PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS
Advance Financial AccountingPREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
Questions often require candidates to prepare an Income & Expenditure Account and Balance Sheet from incomplete records. Generally, a summary of bank and cash transactions is provided along with information relating to opening and closing assets and liabilities. To solve these types of problems, the following steps are followed:
- Prepare a receipt and payment account (if not given in the question).
- Prepare statement of affairs as on opening date.
- Post the balances of assets and liabilities from the statement of affairs into the relevant ledger a/c as opening balance b/f or put these in the working for further calculation of closing balance.
- Pick up the revenue receipts and payment and pass these from the filter of accruals to calculate incomes and expenses for the year.
- Prepare such ledger accounts as are deemed necessary (like subscription a/c).
- Work out depreciation charge for the fixed assets and treat them accordingly.
- Prepare trading account for supporting trading activities undertaken by the non-trading organization.
- Draft the income and expenditure account and balance sheet.
Solved Problem 1
Karachi Golf Club prepared the following Receipts and Payments Account for the year ended December 31, 2007
| Receipts | Amount Rupees | Payments | Amount Rupees |
| Opening balance b/f Subscription 2006 2007 2008 Entrance fees (capital receipts) Interest on Investment | 3,800 2,000 18,500 900 800 1500 27,500 | Sports Equipments (purchased on 1.9.2007) Tournament expenses Electricity Printing Salaries and wages Expenses for exhibition Closing Balance c/f | 10,000 4,000 500 300 3,400 2,100 7,200 27,500 |
Additional information:
1. Non-current assets of the club on January 1, 2007 include the following:
| Rupees | |
| Club Ground | 50,000 |
| Sports Equipment | 15,500 |
| Furniture | 2,000 |
| Investment | 12,000 |
- Subscription for 2007 collected in 2006 Rs. 500
- Unpaid subscriptions for 2007 Rs. 300
- Depreciation to be provided @ 5% p.a. on furniture and @ 20% p.a. on sports equipment.
Required: prepare Income statement and balance sheet for the year 2007.
Statement of Affairs
As on January 1, 2007 Assets Rs Club ground 50,000 Sports equipment 15,500 Furniture 2,000 Investments 12,000 Subscription due 2,000 Cash balance 3,800
85,300 Less Liabilities Subscription received in advance 500 Capital fund 84,800
Sports Equipment Account
| Date | Particulars | Amount Rupees | Date | Particulars | Amount Rupees |
| 1 Jan 2007 1 Sep 2007 | Opening balance Addition During the year | 15,500 10,000 | 31 Dec 2007 31 Dec 2007 | Depreciation Balance | 3,767 21,733 |
| 25,500 | 25,500 | ||||
Sports Equipment Rupees
Opening balance 15,500 Add Addition 1.9.2007 10,000
25,500 Less Depreciation 15,500 x 20% 3,100
10,000 x 20% x 4/12 667 3,767 Net book value 21,733
Furniture
Opening balance 2,000 Add Addition 1.9.2007 0
2,000 Less Depreciation 2,000 x 5% 100
Net book value 1,900 Subscription Income
Subscriptions received during the year 21,400 Less Opening due 2,000 Add Closing due 300 Add Opening advance 500 Less Closing advance 900
19,300
Income & Expenditure Account For the year ended December 31, 2007
| Incomes Subscription Interest on Investment Expenses Tournament expenses Electricity Printing Salaries and wages Exhibition expenses Depreciation furniture Sports equipment | Rupees 19,300 1,500 4,000 500 300 3,400 2,100 100 3,767 | Rupees 20,800 14,167 6,633 |
Owner’s Equity
Opening capital xxx Add Net profit xxx Add Fresh capital xxx Less Drawings xxx Closing capital xxx
Capital Fund
Opening capital fund xxx Add Surplus xxx Add Capital receipts during the year xxx Closing capital fund xxx
Capital fund as on December 31, 2007 Rupees
Opening capital 84,800 Add Surplus 6,633 Add Capital receipts 800 Closing capital fund 92,233
Balance Sheet As on December 31, 2007
| Assets | Amount Rupees | Capital fund & Liabilities | Amount Rupees |
| Club building Sports equipment Furniture Investments Subscription due Cash | 50,000 21,733 1,900 12,000 300 7,200 | Capital fund Subscription received in advance | 92,233 900 |
| 93,133 | 93,133 |
Some of the non-profit organizations believe on self sufficiency. These types of organizations run a trading activity within the organization. These may include a canteen, a juice shop, a book shop, a tuck shop etc. Following is a solved problem that covers working for such trading activity.
Solved Problem 2
The following summary of the Cash Book has been prepared by the Treasure of a club.
| Receipts | Amount Rupees | Payment | Amount Rupees |
| Cash in hand & at bank on April 1, 2007 Member’s subscription Entrance fee Restaurant fee Games competition receipts Dues to secretary for petty expenses | 4,740 29,720 3,200 56,800 13,640 80 | Wages-Outdoor staff Restaurant purchases Rent-18 months June 30, 2008 Rates Secretary salary Lighting, Cleaning & Sanitary service Competition prizes Printing, postage & Sundries Fixed deposit in bank Balance | 13,380 50,400 7,500 2,200 3,120 7,700 4,000 6,000 8,000 5,880 |
| 108,180 | 108,180 |
On April 1, 2007, the club assets were: Furniture and Equipment Rs. 48,000; Restaurant stocks Rs. 2,600; Stock of prizes Rs. 800, and Rs 5,200 owed for supplies to the restaurant.
On March 31, 2008 the restaurant Stocks were Rs. 3,000 and prizes on hand were Rs. 500 while the club owed Rs. 5,600 for restaurant supplies. It was also found that member’s subscription unpaid on March 31, 2008, amounted to Rs. 1,000 and that the amount of Rs. 29,720 shown in cash book included Rs. 700 in respect of previous year and Rs. 400 paid in advance for the following year.
| Working for trading activity | Rupees |
| Supplies | |
| Cash paid | 50,400 |
| Less Opening due | 5,200 |
| Add Closing due | 5,600 |
| Supplies purchase expenses | 50,800 |
| Cost of goods sold | |
| Purchases of supplies | 50,800 |
| Add opening stock | 2,600 |
| Less closing stock | 3,000 |
| Cost of goods sold | 50,400 |
| Trading Account | |
| Sales | 56,800 |
| Less Cost of Goods Sold | 50,400 |
| 6,400 |
CLUB Income and Expenditure Account For the year ended 31.03.2008
| Expenditure | Rs. | Income | Rs. |
| To Wages – Outdoor staff To Rent To Rates To Secretary’s Salary To Lighting, cleaning and sanitary services To Competition prizes To Printing, postage and sundries To depreciation on Furniture & Equipment – 10% To Excess of Income over Expenditure | 13,380 5,000 2,200 3,120 7,700 4,300 6,000 4,800 3,160 | By Members’ subscriptions By Games competition receipts By Restaurant profit | 29,620 13,640 6,400 |
| 49,660 | 49,660 |
CLUB Balance Sheet As at 31.03.2008
| Liabilities | Rs. | Assets | Rs. |
| Capital Fund: Opening Balance 50,390 Add: Entrance Fees 3,200 Add: Excess of Income over Expenditure 3,160 Subscriptions received in advance Creditor for restaurant supply Due to secretary | 56,750 400 5,600 80 | Furniture & Equipment 48,000 Less: 10% Depreciation 4,800 Restaurant Stock Prizes in hand Fixed deposit with bank Cash in hand at bank Prepaid Rent (April to June 2008) Subscriptions outstanding | 43,200 3,000 500 8,000 5,880 1,250 1,000 |
| 62,830 | 62,830 |
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