Question

Show how you would deal with the following items while preparing the Income & Expenditure Account for the year ending on 31st March 2017 and a Balance Sheet as at that date in each of the following alternative cases:

Case (i) Prizes awarded Rs 5,000.

Case (ii) Prizes awarded Rs 5,000; Prize Fund as on 31st March 2016 Rs 40,000; Donations for prizes received during the year 2016-17 Rs 7,200.

Case (iii) Prizes awarded Rs 5,000; Prize Fund as on 31st March 2016 Rs 40,000; Donations for prizes received during the year 2016-17 Rs 7,200; 9% Prize Fund Investments as on 31st March 2016 Rs 40,000; Interest received on Prize Fund Investments Rs 2,700.

Answer 1

Case (i) Income and Expenditure Account
for the year ended 31st March, 2017
Dr. Cr.
$\begin{array}{cccc}\text{Expenditure}& \text{Rs}& \text{Income}& \text{Rs}\\ \text{Prizes awarded}& 5,000& & \end{array}$

Prizes awarded are taken to income & expenditure account because there does not exist a prize fund.

Case (ii) Balance Sheet
as at 31st March, 2017
$\begin{array}{ccccc}\text{Liabilities}& & \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Prize Fund :}& & & & \\ \text{Opening Balance}& 40,000& & & \\ \text{Add : Donations received}& \underset{–}{7,200}& & & \\ & 47,200& & & \\ \text{Less : Prizes awarded}& \underset{–}{5,000}& 42,200& & \end{array}$

Case (iii) Balance Sheet
as at 31st March, 2017
$\begin{array}{ccccc}\text{Liabilities}& & \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Prize Fund :}& & & 9\%\text{Prize Fund Investments}& 40,000\\ \text{Opening Balance}& 40,000& & \text{Interest accrued on}9\%\text{Prize Fund}& \\ \text{Add : Donations Received}& 7,200& & {\text{Investments}}^{\left(1\right)}& 900\\ \text{Add : Interest on prize fund}& & & & \\ \text{investments (Rs 2,700 +}& & & & \\ \text{Rs 900)}& \underset{–}{3,600}& & & \\ & 50,800& & & \\ \text{Less : Prizes awarded}& \underset{–}{5,000}& 45,800& & \end{array}$

Note :

$\begin{array}{cc}\text{(1) Total Interest on Prize Fund Investments of Rs 40,000}@9\%\text{p.a}& 3,600\\ \text{Less : Received during the year}& \underset{–}{2,700}\\ \text{Accrued Interest}& \underset{–}{900}\end{array}$