NPO Receipts That Are Not Income
The cultural society Rangam has provided the following information for the year ended 31 March 2025: subscriptions received ₹3,20,000; donations received ₹1,50,000, of which ₹50,000 was specifically for a building fund; life membership fees ₹60,000; sale of old sports material ₹8,000 (the material had a book value of ₹12,000); and stationery purchased ₹40,000. Additional information: subscriptions outstanding on 1 April 2024 were ₹25,000 and on 31 March 2025 ₹35,000; subscriptions received in advance on 1 April 2024 were ₹15,000 and on 31 March 2025 ₹18,000; stock of stationery on 1 April 2024 was ₹5,000 and on 31 March 2025 ₹7,000. The treasurer has treated all receipts as income, including the building-fund donation and life membership fees, and has deducted the sale proceeds of old sports material from the purchase of sports material. The executive committee wants to know whether this is correct.
1. Compute subscription income and stationery consumed for the year.
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Subscription income Subscriptions received: ₹3,20,000 Add closing outstanding: ₹35,000 (earned this year, not yet received) Less opening outstanding: ₹25,000 (received last year, belonged to last year) Less closing advance: ₹18,000 (received this year, belongs to next year) Add opening advance: ₹15,000 (received last year, earned this year) Subscription income = 3,20,000 + 35,000 − 25,000 − 18,000 + 15,000 = ₹3,27,000
Stationery consumed Opening stock ₹5,000 + purchases ₹40,000 − closing stock ₹7,000 = ₹38,000
The closing stock of stationery is an asset, not an expense; the opening stock was consumed this year. Likewise, only subscriptions relating to the current year belong to the Income and Expenditure Account.
2. Critically evaluate the treasurer's treatment of the building-fund donation, life membership fees and the sale of old sports material.
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Building-fund donation ₹50,000: This is a specific donation. It is a capital receipt and must be credited to the Building Fund, not to income. If it is spent on the building, the amount is transferred from the fund to the asset. Only the remaining ₹1,00,000 of general donations is income.
Life membership fees ₹60,000: These are capital receipts. The correct treatment is to credit them to a Life Membership Fund and transfer a reasonable amount to income over the expected membership life, or follow the society's stated policy. Treating the whole ₹60,000 as current income overstates the surplus and understates the fund. If the amount is small and the governing body has a clear policy of crediting it to income, that policy should be disclosed - but it is not automatic.
Sale of old sports material ₹8,000: The book value is ₹12,000, so there is a loss of ₹4,000. Deducting the sale proceeds from purchases hides the loss and misstates the expense. The sale should be shown as income (or as a reduction of sports-material expense) and the loss of ₹4,000 shown separately, or the net loss of ₹4,000 shown as an expense. The treasurer's treatment is not acceptable because it conceals the loss.
3. Show how the above items would appear in the Income and Expenditure Account and Balance Sheet.
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Income and Expenditure Account (year ended 31 March 2025) Income side: Subscriptions ₹3,27,000 General donations ₹1,00,000 Sale of old sports material ₹8,000 Expenditure side: Stationery consumed ₹38,000 Loss on sale of old sports material ₹4,000 (Alternatively, show only the net loss of ₹4,000 and omit the ₹8,000 sale from income.)
The specific donation of ₹50,000 and life membership fees of ₹60,000 do not appear as income.
Balance Sheet Assets: subscriptions outstanding ₹35,000; stock of stationery ₹7,000. Liabilities: subscriptions received in advance ₹18,000; Building Fund ₹50,000; Life Membership Fund ₹60,000 (less any amount transferred to income during the year).
This presentation matches the accrual concept: income is recognised when earned, not when received, and capital receipts are shown as funds rather than as surplus.