NCERT Solutions for Class 12 Accountancy Chapter 1 – Accounting for Not for Profit Organisation

NCERT solution for class 12 Accountancy Chapter 1 – Accounting For Not For Profit Organisation

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 1

5. What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account?

Following steps should be followed:

1. Exclude opening cash and bank balances and also do the same for closing cash and balances

2. Exclude income of the previous period and any such income that is received in advance

3. Exclude all items involving capital receipts and payments

4. Exclude expenditures that are of the previous or coming period

5. Include all incomes of the current period which are yet to be received

6. Include expenditures of current period which are yet to be paid.

7. Provision for bad debts and fixed assets depreciation should be taken into account and charged to the account (income and expenditure account)

6. What is subscription? How is it calculated?

For a not-for-profit organisation subscription acts as one of the main sources of income. It refers to money that the members pay periodically for maintaining their membership in active state. Subscription charges can be paid in flexible options like monthly, quarterly, half-yearly or yearly. It appears on the receipt side of R & P account.

For calculating subscription for current period, add subscription received in advance meant for current period during the previous year and outstanding subscription for current year to the subscription received for the current year and deducting subscription received in advance for next year and outstanding subscription from previous year from subscription received in the current year.

Calculation of Subscription

7. What is Capital Fund? How is it calculated?

The scenario where value of assets of NPO are more than its liabilities, it is called as capital fund. This is similar to the concept of capital for an organisation working to earn profit. If any surplus amount is received from I & E account, it gets added to capital fund, likewise any deficit will be deducted from the same and is known as Accumulated Fund.

Calculating Capital Fund

Long Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 1

1. Explain the statement: “Receipt and Payment Account is a summarised version of Cash Book”.

A receipts and payments account (R & P Account) is a summary of actual cash receipts and payments that is extracted from the cash book over a certain time period. All the cash received is recorded on the Receipts and all cash payments are recorded in Payments side of the R & P Account. All the cash and bank transactions are recorded in Cash Book and this book is created on the basis of all these transaction. All cash and bank transactions that are of revenue and capital nature gets recorded. It records all transactions i.e. bank receipts and cash receipts.

This account helps in determining the closing balance of bank and cash receipts and thereby assess cash position of a Not-for-profit organisation or NPO.

Here are some similarities between Cash Book and Receipts and Payments Account:

1. Both are real accounts.

2. Only transactions of cash and bank are recorded

3. There is no distinction between Revenue and Capital Items

4. Helps in assessing the cash position of an organisation

5. Starts with an opening balance consisting of cash and bank and concludes with closing balance of cash and bank.

Therefore, it can be said that Receipt and Payments Account is a summarised version of cash book.

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.

The account containing all expenses and losses for current accounting period prepared by a Not-for-profit organisation is called as Income and Expenditure (I & E) account, while a similar account prepared by profit earning organisation is called as Profit and Loss Account (P & L).

Here are some of the similarities between I & E and P & L accounts:

1. Accrual basis is followed for the preparation of both accounts.

2. Expenses and losses are recorded on Expenditure (debit) side and gains and income are recorded on Income (credit) side.

3. Records only revenue items related to current accounting period.

4. Both exhibit nature similar to nominal accounts

Therefore, it can be said that from the above statements that Income and Expenditure account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern.

3. Distinguish between Receipts and Payments Account and Income and Expenditure Account.

4. Explain the basic features of Income and Expenditure Account and of Receipt and Payment Account.

Income and Expenditure account is similar to the P & L account (Profit and Loss Account). In an income and expenditure account surplus and deficit is determined during the accounting period while in a P& L account the net profit or loss is determined during an accounting period. It is a nominal account and records transactions that are of revenue nature. The closing balance is called deficit or surplus based.

Basic Features of I & E Account are:

1. It is a nominal account

2. Prepared on the basis of R & P (Receipt and Payment Account). All revenue items irrespective of income or expenditure get transferred.

3. Transactions that are of capital nature are not included in the account.

4. It is similar to P & L account

5. Records only current accounting year items and excludes any other transactions

6. Items like prepaid expenses, depreciation, income received in advance can be adjusted.

7. Balancing figure is expressed as surplus or deficit based on the status of expenses and income.

A receipts and payments account is a summary of actual cash receipts and payments that is extracted from the cash book over a certain time period. All the cash received is recorded on the Receipts and all cash payments are recorded in Payments side of the Receipts and Payments Account. This account is prepared on the basis of all the cash and bank transactions that are recorded in Cash Book. It records all cash and bank transactions that are of revenue and capital nature. It records all transactions i.e. bank receipts and cash receipts.

This account helps in determining the closing balance of bank and cash receipts and thereby assess cash position of an NPO.

Basic Features of R & P Account are:

1. It is a real account also known as summarised version of Cash Book

2. It records only bank and cash transactions.

3. Non-cash transactions like depreciation is not recorded

4. It begins with an opening balance of cash and bank and ends with closing balance of cash and bank.

5. Helps in assessing the cash position of an organisation

6. It does not distinguish between capital and revenue items

5. Show the treatment of the following items by a Not-for-Profit Organisation:

i) Annual Subscription

1. Subscriptions that are obtained during an accounting year (it may be related to current, previous or upcoming year) are reflected on the debit side of R & P Account.

2. Subscriptions related to the present year whether yet to be received or already received reflects on the credit side of I & E account (Income and Expenditure)

3. Advance subscriptions received for the following year are reflected on Liabilities side of balance sheet.

4. Subscriptions which are due but yet to be received are shown on Assets part of Balance Sheet.

5. Subscriptions that are due but yet to receive are reflected on asset side of balance sheet.

ii) Specific donation

1. Specific donation amount is reflected on Debit side of R & P Accounts.

2. Specific donation amount is shown on Liabilities side of Balance Sheet. Because it is used for that specific purpose for which it is received.

iii) Sale of fixed assets

1. Amount received recorded on debit side of R & P Account.

2. Profit/Loss is credited/debited to I & E Account.

3. Book value of asset deducted from the respective asset on Asset side of Balance Sheet

iv) Sale of old periodicals

1. Amount received reflects on the debit side of R & P Account.

2. Sale of old periodical is counted as revenue receipts, hence reflects on credit side of I & E Account.

v) Sale of sport Materials

1. Amount received is debited to R & P Account

2. Sport material sale is revenue earned, hence reflects on credit side of I & E Account.

vi) Life Membership Fees

1. It is considered as a receipt for a NPO. Hence, debited to R & P Account

2. It is one-time fee and hence treated as Capital receipts, hence, added to Capital Fund on liabilities side of Balance Sheet

6. Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.

A NPO (Not-for-Profit organisation) has different sources of receipts in the form of subscriptions, donations, government grants etc. Of these some receipts are general while some are specific. Specific receipts are used only for the purpose for which it is received while general receipts can be used for any purpose. The specific receipts are not considered as revenue income for the Not-for-Profit organisation and therefore are reflected in I & E account.

In a way, specific receipts are considered as liabilities to the Not-for-Profit organisation as these amounts are received for specific purpose and cannot be used elsewhere. These are reflected in Liabilities side of Balance Sheet, until and unless it is completely used for the purpose it was received. If such amount is invested in the form of shares or debentures, then it is known as funds such as prize funds, match funds etc. The interest earned on such investment are not credited to I & E Account, instead it is credited to the respective fund account.

Similarly, any expense that is incurred for such funds gets debited from respective fund account. Such funds are shown in the liabilities side of Balance Sheet. If the expenses exceed the receipts of the fund, the difference gets reflected in I & E Account.

Treatment for items received for specific purpose

Explanation (a)

When receipts are more than expenses meant for specific purpose, that time the difference between receipts and expenses is shown on balance sheet in the liabilities side.

Explanation (b)

When expenses are more than receipts meant for specific purpose, that time the difference between expenses and receipts is shown in I & E account at the expenditure side.

7. What is Receipt and Payment Account? How is it different from Income and Expenditure Account?

A receipts and payments account is a summary of actual cash receipts and payments that is extracted from the cash book over a certain time period. All the cash received is recorded on the Receipts and all cash payments are recorded in Payments side of the Receipts and Payments Account. This account is prepared on the basis of all the cash and bank transactions that are recorded in Cash Book. It records all cash and bank transactions that are of revenue and capital nature. It records all transactions i.e. bank receipts and cash receipts.

This account helps in determining the closing balance of bank and cash receipts and thereby assess cash position of an NPO.

Numerical Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 1

1. From the following particulars taken from the Cash Book of a health club, prepare a Receipts and Payments Account.

The solution for this question is as follows:

2. The Receipt and Payment Account of Harimohan charitable institution is given:

Prepare the Income and Expenditure Account for the Year ended on March 31, 2015 after considering the following:

The solution for this question is as follows

3. From the following particulars, prepare Income and Expenditure account:

The solution for this question is as follows

NOTE: As per the solution, Excess of Income over Expenditure is ₹ 3, 23,000; however, as per the book, it is ₹ 3, 07,000.

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:

The solution for this question is as follows

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 31.3.2017 and its Balance Sheet as on 31.3.2017?

Give reasons for your answers

The solution for this question is as follows

(a)

Reason:

Donation for construction of Pavilion is a donation for specific purpose.

Expenses on construction on Pavilion is a capital expenditure.

(b)

Reason

All funds received are treated as capital receipts and expenses related to any fund are deduced from the concerned funds.

(c)

Reason

When there is no specific information on treatment of Life Membership fees, it is shown on liabilities side of Balance sheet as it is considered as capital receipt. On treated as revenue, it is shown in credit side of I & E Account.

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, 2017.

Information:

(i)    Subscription outstanding as on 31.12.2016 ₹ 2,000 and on December 31, 2017 ₹ 1,500.

(ii)   On December 31, 2017 Salary outstanding ₹ 600, and one month Rent paid in advance.

(iii)  On Jan. 01, 2016 organisation owned Furniture ₹ 12,000, Books ₹ 5,000.

The solution for this question is as follows:

7. The following is the account of cash transactions of the Nari Kalayan Samittee for the year ended December 31, 2017:

You are required to prepare an Income and Expenditure Account after the following adjustments:

(a) Subscription still to be received are ₹ 750, but subscription include ₹ 500 for the year 2018.

(b)  In the beginning of the year the Sangh owned building ₹ 20,000 and furniture ₹ 3,000 and Books ₹ 2,000.

(c) Provide depreciation on furniture @ 5% (including purchase), books @ 10% and building @ 5%.

The solution for this question is as follows:

8. Following is the Receipt and Payment Account of Indian Sports Club, prepared Income and Expenditure Account, Balance Sheet as on December 31, 2017:

Other Information:

Subscription outstanding was on December 31, 2016 ₹ 1,200 and ₹ 3,200 on December 31, 2017. Locker rent outstanding on December 31, 2017 ₹ 250. Salary outstanding on December 31, 2017 ₹ 1,000.

On January 1, 2017, club has Building ₹ 36,000, furniture ₹ 12,000, and Sports equipment’s ₹ 17,500. Depreciation charged on these items @ 10% (including Purchase).

The solution for this question is as follows:

9. From the following Receipt and Payment Account of Jan Kalyan Club, prepare Income and Expenditure Account and Balance Sheet for the year ending March 31, 2017.      

Additional Information:

The solution for this question is as follows:

10. Receipt and Payment Account of Shankar Sports club is given below, for the year ended March 31, 2017

Prepare Income and Expenditure Account and Balance Sheet with help of following Information:

Subscription outstanding on March 31, 2016 is ₹ 1, 200 and ₹ 2,300 on March 31, 2017, opening stock of postage stamps is ₹ 300 and closing stock is ₹ 200, Rent ₹ 1,500 related to 2015 and ₹ 1,500 is still unpaid.

On April 01, 2016 the club owned furniture ₹ 15,000, Furniture valued at ₹ 22,500

On March 31, 2017. The club took a loan of ₹ 20,000 (@ 10% p.a.) in 2017.

The solution for this question is as follows:

* NOTE 1:

11. Prepare Income and Expenditure Account and Balance Sheet for the year ended March 31, 2016 from the following Receipt and Payment Account and Balance Sheet of culture club:

The solution for this question is as follows:

12. From the following Receipt and Payment Account prepare final accounts of a Unity Club for the year ended March 31, 2017.

Additional Information:

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.

The solution for this question is as follows:

14. Receipt and Payment Account of Maitrey Sports Club showed that ₹ 68,500 were received by way of subscriptions for the year ended on March 31, 2017.

The additional information was as under:

1. Subscription Outstanding as on March 31, 2016 were ₹ 6,500,

2. Subscription received in advance as on March 31, 2016 were ₹ 4,100,

3. Subscription Outstanding as on March 31, 2017 were ₹ 5,400,

4. Subscription received in advance as on March 31, 2017 were ₹ 2,500.

Show how that above information would appear in the final accounts for the year ended on March 31, 2017 of Maitrey Sports Club.

The solution for this question is as follows:

15. Following is the Receipt and Payment account of Rohatgi Trust:

Prepare Income and expenditure account for the year ended December 31, 2017, and a balance sheet as on that date after the following adjustments: Subscription for 2017, still owing were ₹ 7,000. Interest due on defence bonds was ₹7,000, Rent still owing was ₹ 1,000. The Book value of investment sold was ₹ 80,000, ₹ 30,000 of the investment were still in hand. Subscription received in 2017 included ₹ 400 from a life member. The total furniture on January 1, 2017 was worth ₹ 12,000. Salary paid for the year 2018 is ₹ 2,000.

The solution for this question is as follows:

16. Following Receipt and Payment Account was prepared from the cash book of Delhi Charitable Trust for the year ending December 31, 2017

Prepare Income and expenditure account for the year ended December 31, 2017, and a balance sheet as on that date after the following adjustments:

The solution for this question is as follows:

17. From the following Receipt and Payment Account of a club, prepare Income and Expenditure Account for the year ended March 31, 2017 and the Balance Sheet as on that date.

Additional Information:

The solution for this question is as follows:

18. Following is the Receipt and Payment Account of Women’s Welfare Club for the year ended December 31, 2017:

The solution for this question is as follows:

Additional Information:

Prepare Income and Expenditure Account for the year ended December 31, 2017 and Balance Sheet as on that date.

The solution for this question is as follows:

19. As at March 31, 2017 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, 2017 (3) and a Balance Sheet as at that date.

On March 31, 2016 stock of restaurant consisted of ₹ 900 and ₹ 60 respectively. Provide depreciations ₹ 60 on fixtures and fittings, ₹ 390 on billiard table and ₹ 560 on furniture.

The solution for this question is as follows: