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Question

Show the treatment of items of Income and Expenditure Account when there is a specific fund for those items.


Solution

In case of an NPO there may be a variety of receipts out of these some receipts are for specific purpose and some are for general purpose. Receipts which are for specific purpose can be utilised for specific purpose only and the other receipts can be used for any purpose. e.g., if donation is received for tournament. then this donation is a specific donation and thereby can only be used for organising the tournament. That's why specific receipts are not considered as revenue income for the NPO and hence are not shown in the Income and Expenditure Account.

In fact, such receipts are considered as liabilities to the NPO as these amounts are received for specific purpose and cannot be used for any other purpose. Specific receipts are shown in the liabilities side of the Balance Sheet, until and unless they are fully set off against the purpose for which they are received. On the other hand if these amounts are invested outside the organisations (in the form of shares, debentures. etc.). then these are celled funds like, match funds, prize fund. etc.

The interest and income earned on such investments are not credited to the Income and Expenditure Account but in fact are credited to the respective Fund Account. Similarly, the expenses incurred for such funds are not debited to the Income and Expenditure Account but, in fact, are debited to the respective Fund Account. These special funds are shown in the Liabilities side of the Balance Sheet. In case, if the related expenses exceed the related receipts of the fund, then only the difference is shown in the inane and Expenditure Account.
Treatment


Explanation (a) If the receipts exceed the expenses for specific purpose then the difference between the two is shown in the Liabilities side of the Balance Sheet.



Explanation (b) If the expenses exceed the receipts for the specific purpose then the difference between the two is shown in the Expenditure side of the Income and Expenditure Account.

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