Question

Which of the following is correct treatment of life membership fees received by non-profit organization ?

• A. The amount received may be taken as capital receipt and credited to Life membership account which will be shown on the liabilities side of the balance sheet. On death of the member his contribution is transferred to capital fund.
• B. The amount received may be credited to life membership account from which an amount equal to the normal annual subscription is transferred to income and expenditure ac-count and the balance is carried forward till it exhausted-Incase of death of a member, E the balance, if any, in the life membership account may be transferred to capital fund 5 amount.
• C. The amount received may be credited to life membership account. Thereafter an amount calculated on the basis of the average life of the member is transferred annually to income and expenditure account and the balance is shown on the balance sheet.
• D. Any of the above

Answer 1

The correct option is A The amount received may be taken as capital receipt and credited to Life membership account which will be shown on the liabilities side of the balance sheet. On death of the member his contribution is transferred to capital fund.

Some organisations provide its members an option to pay a lump sum amount to become members for the whole life. As this is received only once it is taken as capital receipt and credited to a separate fund known as Life membership account. Each year a fixed proportion of this amount is credited to Income and Expenditure Account. If a member who has paid life membership fee dies before transfer of whole amount to Income and Expenditure account, the balance is transferred to capital fund account on the date of death.