Question

Following Receipt and Payment Account was prepared from the cash book of Delhi Charitable Trust for the year ending December 31, 2007

Receipt and Payment Account for the year ending December 31, 2007
Receipts	Amount Rs	Payments	Amount Rs
Balance b/d		Charity	11,500
Cash in Hand	11,500	Rent and taxes	3,200
Cash at Bank	12,600	Salary	6,000
Donation	9,000	Printing	600
Subscription	42,800	Postage	300
Legacies	18,000	Advertisements	4,500
Interest on investment	4,500	Insurances	2,000
Sale of old newspapers	200	Furniture	21,600
		Investment	23,000
		Balance c/d:
		Cash in Hand	9,900
		Cash at Bank	16,000
	98,600		98,600

Prepare Income and expenditure account for the year ended December 31, 2006, and a balance sheet as on that date after the following adjustments:

(a)	It was decided to treat one-third of the amount received on account of donation as income.
(b)	Insurance premium was paid in advance for three months.
(c)	Interest on investment Rs1,100 accrued was not received.
(d)	Rent Rs600: salary Rs900 and advertisement expenses Rs1,000 outstanding as on December 31, 2007.

Answer 1

Books of Delhi Charitable Trust Income and Expenditure Account as on December 31, 2007
Dr.			Cr.
Expenditure		Amount Rs		Income		Amount Rs
Insurance	2,000			Donation {9,000 × (1/3)}		3,000
Less: Prepaid {2,000 × (3/15)}	(400)	1,600		Interest on Investments	4,500
				Add: Accrued Interest	1,100	5,600
Charity		11,500
Rent and Taxes	3,200			Subscription		42,800
Add: Outstanding	600	3,800		Sale of Old Newspapers		200
Salary	6,000
Add: Outstanding	900	6,900
Printing		600
Postage		300
Advertisements	4,500
Add: Outstanding	1,000	5,500
Surplus (Balancing figure)		21,400
		51,600				51,600

Balance Sheet as on December 31, 2007
Liabilities	Amount Rs	Assets	Amount Rs
Capital Fund (Balancing figure)	24,100	Cash in Hand	11,500
		Cash at Bank	12,600
	24,100		24,100

Balance Sheet as on December 31, 2007
Liabilities		Amount Rs	Assets		Amount Rs
Capital Fund	24,100		Prepaid Insurance {2,000 × (3/15)}		400
Add: Donation {9,000 × (2/3)	6,000		Investment	23,000
Add: Legacies	18,000		Add: Accrued Interest	1,100	24,100
Add: Surplus	21,400	69,500	Furniture		21,600
Rent Outstanding		600	Cash in Hand		9,900
Salary Outstanding		900	Cash at Bank		16,000
Advertisement Expenses Outstanding		1,000
		72,000			72,000

Note:

1. As per the solution, Surplus and the total of the Closing Balance Sheet are Rs 21,400 and Rs 72,000 respectively; however as per the answer given in the book is Rs 21,500 and Rs 72,100. Thus, in order to match the answer with that of the book, Rent paid of Rs 2,000 is assumed for 12 months instead of 15 months.

2. The question asks us to prepare Income and Expenditure Account for the year ended December 31, 2006; however, the solution has been prepared according to the date of Receipt and Payment Account which is December 31, 2007.