NCERT MOST IMPORTANT QUESTIONS CLASS – 12 | ACCOUNTANCY PART 2 IMPORTANT QUESTIONS | CHAPTER – 1 | ACCOUNTING FOR NOT-FOR-PROFITING ORGANISATION | EDUGROWN |

In This Post we are  providing Chapter- 1 ACCOUNTING FOR NOT-FOR-PROFITING ORGANISATION NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON ACCOUNTING FOR NOT-FOR-PROFITING ORGANISATION

Question 1:

What is subscription? How is it calculated?

ANSWER:

Subscription is the main source of income for an NPO besides entrance fees, donations, grants, etc. Subscriptions refer to the amount of money paid by the members on periodic basis for keeping their membership with the organisation alive. It is paid monthly, quarterly, half yearly or annually by the members.

It is shown in the debit side of the Receipt and Payment Account with the total amount received during the year that may be related to the current period and to the previous and next accounting period.

While calculating subscription for the current period, advance subscription received for the current period in the previous period and outstanding subscription for the current period are added to the subscription received during the current period. Whereas, on the other hand, advance subscription received for the next accounting period during the current period and outstanding subscription for the preceding period are deducted from the subscription received during the current period.

Calculation of Subscription

Subscription received during the year		***
Add: Subscription received (in advance) during previous year for current year	***
Add: Subscription outstanding at the end of the year	***
		***
Less: Subscription received in advance for the next year	***
Less: Subscription outstanding for the previous year	***	***
## Subscription shown in Income and Expenditure Account		***

## This subscription is related to the current accounting period and is shown in the Income side of the Income and Expenditure Account.

Question 2:

What is Capital Fund? How is it calculated?

ANSWER:

Capital fund is the excess of NPOs’ assets over its liabilities. In other words, the excess of assets over the liabilities for a profit earning organisation is termed as capital and the same for an NPO is termed as capital fund. Any surplus or deficit ascertained from Income and Expenditure account is added to (deducted from) the capital fund. It is also termed as Accumulated Fund.

Calculation of Capital Fund

Capital Fund at the beginning of the year		**
Add: Surplus from Income and Expenditure Account	**
Add: Subscription Amount (Capitalised amount)	**
Add: Life membership fee.	**	**
Less: Deficit from Income and Expenditure Account		**
Capital Fund at the end of the year		***

Question 3:

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

ANSWER:

Receipts and Payments Account is a summary of the Cash Book. This account is prepared by those organisations which maintain their books on cash basis. All cash receipts are recorded on the Receipts side (i.e. Debit side) and all cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period, but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period. This account only helps us to ascertain the closing balance of the cash and bank and helps in assessing the cash position of an NPO. It also forms the basis for the preparation of Income and Expenditure Account.

Similarities between Receipt and Payments Account and Cash Book

The following are the features of Receipt and Payment Account that are common to those of Cash Book:

1. Nature: It is a summarised version of the Cash Book. Similar to the Cash Book, the Receipt and Payment Account is also a Real Account.

2. Nature of Transactions: It records only cash and bank transactions similar to a Two-Column Cash Book. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.

3. No distinction between Capital and Revenue items: It records all the cash and bank receipts and payments of both capital and revenue nature. Likewise, the transactions recorded in the Cash Book are also of both capital and revenue nature.

4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.

5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period. Similarly, a Cash Book also helps us to assess the cash position of an organisation.

Thus, on the basis of the above mentioned points and similarities, the statement ‘Receipt and Payment Account is a summarised version of Cash Book’ is justified.

Question 4 :

“Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern”. Explain the statement.

ANSWER:

Income and Expenditure Account (I&E) is similar to Profit and Loss Account (P&L), in the sense that the former is prepared by Not-for-profit-Organisations and the latter is prepared by profit earning organisations. Both the accounts are prepared on the accrual basis.

Similar to the P&L, all the expenses and losses pertaining to the current accounting period are recorded on the debit side (Expenditure side) and all the gains and income of the current accounting period are recorded on the credit side (Income side) of the I&E. The balancing figure of the I&E is surplus or deficit and that of the P&L is net profit or net loss. Both the accounts record only revenue items which are related to the current accounting period.

Similarities between Income and Expenditure Account and Profit and Loss Account

I&E Account of an NPO is akin to the Profit and Loss Account of a profit earning business in the following manners.

1. Nature of Account: Both the concerned accounts are nominal in nature.

2. Basis of Recording: Both the accounts record only revenue expenses and revenue income related to the current accounting period. The items of capital nature are not ignored while preparing these accounts.

3. Period: Transactions related to current year are recorded in Income and Expenditure account in the same manner in which profit and loss account is prepared. Transactions related to previous year or next year are excluded.

4. Adjustments: The treatment of adjustments like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, bad debts etc. is same as that in Profit and Loss Account. Thus, both the accounts are prepared on the accrual basis.

Question 5:

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

ANSWER:

Basis of Difference	Receipts and Payments Account	Income and Expenditure Account
1. Nature	It is a summary of cash and bank transactions	It is a summary of current year income and expenses
2. Revenue and Capital	It records transactions related to both revenue and capital nature.	It records transactions related to revenue nature only.
3. Debit Side	Debit side of this account records cash and bank receipts during an accounting period.	Debit side of this account records expenses and losses incurred in the current accounting period.
4. Credit side	Credit side of this account records payments in cash and through cheques.	Credit side of this account records income and gains earned in the current accounting period.
5. Type of account	It is a Real Account	It is a Nominal Account
6. Period	It records receipts and payments made during the year that may be related to the current accounting period or the preceding period and the succeeding accounting period.	It only records income and expenditure made during the current accounting period.
7. Object	This account depicts the cash position of an NPO.	This account shows the net result in terms of surplus or deficits due to the business activities during the year.
8. Opening Balance	This account begins with the opening balance of cash in hand and cash at bank or overdraft.	Usually, it has no opening balance but sometimes surplus or deficits forwarded from the last accounting period (if not added to the Capital Fund) can be shown as the opening balance of this account.
9. Closing balance	The balancing figure of this account is expressed in terms of the closing balance of cash in hand and cash at bank or overdraft.	The balancing figure is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes).
10. Depreciation	It does not include non-cash items like depreciation, appreciation, etc.	It includes non-cash items like depreciation, bad-debts, provisions, etc. in order to ascertain the actual net profit or net loss.
11. Adjustment	Receipts and Payments during the year can be adjusted before preparation of the financial statements.	Adjustments regarding both cash and non-cash transactions can be made.
12. Transfer of Balance	The opening balance of this account is brought forward from the last year’s Receipts and Payments Account and the closing balance of this account is carried forward to the subsequent year’s Receipts and Payments Account and is shown in the Balance Sheet of the current accounting period.	If the closing balance of this account is surplus then it is added to the Capital Fund in the Balance Sheet. If the closing balance is deficit then it is deducted from the Capital Fund in the Balance Sheet.
13. System	It is prepared on cash basis.	It is prepared on accrual basis.

Question 6:

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

ANSWER:

Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.

The following are the basic features of Income and Expenditure Account

1. Nature: It is a Nominal Account. The debit side of I&E records all expenses and losses and the credit side records all incomes and gains related to the current accounting period.

2. Basis: It is prepared on the basis of Receipt and Payment Account (R&P). All the revenues items whether incomes or expenditures are transferred from R&P.

3. Excludes Capital Transactions: The transactions those are capital in nature are excluded from this account. For example, only profit or loss on sale of fixed assets is recorded but the total amount of sales is not recorded since sale of fixed asset is considered as a capital receipt.

4. Akin to Profit and Loss Account: Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period the latter is prepared to ascertain net profit or net loss incurred during an accounting period.

5. Records only Current Year’s items: This account records only those transactions that are related to current accounting year. In other words, transactions related to the preceding or succeeding accounting period are excluded even if these transactions are realised in the current period.

6. Adjustments: Various cash and non-cash items like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, bad debts, etc. can be adjusted in this account.

7. Balancing Figure: The balancing figure of this account is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes). The surplus balance, if any, is added to the Capital Fund, whereas, the deficit balance, if any, is deducted from the Capital Fund.

Receipts and Payments Account is a summary of the Cash Book. All the cash receipts are recorded on the Receipts side (i.e. Debit side) and all the cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period.

The following are the features of Receipt and Payment Account.

1. Nature: It is a Real Account. It is a summarised version of the Cash Book.

2. Nature of Transactions: It records only cash and bank transactions. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.

3. No distinction between Capital and Revenue items: It records all cash and bank receipts and payments of both capital and revenue nature.

4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.

5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period.

Question 7:

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

Receipts	AmountRs	Payments	AmountRs
Balance from last year	2,270	Rent	6,600
Subscriptions	32,500	Electric charges	3,200
Life membership fee	3,250	Lecturer’s fee	730
Donation	2,500	Office expenses	1,480
Profit from entertainment	7,250	Printing and Stationery	1,050
Sale of old Books (books value Rs 1,000)	750	Legal fee	1,870
Interest	350	Books	6,500
		Furniture purchased	8,600
		Expenses on nukar drama	1,300
		Cash in hand	8,040
		Cash at bank	9,500
	48,870		48,870

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

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

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

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

ANSWER:

Books of  Nari Kalyan SamitteeIncome and Expenditure Account as on Dec. 31, 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Rent	6,600	Subscription	32,500
Electric Charges	3,200	Add: Outstanding for 2017	750
Lecturer’s fee	730	33,250
Office Expenses	1,480	Less: Advance for 2018	(500)	32,750
Printing and Stationery	1,050	Donation	2,500
Legal Fee	1,870	Profit from Entertainment	7,250
Depreciation on:		Interest	350
Books	750
Furniture	580
Building	1,000	2,330
Expenses on Nukar Drama	1,300
Loss on Sale of Books	250
Surplus	24,040
	42,850		42,850

Balance Sheet as on Dec. 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Capital Fund as Dec. 31, 2016	27,270	Building	20,000
(Balancing Figure)		Furniture	3,000
		Books	2,000
		Cash and Bank	2,270
	27,270		27,270

Balance Sheet as on Dec. 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Capital Fund	27,270		Building	20,000
Add: Life Membership Fees	3,250		Less: 5% Depreciation	(1,000)	19,000
Add: Surplus	24,040	54,560
		Furniture	3,000
Advance Subscription for 2018	500	Add: Purchases	8,600
			11,600
		Less: 5% Depreciation	580	11,020
		Books	2,000
		Add: Purchases	6,500
		8,500
		Less: Sales	1,000
				7,500
		Less: 5% Depreciation	750	6,750
		Cash in Hand		8,040
		Cash at Bank		9,500
		Subscription Outstanding		750
	55,060		55,060

Question 8:

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

Receipt and Payment Account for the year ending December 31, 2017
Receipts	AmountRs	Payments	AmountRs
Balance b/d	7,890	Salary	11,000
Subscriptions	52,000	Electric charges	5,500
Life member ship fee	2,200	Billiard Table	17,500
Entrance fee	3,200	Office expenses	4,100
Tournament fund	26,000	Printing and Stationery	2,300
Locker Rent	1,250	Tournament expenses	18,500
Sale of old sports goods (Costing Rs 2,200)	2,500	Repair of ground	2,000
Sale of Old Newspaper	750	Furniture purchased	7,700
Legacy	37,500	Sports equipments	12,000
		Cash in Hand	12,690
		Cash at Bank	10,000
		Fixed Deposit (on 1.10.17 for 10% p.a)	30,000
	1,33,290		1,33,290

Other Information:

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

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

ANSWER:

Indian Sports ClubIncome and Expenditure Account as on Dec. 31, 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Salary	11,000		Subscriptions	52,000
Add: Outstanding for 2017	1,000	12,000	Add: Outstanding for 2017	3,200
Electric Charges	5,500		55,200
Office Expenses	4,100	Less: Outstanding for 2016	(1,200)	54,000
Printing and Stationery	2,300
Repair of Ground	2,000	Locker Rent	1,250
Depreciation on:		Add: Outstanding for 2017	250	1,500
Furniture	1,970
Building	3,600		Entrance Fees	3,200
Sports Equipments	2,730	8,300	Profit on Sale of Sports
Surplus	26,300	Equipments (Rs 2,500 – Rs 2,200)	300
		Sale of Old Newspapers	750
		Accrued Interest	750
	60,500		60,500

Balance Sheet as on January 01, 2016
Liabilities	AmountRs	Assets	AmountRs
Capital Fund (Balancing Figure)	74,590	Subscription Outstanding	1,200
			Building	36,000
		Furniture	12,000
		Sports Equipments	17,500
		Cash and Bank	7,890
	74,590		74,590

Balance Sheet as on Dec. 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Salary Outstanding	1,000	Subscripting Outstanding	3,200
Tournament Fund	26,000		Locker Rent Outstanding	250
Less: Tournament Expenses	18,500	7,500	Building	36,000
		Less: 10% Depreciation	(3,600)	32,400
Capital fund	74,590
Add: Life Membership Fee	2,200		Furniture	12,000
Add: Legacy	37,500		Add: Purchases	7,700
Add: Surplus	26,300	1,40,590		19,700
		Less: 10% Depreciation	(1,970)	17,730
		Sports Equipments	17,500
		Add: Purchases	12,000
			29,500
		Less: Sales	(2,200)
			27,300
		Less: 10% Depreciation	(2,730)	24,570
		Billiard Table	17,500
		Cash in hand	12,690
		Cash at Bank	10,000
		Fixed Deposit	30,000
		Add: Accrued Interest	750	30,750
	1,49,090		1,49,090

Question 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.           

Receipt and Payment Account for the year ending March 31, 2017
Receipts	AmountRs	Payments	AmountRs
Cash in hand as on 1.4.16	6,800	Salaries	24,000
Subscription	60,200	Traveling Expenses	6,000
Donation	3,000	Stationery	2,300
Sale of furniture (Book value Rs 6000)	4,000	Rent	16,000
Entrance fee	800	Repair	700
Life membership fee	7,000	Books purchased	6,000
Interest on investment (@ 5% for full year)	5,000	Building purchased	30,000
		Cash in hand as 31.3.2017	1,800
	86,800		86,800

Additional Information:

	As on1.04.2016	As on31.03.2017
(i)	Subscription received in advance	1,000	3,200
(ii)	Outstanding subscription	2,000	3,700
(iii)	Stock of stationery	1,200	800
(iv)	Books	13,500	16,500
(v)	Furniture	16,000	8,000
(vi)	Outstanding rent	1,000	2,000

ANSWER:

Books of Jan Kalyan ClubIncome and Expenditure Account as on 31 March 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Loss on Sale of Furniture (Rs 6,000 – Rs 4,000)	2,000	Subscription	60,200
Salaries		24,000	Less: Outstanding for 2016	(2,000)
Traveling Expenses	6,000		58,200
Stationery	2,300		Add: Outstanding for 2017	3,700
Add: Opening Stock	1,200			61,900
	3,500		Add: Advance in 2016	1,000
Less: Closing Stock	(800)	2,700		62,900
		Less: Advance in 2017	(3,200)	59,700
Repairs	700
Rent	16,000		Donation	3,000
Less: Outstanding for 2016	(1,000)		Entrance Fees	800
	15,000		Interest on Investments	5,000
Add: Outstanding for 2017	2,000	17,000
Depreciation on Books	3,000
Depreciation on Furniture	2,000
Surplus	11,100
	68,500		68,500

Balance Sheet as on April 01, 2016
Liabilities	AmountRs	Assets	AmountRs
Advance Subscription	1,000	Cash in Hand	6,800
Outstanding Rent	1,000	Investment {5,000 × (100/5)}	1,00,000
Capital Fund (Balancing figure)	1,37,500	Subscription Outstanding	2,000
		Stock of Stationery	1,200
		Books	13,500
		Furniture	16,000
	1,39,500		1,39,500

Balance Sheet as on March 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Advance Subscription	3,200	Subscription Outstanding	3,700
Outstanding Rent	2,000	Stock of Stationery	800
Capital Fund	1,37,500		Investments	1,00,000
Add: Life Membership Fees	7,000
Add: Surplus	11,100	1,55,600	Books	13,500
			Add: Purchases	6,000
			19,500
		Less: Depreciation	(3,000)	16,500
		Building	30,000
		Cash in Hand	1,800
		Furniture	16,000
		Less: Sales	6,000
			10,000
		Less: Depreciation	(2,000)	8,000
	1,60,800		1,60,800

Question 10:

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

Receipt and Payment Account for the year ending March 31, 2017
Receipts	AmountRs	Payments	AmountRs
Opening Cash in hand	2,600	Rent	18,000
Entrance fees	3,200	Wages	7,000
Donation for building	23,000	Billiard table	14,000
Locker rent	1,200	Furniture	10,000
Life membership fee	7,000	Interest	2,000
Profit from entertainment	3,000	Postage	1,000
Subscription	40,000	Salary	24,000
		Cash in hand	4,000
	80,000		80,000

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

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

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

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

ANSWER:

Books of Shankar Sports ClubIncome and Expenditure Account as on 31 Dec. 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Rent	18,000		Entrance Fees	3,200
Add: Outstanding for 2017	1,500		Locker Rent	1,200
	19,500		Profit from Entertainment	3,000
Less: Outstanding for 2016	(1,500)	18,000
		Subscription	40,000
Wages	7,000	Less: Outstanding for 2016	(1,200)
Depreciation on Furniture	2,500		38,800
Interest	2,000	Add: Outstanding for 2017	2,300	41,100
Postage	1,000		Deficit (Balancing Figure)	6,100
Add: Opening Stock	300
	1,300
Less: Closing Stock	(200)	1,100
Salaries	24,000
	54,600		54,600

Balance Sheet as on  December 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Rent Outstanding	1,500	Cash in Hand	2,600
10%  Loan	20,000	Subscription Outstanding	1,200
		Furniture	15,000
		Stock of Postage Stamps	300
		Capital fund Deficit (Balancing figure)	2,400
	21,500		21,500

Balance Sheet as on December 31, 2017
Expenditure	AmountRs	Income	AmountRs
Rent Outstanding	1,500	Subscription Outstanding	2,300
10%  Loan	20,000	Stock of Postage Stamps	200
Donation for Building	23,000	Billiard Table	14,000
Capital Fund	(2,400)		Furniture	15,000
Add: Life Membership Fee	7,000		Add: Purchases	10,000
Less: Deficit	(6,100)				25,000
		Less: Depreciation	(2,500)	22,500
		Cash in Hand	4,000
		* Capital Fund (Deficit)	1500
	44,500		44,500

* NOTE 1:

Capital Fund	(2,400)
Add:	Life Membership Fees	7,000
Less:	Deficit	(6,100)
	Net Deficit	(1,500)