capital receipt, because the donor has imposed a specific purpose. Credit it to a Reading Room Construction Fund (a specific fund), not to income. Any unspent balance is shown as a fund on the liabilities side.
- ₹50,000 general donation: revenue income; credit to the Income and Expenditure Account.
- ₹60,000 life membership fees: a capital receipt under the trust's policy. The trust accepts a continuing obligation to serve these members, so crediting the whole amount to one year's income would overstate the surplus. Show it as a Life Membership Fund; if a policy of spreading it over expected membership life is adopted, apply it consistently.
- ₹15,000 entrance fees: revenue income, unless a disclosed accounting policy capitalises it.
- ₹80,000 equipment: capital expenditure, not an income-and-expenditure item. Depreciation of ₹8,000 is charged to the Income and Expenditure Account.
- ₹10,000 salary: an outstanding expense. Charge it to the Income and Expenditure Account and show it as a liability.
3. The treasurer argues that showing the entire ₹6,25,000 of donations and life membership fees as income would produce a large surplus and strengthen the trust's grant application. Evaluate this proposal.
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The proposal misrepresents the nature of the receipts and would produce a surplus that is not real. The ₹5,00,000 is a specific-purpose donation: it is matched by a future asset, not by current services, so treating it as income would overstate the surplus and understate the trust's obligations. The ₹60,000 life membership fees carry a continuing service obligation; recognising them immediately transfers future years' resources into the current year. A grant body reading the accounts would be misled about both the trust's operating performance and its unspent restricted balances. If the misstatement were discovered, the trust's credibility and future funding would suffer. Correct treatment is to credit these amounts to the respective funds, disclose the accounting policy, and present the surplus from ordinary activities separately. A large reported surplus is not the same as sound financial management.