Subscription cut-off and a pavilion donation
The Kunnamkulam Arts and Sports Club supplies the following extract for 2024–25. Subscriptions received are ₹1,86,000. This includes ₹14,000 for 2023–24, ₹22,000 for 2025–26 and ₹9,000 still outstanding for 2024–25. Entrance fees are ₹30,000 and the committee treats them as revenue. A donor gave ₹1,50,000 specifically for a new pavilion; the club spent ₹1,20,000 on it and capitalised the pavilion, deciding not to charge depreciation in its first year. A legacy of ₹75,000 was received without conditions. Tournament receipts are ₹95,000 and tournament expenses ₹61,000. Salaries paid are ₹84,000 and rent ₹36,000. Sports goods: opening stock ₹18,000, purchases ₹52,000, closing stock ₹24,000. Other expenses are printing ₹15,000, insurance ₹9,000, coach honorarium ₹25,000 and depreciation on sports equipment ₹12,000. The opening capital fund was ₹2,40,000. The treasurer is unsure which receipts are capital and whether the unspent pavilion donation can be used to avoid reporting a deficit.
1. Classify the subscription, entrance fee, pavilion donation, legacy and tournament items as capital or revenue. Give the treatment and one reason for each.
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- Subscriptions: Revenue receipt. Income for 2024–25 is the current-year subscription only: ₹1,86,000 − ₹14,000 (arrears) − ₹22,000 (advance) + ₹9,000 (outstanding) = ₹1,59,000. Arrears and advances are balance-sheet items, not income of this year.
- Entrance fees: Revenue receipt, because the committee treats it as ordinary income; ₹30,000 goes to the Income and Expenditure Account. It would be capital only if specifically earmarked for a capital purpose.
- Pavilion donation: Capital receipt because the donor imposed a specific purpose. Credit it to a Pavilion Fund/Specific Donation Fund. ₹1,20,000 is utilised; the unspent ₹30,000 remains a specific fund and is not income.
- Legacy: Capital receipt. A legacy received without conditions is added to the Capital Fund; it is not credited to the Income and Expenditure Account.
- Tournament receipts and expenses: Revenue items. Match ₹95,000 receipts with ₹61,000 expenses in the Income and Expenditure Account; the net ₹34,000 affects the year’s result but is not a capital receipt.
2. Compute the surplus or deficit for 2024–25, showing subscription income and sports goods consumed.
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Income and Expenditure Account for 2024–25
Income:
- Subscriptions: ₹1,86,000 − ₹14,000 − ₹22,000 + ₹9,000 = ₹1,59,000
- Entrance fees: ₹30,000
- Tournament receipts: ₹95,000
- Total income = ₹2,84,000
Expenditure:
- Salaries ₹84,000
- Rent ₹36,000
- Tournament expenses ₹61,000
- Sports goods consumed: opening ₹18,000 + purchases ₹52,000 − closing ₹24,000 = ₹46,000
- Printing ₹15,000
- Insurance ₹9,000
- Coach honorarium ₹25,000
- Depreciation on sports equipment ₹12,000
- Total expenditure = ₹2,88,000
Deficit = ₹2,88,000 − ₹2,84,000 = ₹4,000.
The pavilion donation and legacy are excluded because they are capital receipts.
3. The treasurer proposes to treat the unspent ₹30,000 pavilion donation as income to convert the deficit into a surplus. Evaluate.
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The proposal is not acceptable. The ₹1,50,000 was received for a specific capital purpose, so it is a specific donation and must be credited to the Pavilion Fund. Of this, ₹1,20,000 has been spent on the pavilion; the unspent ₹30,000 is still a restricted fund, not free income. Crediting it to the Income and Expenditure Account would misstate the result and breach the donor’s condition.
The correct result is a deficit of ₹4,000. If the legacy of ₹75,000 were wrongly treated as income, the account would show a surplus of ₹71,000, but that would also be wrong because an unconditional legacy is a capital receipt. Capital receipts increase the capital/specific funds; they do not cover revenue expenditure.