Tag: financial accounting and reporting

Questions Related to financial accounting and reporting

'Subscriptions received in advance" pertaining to last year will be on _________ of the Subscription A/c prepared for the current year. 

  1. Debit side

  2. Credit side

  3. No where

  4. None of the above

Correct Option: B

Subscription is the amount that is paid by members of NPO every year. It is the primary source of income of NPO. It is generally paid every month. It is the amount paid by members to keep their membership alive. An advance receipt of subscription from a member is an income received in advance. It is liability for NPO. So it is recorded on credit side of Subscription Account. 

In case of a non profit organization rent of building is due but not yet received by it is considered as a/an ______________.

  1. Asset

  2. Liability

  3. Income

  4. Expenditure

Correct Option: A

When any kind of income is due and has to be received by company in future it is known as accrued income and this type of income is an asset for firm.

Rent for building is due and has to be received by company, so it is an accrued income. Thus, rent to be received is an asset. 

The amount or property received by a non-profit organization as stated by the will of a deceased person is commonly referred to as ______________.

  1. Donation

  2. Honorarium

  3. Legacy

  4. Endowment

Correct Option: C

Legacy is the amount received by a non-profit organisation when a person has mentioned about transferring his property value to such organisation on his or her death. Hence, on death of that person, his property will be taken by the non-profit organisation.

Which of the following is correct treatment of legacy received by non-profit organization ?

  1. It appears on the credit side of the income and expenditure account. It should be treated as revenue item as it is of recurring nature.

  2. It appears on the credit side of the receipts and payments account.It should be capitalized being an item of non recurring nature and should be shown on the asset side of the balance sheet

  3. It appears on the debit side of the receipts and payments account and on credit side of income and expenditure account.

  4. It appears on the debit side of the receipts and payments account. It should be capitalized being an item of non recurring nature and should be shown on the liability side of the balance sheet

Correct Option: D
Legacy : Legacy represents the amount or property received by organization under a will on death of the contributors. In other words we can say that legacies are the donations made by a person in his will, so their donation are called legacy.
(i)  Legacies received for a specific purpose must be capitalized in the name of concerned fund for which it is received.
(ii) Legacies received not for any specific fund/general may be added to the capital fund.

Surplus revealed by income and expenditure account ___________________.

  1. is shown as deduction in accumulated fund at the balance sheet

  2. is transferred to an account called capital fund

  3. distrusted among the members of the non-profit organization

  4. must be donated to other non-profit organization.

Correct Option: B
The following are the features of income and expenditure account:
It is prepared on an accrual basis.
It records all cash and non-cash expenses and incomes, which are revenue nature.
It is debited with the expenses and losses and credited with incomes and gains.
The closing balance of income and expenditure account either surplus or deficit is transferred to the capital fund in the balance sheet

The balance sheet of a non-profit organization such as a charitable hospital doesn't contain the _____________.

  1. Assets

  2. Building

  3. Debts

  4. Owner's equity

Correct Option: D

When the balance sheet is prepared for any company set up to earn profit, the owner's equity is mentioned because it is funded by the owner to start the business.

Similarly, a non-profit organisation is not there for any kind of business and thus it doesn't require funds and hence, owner's equity is not mentioned while preparing balance sheet.

It is the amount which a non-trading concern receives as per the will of a deceased person___________.

  1. Donations

  2. Life membership fees

  3. Legacy

  4. Specific donation

Correct Option: C

Legacy is an amount of property or money left to someone in a will.  It refers to property received by virtue of a will of a deceased person. Acquisition of such property by an institution is a capital receipt because these are not received on a regular basis. Hence, it will not appear in income and expenditure account. It is shown in liabilities side of balance sheet. 

Following details are available for Saturn social club. Opening balance of capital fund Rs. 4,67,600 Donation capitalized during the year Rs. 12,500 Surplus in Income & Expenditure A/c Rs. 18,750. Closing balance at capital fund must be ___________.

  1. 4,98,850

  2. 4,73,250

  3. 40,750

  4. 4,35,750

Correct Option: A

Closing balance for the capital fund can be calculated using the formula given below:

$Closing\quad balance=\quad Opening\quad balance+Capitalised\quad value+Surplus$
Substitute values in the above equation
$Closing\quad balance=\quad Rs4,67,600+Rs18,750+Rs12,500\quad =Rs4,98,850$
Thus, the closing balance of capital fund is $Rs4,98.850$.

Absorption of production overhead costs on a marginal cost basis is unacceptable:

  1. As a cost control mechanism.

  2. As a decision making aid.

  3. For stock valuation in compliance with SSAP 9.

  4. For profit measurement in monthly management accounts.

Correct Option: C

Absorption costing is a technique whereby each unit of output is charged with both fixed and variable production costs. The fixed production costs are treated as part of the actual production cost. 

Stocks in accordance with SSAP 9 are therefore valued on a full production cost basis and held within the balance sheet until the stocks are sold, rather than charged to profit & loss account in the period in which the costs of the of the stocks are incurred.

Deficit as per Income and Expenditure Account is given effect as______________.

  1. Added to capital fund

  2. Deducted from capital fund

  3. Added to liabilities

  4. Deducted from liabilties

Correct Option: B

The deficit as per Income and Expenditure Account is deducted from capital fund. Capital fund is the excess over assets over liabilities. Any addition or reduction in the fund is adjusted through the capital fund account.