Question

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 31.3.2007 and its Balance Sheet as on 31.3.2007

$\begin{array}{ccc}& & \\ & & \left(Rs\right)\\ \text{(a)}& \text{Donation received during the year for the construction}& \\ & \text{of a permanent pavilion}& 12,25,000\\ & \text{Expenditure incurred up to 31.3.2007 on its construction}& 10,80,000\\ & \text{The Total estimated expenditure on construction}& \\ & \text{of Pavilion being}& 25,00,000\\ \text{(b)}& \text{Tournament Fund}& \\ & \text{Balance as on 1.4.2006}& 10,700\\ & \text{Subscriptions for tournament received during the year}& 65,800\\ & \text{Expenditure incurred during the year on}& \\ & \text{conducting tournaments}& 72,400\\ \left(c\right)& \text{Life Membership fee received during the year}& 28,000\end{array}$

Give reasons for your answers.

Answer 1

(a)

Reason:
(i) Donation for construction of a Pavilion is a donation for a specific purpose.
(ii) Expenses on construction on the 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:
Life Membership Fees are considered as capital receipts and are shown on the Liabilities side of the Balance Sheet, if nothing is specified about its treatment. But if it is to be treated as a revenue item, then it is shown on the credit side of the Income and Expenditure Account.