01 Notes NPO WA For Hasan

CHAPTER-9 Accounting for Not-for-Profit Organisations
Syllabus Learning Outcomes Proficiency Testing levels

Ref. levels
Grid A Prepare financial statements for non-profit P2 (High) T2 (It could be tested
organizations. for Max 20 marks as
independent
question)
I HAVE COPIED THE DATA FROM THE BOOK. PLEASE DO NEXT TASK OF ARRANGING,
HIGHLIGHTING AND TABLE WORK.
AT A GLANCE
Not-for-Profit Organisations (NPOs) do not operate with a profit motive. However, they are also required
to keep proper records of incomes, expenses, assets, and liabilities to provide relevant information to
stakeholders.
The major sources of income of an NPO is donations / contributions, subscriptions, fee for services,
government funding, grants, etc. The revenue expenditures related to NPOs are quite similar to profit-
oriented organisations e.g. salaries, rent, electricity, repair, maintenance and depreciation etc. These
revenue items are presented in the statement of income and expenditure to determine the surplus or
deficit for the period.
The statement of financial position is also quite similar to as those of profit-oriented organisations
reflecting non-current assets, current assets, non-current liabilities and current liabilities. However, net
assets (i.e. equity) is presented using fund accounting instead of share capital and reserves.
Some small NPOs only maintain record of receipt and payments prepared on cash basis and includes both
capital items and revenue items for a period. Using additional information and receipt and payment
account, amounts for accrual based financial statements may be calculated or estimated.
As NPOs operations and objectives differ significantly from profit-oriented entities, ICAP has issued
‘Accounting Standard for NPOs’ to prescribe the detailed accounting guidance for general and specific
issues relevant to NPOs. This standard is compulsory for NPOs registered as companies as per SECP
directives and is recommended to be applied by other NPOs as well to provide relevant and reliable
information to donors and other stakeholders of NPOs.
The Accounting standard for NPOs requires use of fund accounting and provides detailed guidance on
revenue recognition of contributions received or receivable by an NPO.
1. NOT FOR PROFIT ORGANISATIONS
1.1 Introduction [ASNPO: 1.1]
Not-for-Profit Organisations (NPOs) are organisations, normally without transferable ownership interests,
organized and operated exclusively for social, educational, professional, religious, health, charitable or any
other not-for-profit purpose. An NPO's members, contributors and other resource providers do not, in such
capacity, receive any financial return or dividends directly from the NPO.
NPOs may be:
• companies formed under Section 42 of Companies Act, 2017;
• trusts formed under Trust Act, 1882;
• societies formed under the Societies Registration Act, 1860; or
• any other recognisable form of organisation giving value to the groups of people they administer
to.
The primary objective of a profit-oriented entity is to make profit and maximise shareholders’ wealth while
main objective of NPO is to provide its services effectively by achieving value for money. NPO applies or
intends to apply its profits (commonly referred to as surplus), if any, or other income in promoting its
objects, and prohibits the distribution of surplus to its members, sponsors, promoters, etc.
NPOs have income which they raise and costs which must be paid just like other organisations and
although profit is not their objective but they have to account for their income and costs. NPOs are
accountable for their effectiveness, economy and efficiency in utilising the funds.
Revenues of NPOs normally arise from donations, government grants and amount collected through
contributions, membership fees, fundraising, the sale of goods, the rendering of services or the use by
others of NPO resources yielding rent, interest, royalties or dividends.
Ch9 Waseem Akram, ACA 454

Some accounting rules are as relevant to NPOs as to profit-oriented entities, for example, requirements
relating to inventory, non-current assets and recognition of revenue. However, some areas might be
completely irrelevant, for example, earnings per share.
1.2 Different terminology
NPOs use different accounting and business terminology from profit-oriented entities.
Profit-oriented entities Not-for-Profit Organisations
Statement of comprehensive income Statement of income and expenditure
Net profit Excess of income over expenditure / Surplus
Net lossExcess of expenditure over income / Deficit
Equity / Share capital and equity reserves Net assets / Accumulated fund / Accumulated surplus /
Accumulated deficit / Fund balance
Statement of changes in equity Statement of changes in net assets
Specific reserve Restricted contribution / grant
Fee Subscription
Owners / Shareholders Trustees/ sponsors / donors
1.3 Accounting Standard for Not-for Profit Organisations [ASNPO: 1.3 & 1.4]
The Institute of Chartered Accountants of Pakistan (ICAP) issued the ‘Accounting Standard for Not-for-
Profit Organisations’ (hereinafter referred to as ‘ASNPO’) and as per Securities and Exchange Commission
of Pakistan’s (SECP) directives, ASNPO is applicable to associations not-for-profit registered under the
company law (e.g. Companies Act, 2017).
ASNPO is applicable to NPOs registered under the company law i.e. it is compulsory for such NPOs to
comply with requirements of ASNPO in addition to the requirements of applicable reporting framework
e.g. IFRSs. In case any requirement of ASNPO is/are inconsistent, the requirements of IFRSs shall prevail.
NPOs, other than companies, are also recommended to prepare financial statements in accordance with
ASNPO.
1.4 Recognition and measurement
1.4.1 Recognition criteria [ASNPO: 2.35, 2.38 & 2.40 to 2.45]
Recognition is the process of including an item in the financial statement of an organisation. The
recognition criteria under ASNPO are as follows:
■ the item has an appropriate basis of measurement and a reasonable estimate can be made of the
amount involved; and
■ for items involving obtaining economic benefits (i.e. assets), it is probable that such benefits will be
obtained.
■ for items involving giving up economic benefits (i.e. liabilities), it is probable that such benefits will
be given
up.
The recognition criteria provide general guidance on when an item is recognized in the financial
statements. Professional judgment is required to consider the specific circumstances to identify whether
any particular item is recognized or not.
Revenue Revenues are generally recognized when performance is achieved and reasonable
assurance regarding measurement and collectability of the consideration exists.
Unrestricted contributions Unrestricted contributions to NPO do not normally arise from the sale of
goods or the rendering of services and, consequently, performance achievement is generally not relevant to
the recognition of unrestricted contributions; such revenues are generally recognized when received or
receivable.
Restricted contributions Restricted contributions are recognized based on the nature of the related
restriction.
Gains Gains are generally recognized when realized.
Expenses and losses Expenses and losses are generally recognized when an expenditure or previously
recognized asset does not have future economic benefit. Expenses are related to a period on the basis of
transactions or events occurring in that period or by allocation applying the matching concept.
1.4.2 Measurement [ASNPO: 2.47 & 2.48]

Financial statements of NPOs are prepared primarily using the historical cost basis of measurement
whereby transactions and events are recognized in financial statements at the amount of cash or cash
equivalents paid or received or the fair value ascribed to them when they took place.

Financial statements are prepared with capital maintenance measured in financial terms and with no
adjustment being made for the effect on capital of a change in the general purchasing power of the
currency during the period.
1.5 Fund accounting [ASNPO: Definitions, 4.3, 4.16 & 4.19]
Fund accounting comprises the collective accounting procedures resulting in a self-balancing set of
accounts for each fund established by legal, contractual or voluntary actions of an NPO. Elements of a fund
can include assets, liabilities, net assets, revenues and expenses (and gains and losses, where appropriate).
Fund accounting involves an accounting segregation, although not necessarily a physical segregation, of
resources.
Net assets or fund balances may be internally or externally restricted. Internally restricted net assets or
fund balances are often referred to as reserves or appropriations.
Restrictions are stipulations imposed that specify how resources must be used. External restrictions are
imposed from outside the NPO, usually by the contributor of the resources. Internal restrictions are
imposed in a formal manner by the NPO itself, usually by resolution of the board of
directors/council/board of trustees.
An NPO that uses fund accounting in its financial statements should provide a brief description of the
purpose of each fund reported. There are two methods of fund accounting, deferral method (discussed
later in this chapter) and restricted fund method (not examinable). In practice, most companies use
deferral method.
The funds can be classified into following three categories:
Endowment fund An endowment fund is a self-balancing set of accounts which reports the accumulation of
endowment contributions. Only endowment contributions and investment income subject to restrictions
stipulating that it be added to the principal amount of the endowment fund would be reported as revenue
of the endowment fund.
Allocations of resources to the endowment fund that result from the imposition of internal restrictions are
recorded as inter-fund transfers.
Restricted fund A restricted fund is a self-balancing set of accounts the elements of which are restricted
or relate to the use of restricted resources. Only restricted contributions, other than endowment
contributions, and other externally restricted revenue would be reported as revenue in a restricted fund.
Allocations of resources that result from the imposition of internal restrictions are recorded as inter-fund
transfers to the restricted fund.
General fund / A general fund is a self-balancing set of accounts which reports all unrestricted revenue
unrestricted fund and restricted contributions for which no corresponding restricted fund is presented.
The fund balance represents net assets that are not subject to externally imposed restrictions.
► Example 01:
Consider the following independent circumstances:
a) A professional body of accountants (the NPO) sets-up a fund for financial support of deserving
students. For this purpose, Rs. 100 million have been allocated that will be invested and 80% of the
investment income shall be used for student support and 20% of investment income shall be added to fund
investments. The fund investments shall not be available for use by the NPO for its operations and the NPO
shall preserve the principal amount of fund.
b) A healthcare NPO has raised money through special marketing drive in which overseas
contributors deposited $100 each in its ‘Save a life fund’ account. The contributions shall be used for the
NPO’s routine operations which focuses on providing life-saving drugs to patients who cannot afford the
cost.
c) An educational NPO has set-up a fund for development of new school in nearby rural area. The
fund-raising drive has been successful as many people have contributed for the cause. The fund-raising
clearly stated that the funds so raised shall only be used for construction and operations of school at that
specific location.
Required: Identify the type of above funds.
► Answer:
a) Endowment fund
b) General fund
c) Restricted fund
2. INCOME OF NPOS
2.1 Categories of income
An NPO may have several categories of income to fund its operations, for example:
a) Fee for services;
b) Contributions and donations;
c) Membership fees /subscriptions;
d) Government funding;
e) Investment income;
f) Profit from running a coffee bar, a canteen or a shop; and
g) Fundraising events.
2.2 Fee for services
NPOs may charge fee for their service in order to supplement their funding. The fee is usually lower than
commercial charges for the same product or services. Examples include:
• A healthcare NPO charges Rs. 100 only for each consultation visit by a patient while commercial
hospitals are charging Rs. 1,500 per visit for similar services.
• An educational NPO is charging a fee of Rs. 500 per month per student to provide affordable
education in an under-privileged area.
2.3 Contribution/donations [ASNPO: Definitions & 6.2]
Contributions can come from many sources, including individuals, corporations, governments and other
NPOs. Contributions include contributions receivable that meet the criteria for recognition in the financial
statements.
A contribution is a non-reciprocal transfer to an NPO of cash or other assets or a non-reciprocal settlement
or cancellation of its liabilities.
Restrictions (explicit or implicit) on contributions may only be externally imposed. However, subsequently
internal restrictions may be imposed in a formal manner by the organization itself by directors / trustees.
2.3.1 Types of contribution [ASNPO: Definitions]
Restricted contribution A restricted contribution is a contribution subject to externally imposed
stipulations that specify the purpose for which the contributed asset is to be used.
Endowment contribution An endowment contribution is a type of restricted contribution subject to
externally imposed stipulations specifying that the resources contributed be maintained permanently,
although the constituent assets may change from time to time.
Unrestricted contribution An unrestricted contribution is a contribution that is neither a restricted
contribution nor an endowment contribution.
► Example 02:
Consider the following independent circumstances:
a) A healthcare NPO received Rs. 10 million from wealthy individuals subject to the condition that
this amount shall only be used for acquisition of land for construction of a hospital in a specific village.
b) A healthcare NPO received Rs. 25 million contribution from a wealthy individual in the year 20X2.
The sole purpose of the amount is to support the NPO’s general operations in the year 20X4 and 20X5.
c) An educational NPO received a plot of land from Mr. Salman subject to the condition that this land
shall only be used for construction of a primary education school to be run by that NPO. The fair value of
this plot of land is Rs. 12 million.
d) An educational NPO received a plot of land from Mr. Jamal subject to the condition that this land or
sale proceeds from its disposal shall only be used to achieve general objectives of that NPO. The fair value
of this plot of land is Rs. 15 million.
e) An educational NPO received Rs. 50 million from alumni donors subject to the condition that the
principal balance shall be invested as per specified investment policy and NPO cannot use the principal
balance to fund operations. However, the NPO can utilise the investment earnings to pay for things such as
academic programs or building new school facilities.
Required:
Identify the type of contributions in above circumstances.
► Answer:
a) Restricted contribution
b) Restricted contribution
c) Restricted contribution
d) Unrestricted contribution
e) Endowment contribution
5.3.2 Contributed materials and services [ASNPO: 6.15 to 6.17]
A contribution of materials and services (i.e. assets other than cash) would be measured at fair value only
when:
• the fair value can be reasonably estimated; and
• the materials and services are used in the normal course of the NPO's operations and would
otherwise have been purchased.
Often these contributions are not recorded because of record-keeping and valuation difficulties. For
example, it may be impractical to record the receipt of contributed services where the NPO depends
heavily on the use of volunteers to provide services. Where contributed materials and services meet the
criteria of fair value measurement, recording their value would provide useful information.
Contributed materials and services that are part of a constructed or developed capital asset (i.e. property,
plant and equipment) would be recognized at fair value.
5.3.3 Contribution receivable [ASNPO: 7.2, 7.4 & 7.5]
Contributions include contributions receivable that meet the criteria for recognition in the financial
statements. A contribution receivable should be recognized as an asset when it meets the following
criteria:
a) the amount to be received can be reasonably estimated; and
b) ultimate collection is reasonably assured.
In particular, recognition of pledge and bequest shall be recognised as follows:
a) A pledge is a promise to contribute cash or other assets to an NPO. Similar to any other
contribution receivable, an uncollected pledge would only be recognized:
• if it meets the above recognition criteria;
• there is reasonable assurance that the NPO will comply with conditions, if any, attached to the
contribution; and
• contribution is not dependant on any contingent event outside NPO’s control.
b) Bequests are often subject to considerable uncertainty surrounding both the timing of the receipt
and the amount that will actually be received. In many cases, the recognition criteria will not be satisfied
and the bequest will not be recognized until it is received.
2.3.4 Recognition of contribution revenue [ASNPO: 6.27 to 6.46]
Using the deferral method, the contributions and related income are recognised as follows:
Contribution / income Recognition
Endowment contributions Recognise as direct increases in net assets in the current period and
excluded from revenue. This is because endowment contributions will never be available to meet expenses
associated with the organization's service delivery activities.
Restricted contributions for expenses of current period Recognise as revenue in current period.
Restricted contributions for expenses of future periods Defer and recognise as revenue in the same
period(s) as the related expenses are recognised.
When the only restriction on a contribution is that it cannot be used until a particular future period, the
total amount of the contribution would be recognized as revenue in that future period, whether or not it
has been spent.
Restricted contributions for the purchase of capital assets In case of depreciable assets, defer and
recognise as revenue on the same basis as the depreciation/ amortisation expense related to the acquired
capital assets.
In case of non-depreciable assets, recognise as direct increase in net assets.
In order for a contribution to be accounted for as a contribution restricted for the purchase of a capital
asset, the contributor must specify the portion of the contribution that is to be used to purchase capital
assets. If the contributor does not so specify, then the contribution would be recognized as revenue when
spent for the particular purpose covered by the restriction, regardless of the fact that some of the
expenditures may relate to the purchase of capital assets.
Restricted contributions for the repayment of debt In case debt was incurred to fund expenses of
future periods, defer and recognise as revenue in same period(s) as the related expenses are recognised.
In case debt was incurred to fund the purchase of capital asset (depreciable), defer and recognise as
revenue on the same basis as the depreciation/amortisation expense related to the acquired capital assets.
In case debt was incurred to fund the purchase of capital asset (non-depreciable), recognise as direct
increase in net assets.
Otherwise, recognise as revenue in the current period.
Unrestricted contributions Recognise as revenue in the current period.
Deferred contributions balances should be presented in the statement of financial position outside net
assets as liability.
► Example 03:
Ali has been very successful in business. When he was a young man, he very much enjoyed playing cricket
and has very fond memories of his days at the village cricket club.
He has donated Rs. 1,000,000 to the club to fund the building of a new club house which is under
construction and expected to be completed by the end of next year.
Required: How the above amount of Rs. 1 million should be recognised in the books of village cricket club?
► Answer:
This is restricted contribution for construction of a capital asset.
Initially, this amount shall be recognised as deferred contribution and presented as liability.
Subsequently, this shall be recognised as revenue on the same basis depreciation expense is charged on the
building of new club house.
► Example 04:
A social club in a small town has managed to accumulate a significant balance on its accumulated fund over
the years.
Its board of trustees have decided that the club should establish a fund to contribute to the school fees of
children of high promise from the town. Parents of such children would apply to the club for a grant of Rs.
50,000. A total Rs. 1,500,000 is to be set aside for this purpose.
Required: How to account for the above when the amount is set-aside and subsequently when the amount
is actually paid?
► Answer:
This is not restricted contribution because there is no externally imposed stipulation rather an internal
restriction has been imposed by the NPO itself.
The transfer of Rs. 1,500,000 shall be presented in statement of changes in net assets (and not in the
statement of income and expenditure).
Debit General fund Rs. 1,500,000
Credit Special education fund Rs. 1,500,000
Subsequently, the amount paid will be recognised as reduction from the special fund.
Debit Special education fund Rs. 1,500,000
Credit Cash Rs. 1,500,000
► Example 05:
A member of cricket club donated Rs. 2 million for repayment of loan obtained by the club in order to
finance its general operations.
Required: How the above donation shall be recognised?
► Answer:
This is restricted contribution for repayment of debt. However, since the loan relates neither to expenses of
future periods nor to capital assets, the contribution shall be recognised as revenue in the current period.
2.4 Membership fee / subscription [ASNPO: 6.4]
Many NPOs receive membership fees / subscription that entitles the members of the NPO to services
provided by the NPO. At each year end there will usually be some members who have paid their
subscriptions in advance and some who are in arrears. These are both included as balances brought down
and carried down on a single subscription account. Cash received is credited to this account and the
balance on the account is transferred to statement of the income and expenditure (as income for the year).
Subscription account
Rs. Rs.
Balance b/d (members in arrears) X Balance b/d
(members who have prepaid) X
Income and expenditure X Cash X

Balance c/d
(members who have prepaid) X Balance c/d (members in arrears) X
X X
Balance b/d (members in arrears) X Balance b/d (members who have prepaid) X
► Example 06:
At 31 March 2016 a cricket club had membership subscriptions in arrears amounting to Rs. 48,000 and had
received Rs. 12,000 subscriptions in advance.
During the year to 31 March 2017 the club received Rs. 624,000 including 26 memberships for the year to
31 March 2018 at Rs. 1,200 per annum.
At 31 March 2017 16 members owed subscriptions of Rs. 1,200 each.
Required:
How the above transactions would be recorded in the subscription’s ledger account for the year to 31
March 2017?
► Answer:
Subscriptions 1
Rs. Rs.
b/d (arrears) 48,000 b/d (advance) 12,000 SPOTLIGHT
Income and expenditure 576,000 Cash 624,000
c/d (advance) [26 x 1,200] 31,200 c/d (arrears) [16 x 1,200] 19,200
655,200 655,200
b/d 19,200 b/d 31,200
The exam questions often include the write off of subscriptions from members who have stopped attending
the club. The bad debts expense is charged as expense in statement of income and expenditure and also
included in the subscriptions account to determine correct amount of subscription revenue to be
recognised in statement of income and expenditure.
► Example 07:
At 31 March 2016 a cricket club had membership subscriptions in arrears amounting to Rs. 48,000 and had
received Rs. 12,000 subscriptions in advance.
Half of the members who were in arrears at the end of the previous period still had not paid by 31 March
2017. It was decided to write these amounts off.
Required:
How the above transactions would be recorded in the subscription’s ledger account for the year to 31
March 2017?
► Answer:
Subscriptions
Rs. Rs.
b/d (arrears) 48,000 b/d (advance) 12,000
Income and expenditure 600,000 Cash 624,000
Bad debts [1/2 x 48,000] 24,000
c/d (advance) [26 x 1,200] 31,200 c/d (arrears) [16 x 1,200] 19,200
679,200 679,200
b/d 19,200 b/d 31,200
2.4.1 Joining fee and life membership fee

The following membership fees might be recognised over the several years during which the NPO is
expected to provide services to the respective members:
• Joining fee i.e. a sum of money that paid by member in order to become a member of the NPO.
• Life membership fee i.e. “once in a life” lump sum amount paid by a member in lieu of periodic
regular
subscription to the NPO.
However, in some circumstances, it may be appropriate to recognise joining fees or entrance fees in the
year in which those fees become due. Therefore, recognition of such fees involves a considerable degree of
judgment on the part of the NPO.
► Example 08:
Multan Book Reading Club (MBRC) is a newly established NPO. The members of MBRC can pay for
membership privileges by either paying Rs. 10,000 per annum or paying lump sum amount of Rs. 80,000
for life-time membership.
During the first month of operations, 20 members have opted for life-time membership.
The management of MBRC has estimated that on average a member will be using MBRC services for 10
years.
Required: Advise how MBRC should recognise the above life-membership fee in its financial statements
prepared at the end of Year 1.
► Answer:
The life-membership shall be recognised as income over the years MBRC is expected to provide services i.e.
10 years.
Therefore, Rs. 160,000 (i.e. 20 members x Rs. 80,000 / 10 years) shall be recognised in statement of
income and expenditure. The amount attributable to next year (i.e. Rs. 160,000) shall be presented as
current liability, while remaining amount of Rs. 1,280,000 (i.e. 20 members x Rs. 80,000 - 160,000 -
160,000) shall be presented as non-current liability.
2.4.2 Fee for service and/or contributions [ASNPO: 6.4]
Membership fees are considered fees for services when members receive services having a value
commensurate with fees paid. In other cases, membership fees may be in substance contributions.
An NPO would decide whether its membership fees are contributions or fees for services and account for
them accordingly on a consistent basis. Some membership fees have characteristics of both fees for
services and contributions. Such fees would be divided into the portion that relates to fees for services and
the portion that is in substance a contribution.
► Example 09:
ABC Golf Club is members only club providing its members with sports facilities in the grounds owned and
maintained by it against annual subscription fee.
At 30 June 20X2, the club had membership subscriptions in arrears amounting to Rs. 48,000,000 and had
received Rs. 12,000,000 in advance.
During the year to 30 June 20X3, the club received Rs. 650,000,000 from its members. This amount
includes:
• Rs. 26,000,000 received as donation from members (no conditions attached).
• Rs. 31,200,000 received for membership fee for the year to 30 June 20X4.
At 30 June 20X3, members owed Rs. 19,200,000 of subscriptions.
Half of the members who were in arrears at the end of the previous period still had not paid by 30 June
20X3. It was decided to write these amounts off.
Required:
How the revenue from above should be reported in financial statements of ABC Golf Club for the year
ended on 30 June 20X3?
► Answer:
The donation of Rs. 26 million received shall be recognised as contribution revenue separately from fee for
services to members.
The subscription income (i.e. fee for services) may be calculated as follows:
The subscription income may be reported in statement of income and expenditure at Rs. 600 million (gross
basis) or at Rs. 576 million (net of bad debts expense).
2.5 Government funding [ASNPO: 6.3 & 4.45 to 4.48]
Government funding provided to an NPO is considered to be a contribution. Certain types of government
funding are calculated and paid as if they were fees for services. However, because the services being
funded are provided to the NPO's community of service, and not directly to the government funder,
government funding is considered to be a contribution.
In case the NPO is required to provide goods and services directly to the government, the related
government funding shall be treated as fee for services.
► Example 10:
Mujahid Healthcare (MH) is a registered NPO. It has received government funding of Rs. 20 million for
which it has to provide vaccine (dosage and administration) for a viral disease to general public (8,000
dosages x Rs. 2,500 each) without taking any fee from them.
Required: Discuss the accounting treatment of above from perspective of MH.
► Answer:
The amount of Rs. 20 million is being calculated on dosage basis (i.e. 8,000 dosages x Rs. 2,500) which
might indicate that Rs. 20 million should be recognised as fee-for-services in statement of income and
expenditure.
However, since the service is not being provided to government but rather to MH’s community of service
(i.e. general public to whom they provide healthcare services), the government funding of Rs. 20 million
shall be considered as contribution.
Further, since the purpose of government funding is specified, it shall be considered as restricted
contribution.
The determination of whether to report the revenues and expenses on a gross or net basis depends on the
relative facts and circumstances and requires significant judgment.
► Example 11:
An NPO receives funding to undertake a specific research project. The NPO contracts at its own discretion
with a scientist to perform the research. The NPO would not have undertaken the research project had the
funds not been made available.
Required: Whether the funding revenue and cost of scientist’s services be presented on gross basis or net
basis?
► Answer:

Although the NPO would not have undertaken the research project without the availability of the funding,
the NPO acts as the principal in contracting with the scientist. It specifies the details of the research to be
carried out by the scientist and has discretion in selecting the scientist and in establishing the price to be
paid. Thus, the expenses incurred are obligations of the NPO. The funding revenue and cost of scientist
services should be presented on gross basis in statement of income and expenditure.
► Example 12:
An NPO receives funding (reimbursement) to undertake a specific research project from a textile company.
The NPO allocates an employee to textile company for the conduct of research. The NPO would be
reimbursed for all the costs related to that employee.
Required: Whether the reimbursement and employee-related costs be presented on gross basis or net
basis?
► Answer:
The NPO has an employee who is seconded to a textile company to work under their direction and the NPO
is reimbursed for all of the costs related to that employee. As the NPO is the employer, they would report
their employee-related costs as expenses and would report the reimbursement of their costs as revenues
on gross basis in statement of income and expenditure.
2.6 Investment income [ASNPO: 6.47 & 6.48]
Net investment income may be subject to externally imposed restrictions. In order to ensure the
appropriate reporting of restricted and unrestricted resources, an organization would account for net
investment income in the manner appropriate to the nature of any external restrictions imposed.
Net investment income (including revenue, gains or losses on investments) is recognised in the same way
contributions are recognised:
a) Externally restricted investment income that must be added to principal resources held for
endowment are recognised as direct increase or decrease in net assets.
b) Other externally restricted investment income is recognised according to the type of restrictions
(same criteria as for contributions discussed above).
c) In case there is no external restriction, recognise in the statement of income and expenditure.
2.7 Profit from running an operation
If a club has a coffee bar, canteen or shop the “profit” from these is generally calculated separately (in an
account known as a trading account) and presented as a line in the statement of income and expenditure.
Any expenses directly related to the operation of a coffee bar or shop would be deducted from the gross
profit of the operation and the net profit would be presented on a separate line in the statement of income
and expenditure.
Profit (loss) from running Coffee shop Rs.
Sales X
Cost of sales
Opening inventory X
Purchases X
Closing inventory (X)
(X)
Gross profit X
Coffee shop worker’s salary (and other relevant expenses) (X)
Profit (loss) X / (X)
2.8 Fundraising events [ASNPO: 4.45 & 4.49 to 4.52]

Many special events, such as dinners, galas, auctions, and walk-a-thons, are organized to raise
contributions to support the NPO’s activities. The participants of these events are offered something of
value (a meal, entertainment, interaction with a celebrity) for a sum.
The determination of whether to report the revenues and expenses on a gross or net basis depends on the
relative facts and circumstances and requires significant judgment.
► Example 13:
An NPO engages in a number of fundraising activities, including a fundraising telethon, a telephone
campaign, a direct mail campaign, special events and a lottery. The NPO uses an outside fundraising
consultant to conduct the telethon and uses the NPO's own staff and volunteers in the telethon and the
other activities. Funds solicited in each of the activities are raised in the name of the NPO.
Required: Whether the fundraised and related costs be presented on gross basis or net basis?
► Answer:
Even though the NPO uses an outside fundraising consultant to conduct the telethon, the NPO is the
principal in the relationship with the donors as the funds are raised in its name. The NPO has discretion in
selecting the outside fundraiser, in establishing the fees to be paid and in determining the specifications of
the telethon. The NPO also has the credit risk if donors to the telethon do not pay according to their pledge.
Thus, the NPO should recognize the gross amounts fundraised in each of the activities as revenue of the
NPO, and the total expenses of each activity, including the fees charged by any outside party, as expenses of
the NPO, separately.
► Example 14:
An NPO is actively engaged in helping communities in flood affected area. A group of students organised a
music concert, announcing that the net proceeds of the event shall be given to the NPO.
Required: Whether to report the revenue and costs of the event on gross basis or net basis?
► Answer:
The NPO is not the principal in the fundraising event as it was not involved in organizing the event and did
not bear any risks in connection with it. The amount received by the NPO is a donation from the organizers
of the event. Neither the gross revenues nor the gross expenses of the event are recognized in the NPO's
financial statements. The net proceeds received are recognized as a contribution. Disclosure of gross
revenues and expenses is not required.
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3. INVENTORIES AND NON-CURRENT ASSETS

3.1 Inventories [ASNPO: 5.3 & 5.4]
3.1.1 Contribution of materials
When an NPO recognizes contributions of materials and goods, the cost of inventories shall reflect the fair
value at the date of contribution.
3.1.2 To be distributed at no charge or for a nominal charge
An NPO shall measure inventories at the lower of cost and current replacement cost when they are held
for:
• distribution at no charge or for a nominal charge; or
• consumption in the production process of goods to be distributed at no charge or for a nominal
charge.
► Example 15:
Medicine-for-All is an NPO which provides medicine to communities living in underdeveloped areas at
nominal charge. It has following inventories:
Item Type Cost NRV* Replacement cost Fair value
Rupees
Panadol Received in kind Nil 6,000 26,000 28,000
Neubrol 24,000 4,000 24,500 25,000

Imodium Purchased for 12,000 3,000 12,000 12,500
Motilium cash 15,000 2,500 14,700 15,200
Rijix 18,000 3,500 18,300 17,900
*provided at nominal charge

Required: Calculate the amount of inventory that should be presented in the statement of financial position
of Medicine-for-All from above data.
► Answer:
Item Basis Rupees
Panadol Cost equal to fair value but replacement cost is lower 26,000
Neubrol Cost (lower) 24,000
Imodium Cost / replacement cost (equal) 12,000
Motilium Replacement cost (lower) 14,700
Rijix Cost (lower) 18,000
Total 94,700
3.2 Collections [ASNPO: Definitions, 10.2 to 10.4 & 8.8]

Collections are works of art, historical treasures or similar assets that are:
• held for public exhibition, education or research;
• protected, cared for and preserved; and
• subject to an organisational policy that requires any proceeds from their sale to be used to acquire
other items to be added to the collection or for the direct care of the existing collection.
Although items meeting the definition of a collection exhibit the characteristics of ‘assets’ they are excluded
from the definition of property, plant & equipment, and intangible assets. Collections are made up of items
that are often rare and unique. They have cultural and historical significance.
Although collections are usually held by museums or galleries, other NPOs may also have items that meet
the definition of a collection. For example, an NPO's library may include rare books which might be
considered to be a collection. The regular library materials, however, would not usually meet the definition
of a collection.
NPOs holding collections act as custodians for the public interest. They undertake to protect and preserve
the collection for public exhibition, education or research. The existence of a policy requiring that any
proceeds on the sale of collection items be used to acquire additional items or for the direct care of the
collection provides evidence of the NPO's commitment to act as custodian of the collection.
3.2.1 Capitalisation
The cost of capitalizing collections often would exceed the incremental benefit of the information gained,
especially for NPOs that have been in existence for several decades. Accordingly, although the
capitalization of collections is not precluded, it is not required.
3.2.2 Certain works of art and historical treasure not to be depreciated
Certain works of art and historical treasures may have lives that are so long as to be virtually unlimited.
Works of art and historical treasures in this category are those that have cultural, aesthetic, or historical
value that is worth preserving perpetually. In addition, the NPO must have the technological and financial
ability to continue to protect and preserve them. Works of art and historical treasures of this type would
not be depreciated.
3.3 Property, plant and equipment [ASNPO: Definitions, 8.3 to 8.9 & 8.12]
Tangible capital assets are identifiable tangible assets that meet all of the following criteria:
• are held for use in the provision of services, for administrative purposes, for production of goods or
for the maintenance, repair, development or construction of other tangible capital assets;
• have been acquired, constructed or developed with the intention of being used on a continuing
basis;
• are not intended for sale in the ordinary course of operations; and
• are not held as part of a collection.
3.3.1 Measurement for contributed assets
A contributed asset would be recognized at its fair value at the date of contribution. When an estimate of
fair value cannot reasonably be made, both the asset and the related contribution would be recognized at
nominal value to ensure monitoring and accountability.
A tangible capital asset purchased by an NPO at a value substantially below fair value would also be
recognized at its fair value with the difference between the consideration paid for the tangible capital asset
and fair value reported as a contribution.

A tangible moveable capital asset procured from a grant may be recognised at carrying amount deducting
the grant. The grant is recognised in profit or loss over the life of the depreciable asset as a reduced
depreciation expense. If it is a grant for a specified period and the asset has to be returned at the end of the
grant period, asset shall be valued at fair value less present value of the estimated residual amount at the
time of grant / contribution.
3.3.2 Construction or development over time
The cost of PPE includes direct construction or development costs (such as materials and labour) and
overhead costs directly attributable to the construction or development activity. PPE which is developed or
constructed by an NPO might include contributed materials or labour, which would be recognized at fair
3.3.3 Depreciation / amortisation (under fund accounting)
Land normally has an unlimited life and would not be depreciated.
When a fund accounting basis of reporting is used, the choice of the fund or funds to which depreciation
expense would be charged would be based on providing the most meaningful presentation.
3.3.4 Impairment and unamortised deferred contribution
When PPE no longer contribute to the NPO's ability to provide services, its carrying amount would be
written down to residual value, if any. A write-down would be necessary, for example, when the NPO no
longer plans to use the asset because it has been damaged or rendered obsolete.
When an asset's carrying amount is written down, a corresponding amount of any unamortized deferred
contributions related to the asset would be recognized as revenue, provided that all restrictions have been
complied with.
► Example 16:
Jameel Mahtab Dispensary, an NPO, had capital asset of furniture at carrying value of Rs. 600,000 and
related unamortised deferred contribution balance of Rs. 400,000 in statement of financial position. At that
date, the furniture was destroyed by fire completely and is now worth nothing.
Required: Prepare accounting entries for the above issue.
► Answer:
The capital asset has been fully impaired and needs to be written off completely.
Debit Impairment loss (I&E) Rs. 600,000
Credit PPE (furniture) Rs. 600,000
In order to ensure application of matching concept, the unamortised deferred contribution shall be
recognised as revenue.
Debit Deferred contribution Rs. 400,000
Credit Contribution revenue (I&E) Rs. 400,000
4. PREPARATION OF FINANCIAL STATEMENTS
4.1 General [ASNPO: 3.9]
The accounting and approach for preparation of financial statements of an NPO is similar to general-
purpose financial statements of other entities except for the issues specifically addressed in ASNPO.
Financial statements of NPO shall normally include:
• statement of financial position (or balance sheet)
• statement of income and expenditure
• statement of changes in net assets
• statement of cash flows.
Notes to financial statements and supporting schedules to which the financial statements are cross-
referenced are an integral part of such statements; the same does not apply to information set out in other
material attached to or submitted with financial statements.
4.2 Statement of financial position [ASNPO: 4.18 & 4.25]
Information about the NPO's liquidity is presented by classifying current assets separately from non-
current assets and current liabilities separately from non-current liabilities. Cash and other assets subject
to external restrictions limiting their use to beyond one year from the date of the statement of financial
position would be classified as non-current assets.
Under the deferral method of accounting for contributions:
• endowment contributions are accumulated in the net assets balance; and
• internally restricted balances are reflected as appropriations of unrestricted net assets; and
• externally restricted contributions are accumulated in the statement of financial position as
deferred contributions.
A format of statement of financial position of an NPO is given below:
Not-for-Profit Organisation
Statement of financial position as at 31 December 20X2
20X2 20X1
Non-current assets Rs. 000 Rs. 000
Capital assets (property, plant and equipment) 2,037 XX
Collections 80 XX
Investments 4,157 XX
6,274 XX
Current assets
Office supplies stock 55 XX
Prepaid expenses 58 XX
Subscription receivable 17 XX
Cash and cash equivalents 183 XX
313 XX
6,587 XXX

20X2 20X1
Fund balances / Net assets

General fund / Unrestricted net assets 2,939 XX
Net assets: restricted for endowments 208 XX
Net assets: internally restricted for special projects 340 XX
3,487 XX
Non-current liabilities
Deferred grants/contributions 1,800 XX
Loans 300 XX
2,100 XX
Current liabilities
Deferred grants/contributions 500 XX
Subscriptions received in advance 100 XX
Accrued expenses 400 XX r
1,000 XX
6,587 XX SPOTLIGHT
4.3 Statement of income and expenditure [ASNPO: 4.29, 13.9, 4.31 & 4.35]
Revenues and expenses should be recognized and presented at their gross amounts and this information
may be presented in the notes to the financial statements. NPO may classify expenses in the statement of
income and expenditure:
• by object (for example, salaries, rent, utilities);

• by function (for example, administrative, research, ancillary operations); or
• by program.
An NPO would classify its expenses in the manner that results in the most meaningful presentation in the
circumstances. Whether the NPO prepares its budgets by function or object would be a factor to consider in
deciding which method of expense classification would be most appropriate for the NPO's financial
statements.
The following approach is considered when attributing an expense among various operating functions:
• an expense that contributes directly to the output of one function is applied directly to that
function, for example, the cost of a staff member exclusively devoted to that function.
• an expense that contributes directly to the output of more than one function is attributed on a
reasonable and consistent basis to each function to which it applies (for example, the rent applicable to the
space used for more than one separately reported function, and the remuneration expense of an executive
director of a small health care NPO who, in addition to managing the NPO, provides direct health care
services to clients of that NPO).
The statement of income and expenditure should present:
• for each financial statement item, a total that includes all funds reported; and
• total excess or deficiency of revenues and gains over expenses and losses for the period.
A format of statement of income and expenditure of an NPO is given below:
Statement of income and expenditure for the year ended 31 December 20X2
20X2 20X1
Income Rs. 000 Rs. 000
Fee-for-services 5,300 XX
Government grants 1,200 XX
Contributions 170 XX
Fundraising events 300 XX
Profit from coffee bar / shop / canteen 50 XX
Investment income 31 XX
Other income 2 X
7,053 XXX
Expenditures
Salaries3,070 XX
Rent 1,320 XX
Office supplies used 610 XX
Utilities880 XX
Marketing and communications 422 XX
Amortisation of capital assets 153 XX
(6,455) (XXX)
Excess of income over expenditure i.e. surplus 598 XX
4.4 Statement of changes in net assets [ASNPO: 4.37, 4.38, 4.9 & 4.12]
The statement of changes in net assets is presented in the similar way a statement of changes in equity is
prepared i.e. showing the movements in net assets during the year.
The statement of changes in net assets may be referred to as ‘the statement of changes in fund balances’
when the NPO uses fund accounting in its financial statements.
Inter-fund transfers should be presented in the statement of changes in net assets. Allocations of revenues
and expenses between funds that are made when the NPO first recognizes the revenue or expense are not
considered to be transfers.
A format of statement of changes in net assets for an NPO is given below:
Statement of changes in net assets for the year ended 31 December 20X2
Unrestricted / General fund Endowment fund Special (internal) fund Total
Balance 1 January 2,386 150 315 2,851
Surplus 598 598
Endowment Contributions 20 20
Investment income 18 18
Transfer to special fund (25) 25 -
Transfer to endowment fund (20) 20 -
Balance 31 December 2,939 340 208 3,487
► Example 17:
The following information relates to Professional Sports Club (PSC), a Not-for-Profit Organisation.
Trial balance as at 30 June 20X4
Dr.
Rs. m Cr.
Rs. m
General fund (1 July 20X3) 1,147
Fund for Supporting the Young-Talent (1 July 20X3) 50
Fund for gymnasium and training centre (1 July 20X3) 115
Fund for franchise (1 July 20X3) 3
Long term assets (net) 428
Investments 1,204
Short term bank loan 17
Prepaid and accrued expenses 8 11
Cash at bank 43
Fee-for-services 340
Fundraising in various tournaments (net proceeds) 15
Contributions 494
Government funding 150
Investment income 144
Salaries403
Rent and utilities 354
Other expenses 46
2,486 2,486

Additional information:
i. Fund for Supporting the Young-Talent (SYT) has stipulations imposed that require resources
contributed to be maintained permanently. The above contribution received include Rs. 15 million
contribution related to SYT to be maintained permanently. The investment income of Rs. 144 million
includes Rs. 6 million that is externally restricted to be added to principal amount of resources for SYT to
be maintained permanently. There is no other restrictions on investment income. As part of agreement
with contributors of SYT, PSC is required to allocate Rs. 5 million from general fund to the SYT fund,
annually.
ii. Fund for gymnasium and training centre has stipulation imposed externally that it shall be used
exclusively for building a gymnasium and training centre in Nawabpur Town. The contribution received
include contributions of Rs. 14 million to acquire freehold land for the centre, however, no land has been
acquired yet.
iii. Last year, the trustees of PSC imposed stipulations to create a fund for acquiring a franchise in a
popular league and approved Rs. 3 million to be transferred this year as well.
iv. The contribution received also include Rs. 8 million to repay the loan that was obtained to pay
expenses incurred during the year.
v. The government funding was received to support PSC general operations for five years starting
from 1st January 20X4.
vi. Long term assets in the trial balance include freehold land of Rs. 20 million and collections of Rs. 8
million. These collections represent items of such historic value that is worth preserving perpetually and
PSC is committed to protect and preserve them as part of its organisation policy.
vii. Long term assets are depreciated at 20% reducing balance method. All the amortisation is
allocated to general operations.
Required: Prepare the following (under deferral method) for PSC:
• Statement of income and expenditure for the year ended 30 June 20X4.
• Statement of changes in net assets for the year ended 30 June 20X4.
• Statement of financial position as at 30 June 20X4.

Professional Sports Club
Statement of changes in net assets for the year ended 30 June 20X4
General fund Endowment fund (SYT) Franchise fund Total
Balance 1 July 20X3 1,147 50 3 1,200
Surplus 90 90
Endowment contributions 15 15
Endowment investment income 6 6
Transfer to franchise fund (3) 3 -
Transfer to endowment fund (5) 5 -
Balance 30 June 20X4 1,229 76 6 1,311
Professional Sports Club

Statement of financial position as at 30 June 20X4
Non-current assets Rs. m
Capital assets [428 - 8 - 80] 340
Collections 8
Investments 1,204
1,552
Current assets
Prepaid expenses 8
Cash at bank 43
51
1,603
General fund 1,229
Endowment fund: Supporting the young talent 76
Franchise fund (internal) 6
1,311
Deferred government funding [150 - 15 - 30] 105
Deferred contributions (gym etc) [115 + 14] 129
234
Current liabilities
Deferred government funding [150 / 5] 30

Short term bank loan 17
Accrued expenses 11
58
1,603
4.5 Receipt and payment account
Some small NPOs may not have enough resources to maintain proper double entry accounting records and,
therefore, record cash receipts and payments only in addition to some records of bills, accruals and
prepayments, etc.
When accounts are prepared on cash or disbursement basis rather than accrual basis of accounting, a
receipt and payment account is prepared and presented. This is simply a summary of cash receipts and
payments during the accounting period. It includes capital items, as well as revenue items.
Receipts and payments account
Rs. Rs.
Balance b/d X Donation to Dam Fund X
Subscriptions X Repairs X
Functions - ticket revenue X Telephone X
Sale of land X Extension of building X
Bank interest X Furniture X
Bequest X Electricity expenses X
Sundry income X Salary and wages X
Sundry expenses X
Balance c/d X
X X
Balance b/d X
A receipt and payment account gives far less information than a set of financial statements based on the
accruals concept. Therefore, some donors / government might require an NPO to present financial
statements on accrual basis, that are prepared using records available relating to receipts, payments and
other balances.
► Example 18:
The statement of financial position of Peshawar Business Club as at 31 December 2017 is shown as follows:
Cost Accumulated depreciation Carrying amount
Non-current assets: Rs.000 Rs.000 Rs.000
Furniture and fittings 40,000 10,000 30,000
Games equipment 20,000 7,200 12,800
Motor van 30,000 10,000 20,000
90,000 27,200 62,800
Current assets: Cash and bank balances 9,200

72,000
Financed by: Accumulated funds 72,000

The following transactions took place during the year 1 January 2018 to 31 December 2018:
Receipts Rs. 000
Subscriptions (10,000 members @ Rs. 1,600 each) 16,000
Donations 1,600
Sale of tickets for annual dinner 10,800
28,400
Payments
Electricity 4,000
Expenses for annual dinner 6,200
New games equipment 3,200
Cleaners’ wages2,080
Repairs and renewals 1,660
Motor van repairs 2,520
19,660
Further information:
• An electricity bill of Rs. 900,000 was owed at 31 December 2018.
• Depreciation should be calculated at 10% of cost of the assets.
Required: Prepare the statement of income and expenditure of Peshawar Business Club for the year ended
31 December 2018 and statement of financial position as at that date.
► Answer:
Statement of income and expenditure for the year ended 31 December 2018
Income Rs. 000
Subscription 16,000
Donations 1,600
Ticket sales for annual dinner 10,800
28,400
Expenditure
Electricity [4,000 + 900] 4,900
Expenses for annual dinner 6,200
Cleaners’ wages2,080
Repairs and renewals 1,660
Motor van repairs 2,520
Depreciation:
Fixture and fittings [40,000 x 10%] 4,000
Games equipment [(20,000 + 3,200) x 10%] 2,320
Motor van [30,000 x 10%] 3,000
(26,680)
Surplus 1,720

Statement of financial position as at 31 December 2018
Non-current assets Rs. 000
Fixture and fittings [30,000 - 4,000] 26,000
Games equipment [12,800 + 3,200 - 2,320]13,680
Motor van [20,000 - 3,000] 17,000
56,680
Current assets: Cash and bank balances [9,200 + 28,400 - 19,660] 17,940
74,620
Net assets (accumulated fund)
Opening balance 72,000
Surplus for the year 1,720
73,720
Current liabilities: Accrued electricity charges 900
74,620
► Example 19:
The following were the assets and liabilities of the Nawabshar Youth Movement at 30 April 2017.
The accountant’s receipts and payments account for the year to 30 April 2018 shows the following:
Receipts Rs. 000
Contributions received 500
Rent of hall 5,600
Members’ subscription 24,000
Sale of brochure 1,740
Sale of dance tickets 3,400
Sale of refreshments (coffee bar) 10,200
45,440

Payments
Repairs and maintenance 3,218
Salaries and wages 6,309
Gifts and charity 600
Dance event expenses 950
Refreshment supplies (coffee bar) 19,415
Sundry expenses 10,000
40,492
Further information:
i. Wages of Rs. 556,000 were due but unpaid at the year-end.
ii. Inventories of drinks at 30 April 2018 were Rs. 14,210,000
iii. Provide for depreciation on fixtures and fittings at Rs. 1,900,000
iv. Subscription due but not paid by members at 30 April 2018 was Rs. 1,900,000
Required: Prepare the club’s statement of income and expenditure for the year ended 30 April 2018 and
the statement of financial position as at that date.
► Answer:
Statement of income and expenditure for the year ended 30 April 2018
Income Rs. 000
Contributions 500
Fee for services (rent of hall) 5,600
Members’ subscription W1 30,800
Sales of brochures 1,740
Sale of dance tickets 3,400
Income from coffee bar (net) W2 7,315
49,355
Expenditure
Salaries and wages [6,309 + 556] 6,865
Gift and charity 600
Dance event expenses 950
Depreciation 1,900
(23,533)
Surplus 25,822

Statement of financial position as at 30 April 2018
Land 51,600
Fixtures and fittings [16,340 - 1,900] 14,440
66,040
Current assets
Inventory (refreshments) 14,210
Subscription receivable 1,900
Cash at bank [7,466 + 45,440 - 40,492] 12,414
28,524
94,564
Net assets (fund)

Opening balance W4 68,186
94,008
Current liabilities: accrued wages 556
94,564
W1:
Subscription
Rs. 000 Rs. 000
b/d 4,900
I&E (balancing) 30,800 Bank 24,000
c/d 1,900
30,800 30,800
W2:
Coffee bar operation Rs. 000
Sales 10,200
Cost of sales
Opening inventory 4,460
Purchases W3 12,635
Closing inventory (14,210)
(2,885)
Profit 7,315
W3:
Payables (refreshment)
Rs. 000 Rs. 000
Bank 19,415 b/d 6,780
c/d - Purchases (balancing) 12,635
19,415 19,415
W4:
Net assets (opening balance) Rs. 000
Assets [16,340 + 4,460 + 51,600 + 7,466] 79,866
Liabilities [4,900 + 6,780] (11,680)
68,186
► Example 20:
Following information relates to Sehat Club for the year ended 30 June 2015:
Receipts and payments account for the year ended 30 June 2015
Receipts Rupees Payments Rupees
Opening balance 15,000 Salaries63,500
Subscriptions 201,000 Rent 34,000
Entrance fees 63,000 Travelling expenses 1,500
Donations 38,000 Printing and stationery 1,000
Interest16,000 General charges2,500
Disposal of furniture 500 Periodicals 500

Investments 200,000
Closing balance 30,500
333,500 333,500
Statement of financial position as on 30 June 2014
Liabilities Rupees Assets Rupees
General Fund 172,500 Furniture - net 40,000
Liabilities: Rent 11,000 Sports equipment - net 20,000
Salaries17,500 Investments 100,000
Interest receivables 11,000
Bank balance 15,000
201,000 201,000
Other details for the year ended 30 June 2015 are as follows:
i. Furniture purchased on 1 July 2013 costing Rs. 4,000 was disposed of on 1 January 2015 at a scrap
value of Rs. 500.
ii. On 1 July 2014, furniture having written down value of Rs. 6,000 was traded-in with new furniture
having fair value of Rs. 6,700.
iii. Depreciation is charged on diminishing balance basis at 20% on furniture and 15% on sports
equipment.
iv. Sports equipment having fair value of Rs. 12,000 were received at year end as donation.
v. Entrance fee relates to year ended 30 June 2015 only.
Following amounts are receivable /outstanding as at 30 June 2015:
Rupees
Entrance fee receivable 3,000
Salaries outstanding 4,000
Rent outstanding 2,000
Required: Prepare the statement of income and expenditure of Sehat Club for the year ended 30 June 2015
and its statements of financial position on that date.
► Answer:
Statement of income and expenditure for the year ended 30 June 2015
Income Rupees
Entrance fee [63,000 + 3,000] 66,000
Donations 38,000
Investment income (interest) [16,000 - 11,000 last year] 5,000
Subscription W4 194,000
Gain on furniture exchange [6,700 - 6,000] 700
303,700
Expenditure
Travelling expenses 1,500
Printing and stationery 1,000
General charges2,500
Periodicals 500
Rent W1 25,000
SalariesW2 50,000
Loss on furniture disposal [500 - 2,880] 2,380
Depreciation on furniture W3 7,820
Depreciation on equipment [20,000 x 15%] 3,000
(93,700)
Surplus 210,000

Statement of financial position as at 30 June 2015
Non-current assets Rupees
Furniture W3 30,000
Sports equipment [20,000 - 3,000 + 12,000] 29,000
Investments [100,000 + 200,000] 300,000
359,000
Current assets
Subscription fee receivable 8,000
Entrance fee receivable 3,000
Bank 30,500
41,500
400,500
General fund
Surplus 210,000
382,500
Non-current liabilities: Deferred contribution 12,000
Current liabilities
Salaries payable 4,000
Rent payable 2,000
6,000
400,500
W1:
Rent payable
Rupees Rupees
Bank 34,000 b/d 11,000
c/d 2,000 I&E (balancing) 25,000
36,000 36,000
W2:
Salaries
Rupees Rupees
Bank 63,500 b/d 17,500
c/d 4,000 I&E (balancing) 50,000
67,500 67,500

W3:
Furniture (NBV)
Rupees Rupees
b/d 40,000 Disposal 2,880*
Exchange 6,700 Disposal (exchange) 6,000
Depreciation 7,820
c/d 30,000
46,700 46,700
W4:
Subscription
Rupees Rupees
b/d 15,000 Bank 201,000
I&E 194,000 c/d 8,000
209,000 209,000
5. COMPREHENSIVE EXAMPLES
► Example 21:
The treasurer of the Giltan Golf Club has prepared the following receipts and payments account for the year
ended 31 March 2016.
Rs.(000) Rs.(000)
Balance at 1 April 2015 682 Functions for fundraising 305
Subscriptions 2,930 Repairs 146
Functions for fundraising 367 Telephone 67
Sale of land 1,600 Extension of club house 600
Bank interest 60 Furniture 135

Bequest (legacy) 255 Heat and light 115
Sundry income 46 Salary and wages 2,066
Sundry expenses 104
Balance at 31 March 2016 2,402
5,940 5,940
i. Subscriptions received included Rs. 65,000 which had been in arrears at 31 March 2015 and Rs.
35,000 which had been paid for the year commencing 1 April 2016.
ii. Land sold had book value of Rs. 500,000.
iii. There are no conditions attached to bequest.
iv. Accrued expenses
31 March 2015 Rs. (000) 31 March 2016 Rs. (000)
Heat and light 32 40
Wages 12 14
Telephone 14 10
58 64
v. Depreciation is to be charged on the original cost of assets appearing in the books at 31 March
2016 as follows:
Buildings 5%
Fixtures and fittings 10%
Furniture 20%

vi. The following balances are from the club’s books at 31 March 2015:
Rs. 000
Land at cost 4,000
Buildings at cost 3,200
Buildings Accumulated depreciation 860
Fixtures and fittings at cost 470
Fixtures Accumulated depreciation 82
Furniture at cost 380
Furniture Accumulated depreciation 164
Subscriptions in arrears (including Rs. 15,000 irrecoverable - member had emigrated) 80
Subscriptions in advance 30
Required: Prepare statement of income and expenditure for the year ended 31 March 2016 and a
Statement of financial position as at that date supported by disclosure note on property, plant and
equipment.
► Answer:
Statement of income and expenditure for the year ended 31 March 2016
Income Rs. 000
Income from fundraising functions 367
Subscriptions W1 2,860
Bequest 255
Gain on disposal of land [1,600 - 500] 1,100
Bank interest 60
Sundry income 46
4,688
Expenditure
Fundraising expenses 305
Telephone expenses [67 - 14 + 10] 63
Heat and light expenses [115 - 32 + 40] 123
Salaries and wages [2,066 - 12 +14] 2,068
Bad debts 15
Repairs 146
Sundry expenses 104
Depreciation Note 1 340
(3,164)
Surplus 1,524

Statement of financial position as at 31 March 2016
Property, plant and equipment Note 1 6,839
Current assets: Bank 2,402

9,241
Net assets (fund)

Surplus 1,524
9,142
Current liabilities
Accruals 64
Subscription in advance35
99
9,241
Note 1: Property, plant and equipment

Land Building Fixtures Furniture Total
Cost Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
1 April 2015 4,000 3,200 470 380 8,050
Additions 600 135 735
Disposal (500) - (500)
31 March 2016 3,500 3,800 470 515 8,285
Accumulated dep.
1 April 2015 860 82 164 1,106
For the year 190 47 103 340
31 March 2016 - 1,050 129 267 1,446
Carrying amount 3,500 2,750 341 248 6,839
Depreciation rate - 5% 10% 20%
W1:
Subscriptions
Rs. 000 Rs. 000
b/d 80 b/d 30
35 Bad debts 15
2,975 2,975

W2:
Net assets (opening balance) Rs. 000
Assets [8,050 - 1,106 + 682 + 80] 7,706
Liabilities [58 + 30] (88)
7,618
► Example 22:
The following balances have been obtained from the books of Gulshan Cricket Club:
1 1 June 30, 2014 June 30, 2015
Building 6,024,000 6,438,150
Furniture 3,012,000 2,710,800

Books 1,129,500 1,246,950
Sports equipment 1,807,200 1,595,200
Investments - 436,000
Advance subscription 86,000 92,000
Prepaid expenses 122,000 176,000
Expenses payable 186,900 207,600
Subscriptions receivable 326,000 357,000
Cash 1,204,800 1,586,500
The following information is also available in respect of the year ended June 30, 2015:
(i) Depreciation for the year has been credited directly to the asset accounts. The rates of depreciation
are as follows:
Building 5%
Furniture and books 10%
Sports equipment 20%
(ii) The club had 600 members on June 30, 2015. No fresh members were admitted during the year but
10 members left the club on January 1, 2015. Subscription per member is Rs. 500 per month.
Required:
a) Summary of receipts and payments made during the year ended June 30, 2015.
b) Statement of income and expenditure for the year ended June 30, 2015.
► Answer:
Part (a)
Receipt and payment account
Receipts Rupees Payments Rupees
Opening balance 1,204,800 Additions to:
Subscriptions W4 3,605,000 Building W1 753,000
Books W2 256,000
Sports equipment W3 186,800
Investments 436,000
Expenses (balancing) 1,591,500
Balance c/d 1,586,500
4,809,800 4,809,800

Part (b)
Income Rupees
Subscription [600 x Rs. 6,000 + 10 x Rs. 6,000 x 6/12] 3,630,000
Expenditure
Depreciation building [6,438,150 x 5/95] 338,850
Depreciation furniture [2,710,800 x 10/90] 301,200
Depreciation books [1,246,950 x 10/90] 138,550
Depreciation sports equipment [1,595,200 x 20/80] 398,800
Expenses W5 1,558,200
(2,735,600)
Surplus 894,400
W1:
Buildings
Rupees Rupees
b/d 6,024,000 Depreciation (I&E) 338,850
Cash (additions) 753,000 c/d 6,438,150
6,777,000 6,777,000
W2:

Books
Rupees Rupees
1,385,500 1,385,500
W3:
Sports equipment
Rupees Rupees
1,994,000 1,994,000
W4:
Subscriptions
Rupees Rupees
b/d 326,000 b/d 86,000
I&E 3,630,000 Cash (balancing) 3,605,000
c/d 92,000 c/d 357,000
4,048,000 4,048,000

W5:
Expenses
Rupees Rupees
b/d 122,000 b/d 186,900
Cash (R&P) 1,591,500 I&E (balancing) 1,558,200
c/d 207,600 c/d 176,000
1,921,100 1,921,100
► Example 23:
You have agreed to take over the role of bookkeeper for the AB Sports and Social Club. The summarised
statement of financial position on 31 December 2014 as prepared by the previous bookkeeper contained
the following items:
The bank account summary for the year to 31 December 2015 contained the following items.
Receipts Rs.
Subscriptions 11,000
Sale of shop and cafe 20,000
Sale of sportswear 5,000
Hire of sportswear 3,000
Interest on deposit account 800
39,800

Payments Rs.
Rent and repairs of clubhouse 6,000
Heating oil 4,000
Sportswear 4,500
Grounds person salary 10,000
Shop and cafe purchases 9,000
Transfer to deposit account 6,000
39,500
You discover that the subscriptions due figure as at 31 December 2014 was arrived at as follows:
Rs.
Subscriptions unpaid for 2013 10
Subscriptions paid for 2015 40
Corresponding figures at 31 December 2015 are:

Rs.
Subscriptions paid for 2016 200
Subscriptions due for more than 12 months should be written off with effect from 1 January 2015.
Closing payables at 31 December 2015 are for:
Rs.
Shop and cafe inventories 800
Sportswear 450
Heating oil for clubhouse 200
Two thirds of the sportswear purchases made in 2015 had been added to inventory of new sportswear in
the figures given in the list of assets above, and one third had been added directly to the inventory of used
sportswear for hire.
Asset balances at 31 December 2015 include:
Rs.
Heating oil stock for club house 700
Shop and cafe inventories 5,000
New sportswear, for sale, at cost 4,000
Used sportswear, for hire, at valuation 1,000

Half of the resulting new sportswear for sale at cost at 31 December 2015 is actually over two years old.
You decide, with effect from 31 December 2015, to transfer these older items into the inventory of used
sportswear, at a valuation of 25% of their original cost.
No cash balances are held at 31 December 2014 or 31 December 2015. The equipment for the grounds
person is to be depreciated at 10% per annum, on cost.
Required:
Prepare the statement of income and expenditure and statement of financial position for the AB Sports and
Social Club for 2015.
► Answer:
Income Rupees
Shop and cafe profit W5 9,200
Sportswear sale profit W5 2,900
Sportswear hire profit W5 1,700
Interest on deposit 800
25,320
Expenditure
Rent and repairs 6,000
Grounds person salary 10,000
Bad debts 30
Heating oil consumed W1 4,500
Depreciation [5,000 x 10%] 500
Loss on inventory valuation W5 1,500
(22,530)
Surplus 2,790

Non-current assets Rupees
Equipment [1,500 - 500] 1,000
Current assets
Subscription receivable 90
Heating oil stock 700
Shop and cafe inventories 5,000
New sportswear stock [4,000 - 2,000] 2,000
Used sportswear stock [1,000 + 500] 1,500
Bank (current account) [1,000 + 39,800 - 39,500] 1,300
Bank (deposit account) [10,000 + 6,000] 16,000
(26,590)
27,590

Net assets (fund) Rupees
Surplus 2,790
25,940
Current liabilities
Shop and cafe payables 800
Sportswear payables 450
Payables for heating oil 200
1,650
27,590
W1:
Heating oil
Rupees Rupees
b/d 1,000
Bank 4,000 I&E (balancing) 4,500
c/d 200 c/d 700
5,200 5,200
W2:
Subscriptions
Rupees Rupees
b/d [10 + 230] 240 b/d 40
Bad debts [10 + 20] 30
c/d 200 c/d 90
11,160 11,160
W3:
Payable for shop and cafe

Rupees Rupees
Bank 9,000 b/d 1,000
c/d 800 Purchases (balancing) 8,800
9,800 9,800
W4:
Payable for sportswear

Rupees Rupees
Bank 4,500 b/d 300

c/d 450 Purchases (balancing) 4,650
4,950 4,950
New sportswear = Rs. 4,650 x 2/3 = Rs. 3,100 and Used sportwear = Rs. 4,650 x 1/3 = Rs. 1,550
W5: Trading and operations
Shop and Cafe Sale of sportwear Hire of sportswear
Rs. Rs. Rs.
Sales 20,000 5,000 3,000
Cost of sales
Opening inventory 7,000 3,000 750
Purchases W3, W4 8,800 3,100 1,550
Closing inventory (5,000) (4,000) (1,000)
(10,800) (2,100) (1,300)
Profit 9,200 2,900 1,700
Loss on inventory transfer from new sportwear to used sportswear:

Rs. 4,000 x % = Rs. 2,000 - transferred at 25% i.e. Rs. 500 = Loss Rs. 1,500
► Example 24:
The Monarch Sports Club has the following summary of its cash book for the year ended 30 June 2015:
1 Rs.
Opening bank balance 12,500
Receipts:
Subscriptions 18,000
Life membership fees 3,000
Competition receipts 7,500
Entrance fees 2,500
Equipment sold 1,000
32,000
Payments:
Transport to matches 3,700
Competition prizes 4,300
Coaching fees 2,100
Repairs to equipment 800
Purchase of new equipment 4,000
Purchase of sports pavilion 35,000
(49,900)
Closing balance (overdrawn) (5,400)
The following information is available regarding the position at the beginning and end of the accounting
year:
1 July 2014 30 June 2015
Rs. Rs.
Subscriptions in advance 1,100 900
Subscriptions in arrears200 300
Coaching fees outstanding 150 450

Of the subscriptions outstanding at the beginning of the year, only half were eventually received.
The equipment sold during the year had a net book value of Rs. 1,200 at 1 July 2014. Equipment is to be
depreciated at 20% per annum straight line. Life membership fees are recognised over 10 years. Entrance
fees are to be recognised in the current year.
Required: Prepare statement of income and expenditure for the Monarch Sports Club for the year ended 30
June 2015.
► Answer:
Income Rupees
Life membership fees [3,000 / 10 years] 300
Competition receipts 7,500
Entrance fees 2,500
28,700
Expenditure
Transportation to matches 3,700
Coaching fee W2 2,400
Competition prizes 4,300
Repairs to equipment 800
Bad debts 100
Loss on disposal [1,000 - 1,200] 200
Depreciation [4,000 x 20%] 800
(12,300)
Surplus 16,400
W1:
Subscriptions
Rupees Rupees
b/d 200 b/d 1,100
Bad debts 100
c/d 900 c/d 300
19,500 19,500
W2:
Coaching fee
Rupees Rupees
Bank 2,100 b/d 150
c/d 450 I&E (balancing) 2,400
2,550 2,550

► Example 25:
The LH Sports Club was established on 1 May 2014 having purchased premises for Rs. 80,000 and
furniture for Rs. 18,000, through a contribution from a member. The club secretary has produced the
following statement of income and expenditure for the year to 30 April 2015:
The statement of income and expenditure has been prepared after taking into account the following items
at 30 April 2015:
• cafe inventoriesRs. 1,400
• payables for cafe supplies Rs.1,320
• rates and insurances prepaid Rs. 2,280
The following items have not been taken into account:
• the equipment costs figure includes Rs. 4,000 for the purchase of equipment.
• depreciation is to be provided as follows:
at 2% on premises
at 10% on furniture
at 20% on equipment
• joining fees are to be spread over a five-year period
• the annual subscriptions figure includes Rs. 960 paid in advance by the members
• subscriptions outstanding at the end of the year, and expected to be collected, amount to Rs. 300.
• the bank balance at 30 April 2015 was Rs. 21,295.
Required:
a) Prepare revised and corrected statement of income and expenditure for the year ended 30 April
2015.
b) Prepare the statement of financial position at 30 April 2015.
► Answer:
Statement of income and expenditure for the year ended 30 April 2015
Income Rupees

Joining fees [17,800 / 5] 3,560
Annual subscription [12,000 - 960 + 300] 11,340
Cafe profits 8,450
Fundraising proceeds 830
Equipment hire receipts 1,750
25,930
Expenditure
Premises related expenses 10,990
Equipment related expenses [5,590 - 4,000] 1,590
Secretary’s expenses 470
Bank charges 125
Depreciation premises [80,000 x 2%] 1,600
Depreciation furniture [18,000 x 10%] 1,800
Depreciation equipment [4,000 x 20%] 800
(17,375)
Statement of financial position as at 30 April 2015

Premises [80,000 - 1,600] 78,400
Furniture [18,000 - 1,800] 16,200
Equipment [4,000 - 800] 3,200
97,800
Current assets
Inventory 1,400
Prepaid rates and insurance 2,280
Subscription receivable 300
Bank 21,295
25,275
123,075
Net assets (fund)

Opening balance [80,000 + 18,000] 98,000
106,555
Deferred joining fees [17,800 / 5 x 3 years] 10,680
Current liabilities
Deferred joining fees [17,800 / 5] 3,560
Payable for cafe supplies 1,320
5,840
123,075
► Example 26:
The accountant of Leisure Club was terminated on account of charges of fraud on 31 December 2016 and
Mr. Emad has been appointed in his place. Emad has gathered the following information in respect of the
year ended 31 December 2016:
i. The club has 3,300 members and the membership fee is Rs. 10,000 per annum. The fee payable by each
member becomes due on the first day of the quarter in which he became a member. The fee received in
each quarter was as follows:
QuarterFirst Second Third Fourth

Subscription received (Rs.) 9,900,000 8,250,000 5,500,000 9,350,000
Last year the fee was Rs. 9,000 per annum. However, the number of members was the same.
ii. A summary of the bank account for the year is shown below:
Deposits Rupees Withdrawals Rupees
Balance as at 1 Jan. 2016 3,700,500 Insurance 175,000
Cash deposited into bank 37,848,500 Rent and rates 4,200,000
Written off amount recovered 1,860,000 Utilities4,365,000
Disposal of fixed assets 750,000 Freehold land purchased 17,000,000
Membership fee received directly in bank account 19,800,000 Cash withdrawals 6,120,000
Payment to creditors 18,155,000
Exercise equipment 7,350,000
Balance as at 31 Dec. 2016 5,894,000
63,959,000 63,959,000

iii. Amounts paid from petty cash were as follows:
Rupees
Salaries2,300,000
iv. The club has a tuck shop which earns a profit margin of 20% of sales. All sales of tuck shop are
made on cash. During the year, stock costing Rs. 500,000 was destroyed by fire.
v. The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was purchased on 1
October 2016. Fixed assets having opening WDV of Rs. 800,000 were disposed of on 31 March 2016. Fixed
assets are depreciated @ 20% under the reducing balance method.
vi. The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000 respectively.
vii. The following balances have been extracted through a scrutiny of the available records:
2016 2015
Rupees
Creditors 3,330,000 2,500,000
Prepaid rent 175,000 168,000
Stock- tuck shop 2,500,000 2,300,000
Required:
a) Determine the amount of loss incurred by the club due to fraud committed by the previous
accountant.
b) Statement of income and expenditure for the year ended 31 December 2016.
c) Statement of financial position as at 31 December 2016.
► Answer:
Part (a)
Amount of loss due to fraud W2 Rs. 1,662,750
Part (b)
Income Rupees
Subscription income W1 31,817,500
Income from tuck-shop W6 4,571,250
Other income (recovery of write off) 1,860,000
38,248,750

Expenditure Rupees
Insurance 175,000
Utilities4,365,000
Repair and maintenance 700,000
Salaries2,300,000
Loss of inventory due to fire 500,000
Loss on disposal W4 10,000
Depreciation W4 5,847,500
Rent and rates W3 4,193,000
Loss due to fraud W2 1,662,750
(20,393,250)
Surplus 17,855,500

W1:
Subscriptions
Rupees Rupees
b/d 1.3 10,642,500
I&E (balancing) 31,817,500 Bank 19,800,000
c/d 1.2 11,825,000 Cash 1.1 13,200,000
43,642,500 43,642,500
1.1 Amount received

Rupees
Total received [9,900,000 + 8,250,000 + 5,500,000 + 9,350,000] 33,000,000
In bank 19,800,000
In cash 13,200,000
1.2 Closing unearned subscription

Rupees
Quarter 1 [9,900,000 x 0/12] 0

Quarter 2 [8,250,000 x 3/12] 2,062,500
Quarter 3 [5,500,000 x 6/12] 2,750,000 SPOTLIGHT
Quarter 4 [9,350,000 x 9/12] 7,012,500
11,825,000
1.3 Opening unearned subscription Rs. 11,825,000 x 9/10 = Rs. 10,642,500
W2:
Cash
Rupees Rupees
b/d 300,000 Salaries2,300,000
Subscription 13,200,000 Sundry expenses 640,000
Bank 6,120,000 Bank 37,848,500
Tuck shop receipts 22,856,250 Loss due to fraud (bal.) 1,662,750
c/d 25,000
42,476,250 42,476,250
W3:
Rent and rates

Rupees Rupees
b/d 168,000 I&E (balancing) 4,193,000
Bank 4,200,000 c/d 175,000
4,368,000 4,368,000

W4:
Fixed assets
Rupees Rupees
b/d 28,000,000 Disposal 760,000
Bank (land) 17,000,000 Depreciation 5,847,500
Bank (equipment) 7,350,000 c/d 45,742,500

52,350,000 52,350,000
4.1 Disposal
Rupees
Sale proceeds 750,000
Opening WDV 800,000

Depreciation [800,000 x 20% x 3/12](40,000)
(760,000)
Loss (10,000)
4.2 Depreciation for the year

Rupees
On disposed assets 4.2 40,000
On other opening assets[(28,000,000 - 800,000) x 20%] 5,440,000
On additions [7,350,000 x 20% x 3/12] 367,500
5,847,500
W5:
Creditors
Rupees Rupees
Bank 18,155,000 b/d 2,500,000
c/d 3,330,000 Purchases 18,985,000
21,485,000 21,485,000
W6: Tuck shop operations

Rupees
Sales [18,285,000 / 80%] 22,856,250
Cost of sales
Opening stock 2,300,000
Purchases [18,985,000 - 500,000 loss] 18,485,000
Closing stock (2,500,000)
(18,285,000)
Profit 4,571,250

W7:
Net assets (opening balance) Rupees
Assets [28,000,000 + 2,300,000 + 168,000 + 3,700,500 + 300,000] 34,468,500
Liabilities [2,500,000 + 10,642,500] (13,142,500)
21,326,000
► Example 27:
Seaview Club started its operations on 1 February 2015. Sponsor of the club contributed Rs. 50 million
towards general fund for the start of operations and placed the amount in the bank. Following is the
receipts and payments summary for the period from 1 February 2015 to 31 December 2015:
Receipts Rs. in ‘000 Payments Rs. in ‘000
Sponsor’s contribution 50,000 Furniture & fixtures 1,200
Joining fees 20,800 Van 1,500
Subscription from members 29,952 Salaries1,000
Sale of beverages 1,500 Rent 3,600
Utilities570
Insurance 120
Repairs and maintenance 275

Purchase of beverages 1,367
Advance for plot of land 65,000
Balance27,620
102,252 102,252
i. The joining fee for award of membership is Rs. 50,000. Annual subscription is Rs. 24,000. All new
members pay three years’ subscription in advance.
The memberships were awarded as follows:
Month March June September December
No. of members 112 98 101 105
ii. The club sells beverages at a gross profit margin of 20%. All sales are billed in the first
week of the next month and the payment is received in the same month. Sale of beverages during
December 2015 amounted to Rs. 150,000.
iii. 25% of total purchases of beverages made during the year remained unsold at year-end.
iv. Salaries are paid on the first day of next month. The amount of salaries includes an
advance amounting to Rs. 10,000 paid to an employee on 1 December 2015. The advance is repayable on 1
February 2016.
v. Rent for three years was paid in advance on 1 February 2015.
vi. Presently the club is operating on rental premises. However, a plot of land has been purchased on
which construction would commence shortly. Title of land would be transferred after completion of legal
formalities.
vii. Payments for utilities include security deposit paid to utility companies amounting to Rs. 20,000.
Utility bills are paid on the 7th day of the next month.
viii. Insurance premium was paid on 1 February 2015 covering a period of 12 months.
ix. Repairs and maintenance include an advance of Rs. 100,000 paid to a contractor for construction of
a parking shed. Repair bills amounting to Rs. 7,000 were outstanding at year- end.
x. Furniture & fixtures and van were purchased on 1 February 2015. Depreciation on these assets is
to be charged at 10% and 20% respectively.
Required:
Prepare statement of financial position as at 31 December 2015 and statement of income & expenditure of
Seaview Club for the period ended31 December 2015.
► Answer:
Statement of income and expenditure for the period ended 31 December 2015
Income Rs. 000
Joining fee 20,800
Subscription income W1 4,630
Profit from beverages W2 330
25,760
Expenditure
Salaries and wages [1,000 - 10 + 99 ] 1,089
Rent [3,600 / 3 x 11/12] 1,100
Utilities[570 - 20 + 55] 605
Insurance [120 - 10] 110
Repair and maintenance [275 - 100 + 7] 182
Depreciation (F&F) [1,200 x 10% x 11/12] 110
Depreciation (van) [1,500 x 20% x 11/12] 275
(3,471)
Surplus 22,289

Furniture and fixture [1,200 - 110] 1,090
Van [1,500 - 275] 1,225
Advance for land 65,000
Prepaid rent [3,600 - 1,100 - 1,200] 1,300
Security deposit 20
Advance for parking shed 100
68,735

Current assets Rs. 000
Stock W2 440
Prepaid rent [3,600 / 3] 1,200
Prepaid insurance [120 x 1/12] 10
Advance salaries 10
Receivable for beverages 150
Bank 27,620
29,430
98,165
Net assets (fund) Rs. 000

Sponsor’s contribution 50,000
Surplus 22,289
72,289
Subscription in advanceW1 15,338
Current liabilities

Salaries payable [990 / 10 months] 99
Utilities payable [550 / 10 months] 55
Repairs payable7
Payable for beverages W3 393
10,538
98,165
W1: Subscription income

Subscription for 3 years is Rs. 72,000 so subscription for 1 year is Rs. 24,000 or Rs. 2,000 per month.
No. of members No. of months Monthly Rs. 000 Subscription Rs. 000
Total received 416 36 2 29,952
Recognised in I&E
From march 112 10 2 2,240
From June 98 7 2 1,372
From September 101 4 2 808
From December 105 1 2 210
4,630
Current liability416 12 2 9,984
Non-current liability [29,952 - 4,630 - 9,984] 15,338
CZ>
TJ
O
Rs. 000
Sales [1,500 + 150] 1,650
Cost of sales
Opening stock -
Purchases [1,320 / 75 x 100] 1,760
Closing stock [1,320 / 75 x 25] (440)
[1,650 / 100 x 80] (1,320)
Profit 330

W2: Profit from sale of beverages
W3:
Rs. 000 Rs. 000
Bank 1,367 b/d 0
c/d 393 Purchases W2 1,760
1,760 1,760
Payable for beverages

► Example 28:
Debit Credit
---- Rs. in million ----
Burns ward - capital work in progress 55.3
Cafeteria sales 24.4
Cash and bank balances 8.4
Donations for burns ward (externally restricted) 75.1
Expenses and gifts for ‘walk on diabetes day’ 2.6
Fees from patients 125.0
Donations (unrestricted) 82.6
General fund 195.6
Inventory - cafeteria 4.7
Inventory - medicines 19.4
Inventory - hospital supplies 8.5
Medical equipment 185.4 64.2
Miscellaneous expenses 8.5
Other fixed assets 110.7 54.7
Payables 38.9
Purchases - cafeteria 16.4
Purchases - medicines 60.5
Purchases - hospital supplies 18.7
Receivables - panel corporates 31.4
Rent 19.6
Sponsorship for ‘walk on diabetes day’ 2.2
Salaries - administrative staff 24.0
Salaries - doctors and nursing staff 38.2
Short term investments 38.0
Utilities12.4
Following is the trial balance of Chongtar International Hospital as on 31 December 2019:

662.7 662.7

i. Cost of closing physical inventory of medicines and hospital supplies was Rs. 25.8 million and Rs.
13.8 million respectively. Medicines costing Rs. 3.1 million were found expired. Medicines are only used to
treat the admitted patients and are not sold separately.
ii. Year-end physical count of cafeteria inventory could not take place. Goods are sold in cafeteria at a
gross margin of 25% on sales.
iii. Rent outstanding at year-end was Rs. 1.4 million.
iv. 15% of salaries and 10% of rent are related to cafeteria.
v. Hospital facilities of Rs. 48.6 million were provided free of charge to the patients.
vi. ‘Walk on diabetes day’ was organised in December 2019. Expenses relating to the
event amounting to Rs. 1.2 million were outstanding and unrecorded at year end.
vii. Medical equipment having fair value of Rs. 36.8 million were received as donation on 1st January
2019. These have been brought into use but have not been recorded in the books.
viii. Depreciation is charged on all fixed assets using reducing balance method at 15% per annum.
Assume that all fixed assets have insignificant residual value.
Required:
a) Prepare statement of income and expenditure for the year ended 31 December 2019.
b) Prepare statement of financial position as on 31 December 2019.
Income Rs. m
Fees from patients 125.0
General donations 82.6
Equipment related contribution [36.8 x 15%] 5.5
Fundraising - Walk on diabetes day 2.2
Profit from cafeteria W1 0.4
215.7
Expenditure
Salaries - Administrative staff [24 x 85%] 20.4
Salaries - Doctors and nursing staff 38.2
Medicines used [19.4 + 60.5 - (25.8 - 3.1)] 57.2
Hospital supplies used [8.5 + 18.7 - 13.8] 13.4
Rent [(19.6 + 1.4) x 90%] 18.9
Walk on diabetes day [2.6 + 1.2] 3.8
Depreciation - Medical equipment [(185.4 - 64.2 + 36.8) x 15%] 23.7
Depreciation - Other fixed assets [(110.7 - 54.7) x 15%] 8.4
Utilities12.4
Miscellaneous expenses 8.5
(204.9)
Surplus 10.8


General fund
Opening balance 195.6
Surplus 10.8
206.4
Deferred contribution (burns ward) 75.1
Deferred contribution (equipment) [36.8 - 5.5 - 4.7] 26.6
101.7
Current liabilities
Deferred contribution (equipment) [36.8 x 85% x 15%] 4.7
Payables 38.9
Accruals [1.4 + 1.2] 2.6
46.2
354.3
W1: Cafeteria trading account for the year ended 31 December 2018
Rs. m
Sales 24.4
Cost of sales
Opening stock 4.7
Purchases 16.4
Closing stock (balancing) (2.8)
[24.4 / 100 x 75] (18.3)
Gross profit 6.1
Salaries expense [24 x 15%] (3.6)
Rent expense [(19.6 + 1.4) x 10%] (2.1)
Profit 0.4
► Example 29:
A fire broke out in the office of Moderna Sports Club (MSC) and burnt all the accounting records. The
accountant was able to retrieve a burnt copy of financial statements of MSC for the year ended 31
December 2020. However, few information (as indicated by capital alphabets) were unreadable. The
retrieved copy is as follows:
Statement of financial position as on 31 December 2020
Funds and liabilities Rs. in '000 Assets Rs. in '000
2020 2019 2020 2019
General fund: Fixed assets - net 1,403 1,300
Opening balance A 1,586 Members’ subscription 270 158
Excess of income over expenditure B C Misc. supplies 13 10
Tuck-shop rent E 37
Tennis court fund 260 200 Advance salaries 18 15
Bank F 530
Liabilities:
Members’ subscription 20 25
Salaries52 41
Utilities25 D
Annual sports event 10 -

Expenditure Rs. in '000 Income Rs. in '000
SalariesG Members’ subscriptions919
Utilities221 Tuck-shop rent 252
Misc. supplies H Donation - sports equipment 70
Members’ subscription written off 12 L M
Annual sports event I
J K
Disposal of fixed assets 8
Repair and maintenance 40

Excess of income over expenditure B
Receipts and payments account for the year ended 31 December 2020
Receipts Rs. in '000 Payments Rs. in '000
Opening balance 530 Salaries560
N O Fixed assets 92
Tennis court fund P Annual sports event 180
Contribution for annual sports event 49 Misc. supplies 132
Entrance fee - annual sports event 86 Utilities214
Sale of fixed assets 21 Repair and maintenance Q
Tuck-shop rent 248 Construction of tennis court 131
Scrap sale 15 Closing balance F
Required: Determine the missing information as indicated by capital alphabets. (Redrafting of above
financial statements is not required).
► Answer:
Description Rs. in '000 Working
A Opening general fund - 2020 1,766 1,586 +180 (C) / Balancing
figure in SFP of 2020
B Excess of income over expenditure - 2020 62 Balancing figure in SFP / I&E
C Excess of income over expenditure - 2019 180 198-18(D) Balancing figure in SFPof2019
D Utilities payable - 2019 18 (W1)
E Tuck-shop rent receivable 41 (W2)
Description Rs. in '000 Working

F Bank balance - 2020 450 Balancing figure in receipt and payment account
G Salaries expense 568 (W3)
H Misc. supplies expense 129 (W4)
I Annual sports event expense 55 (W5)
J Depreciation expense
K Depreciation expense 161 (W6)
L Scrap sale / Other income
M Scrap sale / Other income 15
N Members’ subscriptions received
O Members’ subscriptions received 790 (W8)
P Tennis court fund received 60 (W9)
Q Repair and maintenance paid 40
W1:
Utilities
Rs. in ‘000 Rs. in ‘000
Payment 214 b/d (balancing) 18
c/d 25 Expense 221
239 239
W2:
Tuck shop rent
Rs. in ‘000 Rs. in ‘000
b/d 37 Receipt 248
Income 252 c/d (balancing) 41
289 289
W3:
Salaries
Rs. in ‘000 Rs. in ‘000
b/d 15 b/d 41
Payment 560 Expense (balancing) 568
c/d 52 c/d 18
W4: 627 627

Misc. Supplies
Rs. in ‘000 Rs. in ‘000
b/d 10 Expense (balancing) 129
Payment 132 c/d 13
142 142
W5:
Annual Sports event
Rs. in ‘000 Rs. in ‘000
Payment 180 Members ‘contribution 49
Entrance fee 86
c/d 10 Expense (balancing) 55
190 190
W6:
Fixed Assets - Net
Rs. in ‘000 Rs. in ‘000
b/d 1,300 Disposal (W7) 29
Donation 70 Depreciation (bal.) 161
Payment 92
Tennis court 131 c/d 1,403

1,593 1,593
W7:
Disposal
Rs. in ‘000 Rs. in ‘000
Fixed assets (balancing)29 Sale proceeds 21
Loss on disposal 8
29 29
W8:
Members’ subscription
Rs. in ‘000 Rs. in ‘000
b/d 158 b/d 25
Income 919 Receipt (balancing) 790
Write off 12
c/d 20 c/d 270
1,097 1,097
W9:
Tennis court fund
Rs. in ‘000 Rs. in ‘000
b/d 200
c/d 260 Receipt (balancing) 60
260 260
► Example 30:
The accountant of Cereus Golf Club (CGC) was terminated on charges of fraud and you have been assigned
the task of preparing the accounts for the year ended 31 December 2020. You have found that the proper
books had not been maintained. The management of CGC has given you the following information:
i. Cash and bank balances at 1 January 2020 amounted to Rs. 0.5 million and Rs. 2 million
respectively. However, as on 31 December 2020, there was no cash balance and Rs. 4.2 million in the bank.
ii. The members are required to pay 3 years’ subscription in advance upon admission/renewal. Full
year subscription is charged from members joining during the year. Number of subscriptions received are
as under:
Year No. of memberships 3 years’ subscription per member
2018 100 Rs. 60,000
2019 140 Rs. 75,000
2020 160 Rs. 90,000
During 2020, 10 members were awarded membership on special permission but they had not paid the
subscription till year-end.
After year-end, 5 more members informed that they had paid the 3 years’ subscription amount in 2020. It
was found out that the amount was misappropriated by the accountant.
iii. CGC had received a donation of Rs. 8 million in 2019 to meet the repair and maintenance
expenditure of its golf course. Out of total donation, the club has spent Rs. 2.2 million and Rs. 2.8 million in
2019 and 2020 respectively.
iv. CGC started purchasing golf kits in 2020 for sales as well as for rent purposes. 20% of the
purchases were unpaid at year-end. Two third of the golf kit purchases made in 2020 had been added to
inventory of golf kits for sale and remaining had been added directly to golf kits for rent.
v. Golf kits are sold for cash at cost plus 40%. Cost of closing inventory of golf kits for sale amounted
to Rs. 1 million. It was decided to transfer half of these kits into golf kits for rent at 30% of their original
cost.
vi. Some of the receipts and payments during the year were as follows:
Rupees
Rent of golf kits 650,000

Golf kits purchases 4,800,000
Annual insurance (paid till April 2021) 660,000
Salaries (including Rs. 350,000 for 2019) 2,800,000
Other expenses 2,320,000
vii. CGC has a fidelity insurance policy and any cash deficiency upto a maximum of Rs. 2 million is
recoverable under the policy.
viii. Fixed assets at 1 January 2020 had a book value of Rs. 25 million. All fixed assets are to be
depreciated at 15% per annum.
Required:
► Answer:
Part (a)
Rs. in '000
Income
Subscription income W2 10,750
Rent on golf kits 650
Amortisation of deferred donations 2,800
Sale of golf kits [3,000x140%] 4,200
18,400
Expenditures:
Insurance expense [660 - 220 prepaid] 440
Salaries expense [2,800 - 350 last year] 2,450
Cost of Golf kits sold [6,000 W3 x(2*3)-1,000] 3,000
Loss on golf kits transferred [500x70%] 350
Depreciation W4 4,050
Repair and maintenance golf course 2,800
Other expenses 2,320
Loss on misappropriation [4,620 W1 -2,000 claim] 2,620
(15,230)
Surplus i.e. excess of income over expenditure 370
Part (b)
Non-current assets: Rs. in '000
Fixed assets W4 23,100
Current assets:
Golf kits [1,000 - 500] 500
Insurance claim2,000
Prepaid insurance [660x4/12] 220
Subscription in arrears W2 300
Cash & bank 4,200
7,220
30,320
General funds:
Surplus 370
12,720
Non-current liabilities Rs. in '000

Deferred contribution (repairs) [8,000 - 2,200 - 2,800] 3,000
Current liabilities
Creditors - golf kits W3 1,200

30,320
W1:
Bank/cash
Rs. in '000 Rs. in '000
b/d [500 + 2,000] 2,500 Repair & maintenance 2,800
Subscriptions W2 14,850 Golf kits purchases 4,800
Rent of golf kits 650 Insurance premium paid 660
Sale of golf kits 4,200 Salaries paid 2,800
Other expenses paid 2,320
Misappropriation (bal.) 4,620
c/d 4,200
22,200 22,200
W2:
Subscription
Rs. in '000 Rs. in '000
b/d
Income (balancing) 10,750 2018:(100x60x1-3) 2,000
c/d 2019:(140x75x2-3) 7,000
2019:(140x75x1-3) 3,500 Receipts [(160+5) x 90] 14,850
2020:(165x90x2-3) 9,900 c/d (10x90x1-3) 300
24,150 24,150
W3:
Creditors
Rs. in '000 Rs. in '000
Cash 4,800 b/d -
c/d 1,200 Purchases [4,800 / 80%] 6,000
6,000 6,000
o Q- cn

W4:
Fixed assets and depreciation Rs. in '000
Opening 25,000
Golf kits purchased for rentals [6,000 x 1/3] 2,000
Golf kits transferred [500 x 30%] 150
27,150
Depreciation:
On opening fixed assets [25,000 x 15%] 3,750
On purchased kits [2,000 x 15%] 300
On transferred kits [at year end] 0
(4,050)
23,100
W5:
Net assets (opening balance) Rs. in ‘000
Assets [25,000 fixed assets + 2,500 cash and bank] 27,500
Liabilities [350 + 9,000 + (8,000 - 2,200)] (15,150)
12,350
► Example 31:
Violin Family Club was formed in 2016. Following are the details of assets and liabilities of the club as on
31 December 2017:
Assets Rs. in '000 Liabilities Rs. in '000
Subscription in arrears: Bank overdraft 181
2016 15 Subscription in advance for 2018 45
2017 90 Accrued electricity 23
Advance rent 24 Canteen wages 11
Canteen stock 215 Canteen creditors 118
Snooker tables 960
Furniture & equipment 720
2,024 378
i. Some of the balances as on 31 December 2018 are as follows:

Assets Rs. in '000 Liabilities Rs. in '000
Subscription in arrears for 2018 30 Accrued electricity 35
Canteen stock 247 Canteen creditors 142

iii. Break-up of the subscription received during 2018 is as follows:
Related to year Rs. in '000
2017 60
2018 920
2019 75
The club’s management has decided to write-off the remaining subscription in arrears relating to the year
2016 and 2017.
iv. A scheme was introduced in 2016 under which a person is awarded life-time membership upon
payment of Rs. 120,000. Life memberships received in the years 2016, 2017 and 2018 were 5, 8 and 6
respectively. Life memberships are deferred and amortised equally over 10 years, starting from the year of
admission.
v. The club operates a canteen. Till last year, the canteen earned a gross profit of 20% of sales.
Effective 1 January 2018, selling prices were increased by 10%.
vi. Details of some payments during 2018 are as follows:

1 Rs. in '000
Canteen creditors 512
Salaries285
Equipment 66
Electricity 263
vii. Equipment acquired during the year is only 30% paid and the remaining amount is payable in
February 2019.
viii. Wages of canteen staff are paid on 5th of each month.
ix. The club operates from a rented place. The rent is paid quarterly in advance on 1 March, 1 June, 1
September and 1 December. As per agreement, annual rent was increased by Rs. 6,000 with effect from 1
September 2018.
x. Balance of snooker tables as at 31 December 2017 represents the book value of 5 similar tables
purchased in 2016. One of the tables was sold to a member for cash during the year for Rs. 212,000.
xi. Snooker tables are depreciated at 12.5% on straight line method while furniture & equipment are
depreciated at 20% using reducing balance method. Assume that all additions and disposals occurred at
start of the year.
Required:
Answer:
Part (a)
Rs. in '000
Income
Subscription W1 995
Life membership W8 228
Gain on disposal of table [212 - (960/5)] 20
Profit from canteen W3 57
1,300

Rs. in '000
Expenditures
Rent W2 146
Salaries285
Electricity W5 275
Depreciation - snooker tables [[960 x 4/5 x 100/75) x 12.5%] 128
Depreciation - furniture & equipment [(720 + 66 +154) x 20%] 188
Subscription written off 45
(1,067)
Part (b)
General funds
Opening balance [(2,024 - 378) - 1,344 W8] 302
Excess of income over expenditure 233
535
Deferred life membership W8 1,608
Current liabilities
Deferred life membership 228
Accrued electricity 35
Subscription in advance(W-1) 75

Creditors for equipment [66 / 30 x 70] 154
Canteen wages payable 11
645
2,788
W1:
Subscription
Rs. in '000 Rs. in '000
b/d [15 + 90] 105 b/d 45
I&E (balancing) 995 Bank [60 + 920 + 75] 1,055
Bad debts [15 + 30] 45
c/d 75 c/d 30
1,175 1,175
W2:
Rent
Rs. in '000 Rs. in '000
b/d 24 I&E (balancing) 146
Bank [(12 x 6) + (12.5 x 6)] 147 c/d [12.5 x 2 months] 25
171 171
Note: Monthly rent was previously Rs. 12,000 (i.e. Rs. 24,000 opening prepaid / 2 months). From 1
September monthly rent was increased by Rs. 500 (i.e. Rs. 6,000 / 12 months) to monthly rent of Rs.
12,500
W3:
Canteen trading account Rs. in '000
Sales [504x110-80] 693
Cost of goods sold
Opening stock 215
Purchases W7 536
Closing stock (247)
504
Gross profit 189
Canteen wages W6 (132)
Profit from canteen 57
W4:
Bank/cash
Rs. in '000 Rs. in '000
Subscriptions 1,055 b/d 181
Life membership W8 720 Rent 147
Sale proceeds from table 212 Salaries285
Canteen receipts W3 693 Electricity 263
Canteen salaries 132
Equipment 66
c/d 1,094
2,680 2,680
W5:
Rs. in '000 Rs. in '000
Bank 263 b/d 23
c/d 35 I&E (balancing) 275

298 298
W6:
Electricity
CZ>
TJ
O
Rs. in '000 Rs. in '000
Bank [11 x 12 months] 132 b/d 11
c/d 11 I&E (11 x 12 months] 132
143 143
W7:
Canteen creditors
Rs. in '000 Rs. in '000
Bank 512 b/d 118
c/d 142 Purchases (balancing) 536
654 654
W8:
Life membership fees Rs. in '000
2016: 5 members x Rs. 120 600
Amortised [600/10 years] (60)
540
2017: 8 members x Rs. 120 960
Amortised [(600+960)/10 years] (156)
Opening 1,344
2018: 6 members x Rs. 120 720
Amortised [(600+960+720)/10 years] (228)
Canteen wages payable

Presented as current liability [(600+960+720)/10 years] (228)
Presented as non-current liability 1,608
1,836

► Example 32:
Following is the trial balance of Mahtab Welfare Hospital (MWH) as on 31 December 2021:
Debit Credit
---- Rs. in million ----
Capital work in progress - hospital building 335
Cash at bank 60
Closing inventory - medicines and supplies 14
Contributions received 281
General fund as at 1 January 2021 332
Medical equipment 320 100
Medicines and supplies used 76
Other expenditures 19
Payables 17
Research cost 33
Restricted fund as at 1 January 2021 180
Salaries53
Total 910 910
i. The break-up of restricted fund balance is as follows:
Fund Description Rs. in million
Hospital building fund Contributions received for the construction of hospital building. 120
Research fund As per the resolution of board of trustees, MWH is required to allocate 20% of surplus of
each year to the research fund. 60
ii. Contributions received include Rs. 55 million received for construction of hospital.
iii. During the year, MWH also received construction materials having fair value of Rs. 65 million for
the hospital building which has not been recorded in books.
iv. MWH has completed the construction of hospital building on 1 April 2021.
v. Depreciation is to be charged as follows:
Hospital building 5% - straight line
Other fixed assets 10% - reducing balance
Required:
Prepare the following using deferral method:
a) Statement of income and expenditure for the year ended 31 December 2021.
b) Statement of financial position as at 31 December 2021.
► Answer:
Part (a)
Income: Rs. in million
General Contributions [281 - 55] 226
Hospital contributions W1 9
235
Expenditure:

Medicine and supplies used 76
Salaries53
Other expense 19
Depreciation - Hospital [(335+65)X5%X9/12 15
Depreciation - Other fixed assets [(320-100)x10%] 22
(185)
Part (b)
Funds:
General fund [332 + 50 - (50X20%)] 372
Research fund [60 - 33 + (50 x 20%)] 37
409
Non-current liabilities:
Hospital deferred contribution W1 219

Current liabilities: Rs. in million
Payables 17
Hospital deferred contribution W1 12
29
657
W1:
Contributions for hospital buildings Rs. in million
Opening balance 120
Received in cash 55
Received in kind (at fair value) 65
240
Transferred to income [240 x 5% x 9/12] (9)
231
Presented as current liability [240 x 5%] (12)
Presented as non-current liability 219

► Example 33:
Oracle Family Club (OFC) was formed in January 2021. The following information is available in respect of
the first year of operations:
Receipt and payment account for the year ended 31 December 2021
Receipts Rs. in '000 Payments Rs. in '000
Subscriptions for: Salaries640
2021 2,800 Rent 990
2022 1,360 Equipment 2,560

Joining fees 2,100 10% Fixed deposit 2,020
Canteen sales 720 Construction of building 1,500
Life-time memberships 1,840 Canteen purchases 700
Closing balance 410
8,820 8,820
Expenditures Rs. in '000 Incomes Rs. in '000
Salaries700 Subscription 3,450
Rent 760 Interest on fixed deposit 150
Depreciation of equipment 200 Life-time memberships 360
Surplus 2,330 Profit from canteen 30
3,990 3,990


i. OFC also operates a canteen. All sales and purchases of canteen are made for cash.
ii. Salary of canteen’s salesman amounted to Rs. 90,000 is included in payments.
Required: Prepare OFC’s statement of financial position as on 31 December 2021.
► Answer:
Non-current assets: Rs. in '000
Equipment [2,560 - 200] 2,360
Capital work in progress - Building 1,500
3,860
Current assets:
Canteen inventory W1 100
Subscription in arrears [3,450 - 2,800] 650
Prepaid rent [990 - 760] 230
Fixed deposit 2,020
Interest receivable 150
Cash 410
3,560
7,420
General funds:
Opening balance -
Excess of income over expenditure 2,330
2,330
Joining fees fund (or deferred joining fees) 2,100
Liabilities:
Deferred life membership [1,840 - 360] 1,480
Salaries payable [700 + 90 - 640] 150
Subscription in advance1,360
7,420

W1: Canteen profit statement
Rs. in '000
Sales 720
Cost of sales
Opening inventory 0
Purchases 700
Closing inventory (balancing) (100)
[720 sales - 120 gross profit] (600)
Gross profit [30 profit + 90 salary] 120
Salary of salesman (90)
Profit 30
6. OBJECTIVE BASED Q&A

01. Which of the following is generally considered an NPO?
(a) Charitable organisation
(b) Trading companies
(c) Audit firms
(d) Insurance companies
02. Expenditures greater than incomes of an NPO give rise to a:
(a) Loss
(b) Profit

(c) Surplus
(d) Deficit
03. An advance receipt of subscription from a member of the NPO is considered as:
(a) an expense
(b) a liability
(c) an equity item
(d) an asset
04. Statement of income and expenditure is based on;
(a) Cash accounting
(b) Accrual accounting
(c) Government accounting
(d) Management accounting
05. When cash is received for life membership, which one of the following double entries is passed?
(a) Cash Debit and capital Credit
(b) Life membership Debit and cash Credit
(c) Investment Debit and cash Credit
(d) Cash Debit and deferred life-membership fee Credit
06. XYZ club has a bar that maintains a separate trading account for its trading activities. Which of the
following is the treatment of profit or loss on bar trading activities?
(a) Profit or loss is directly shown in the statement of financial position
(b) Profit or loss is to be presented in statement of income and expenditure
(c) Profit or loss is credited in statement of profit or loss
(d) Profit or loss is added to accumulated fund
07. An NPO has provided services to one of its members, however, subscription has not been received yet.
It is considered as:
(a) an asset
(b) a liability
(c) an income
(d) an expenditure
08. Rs. 1,000,000 received as the annual membership subscription. Out of this, Rs. 200,000 is pertaining to
the previous accounting period whereas Rs. 100,000 is receivable at the end of the current accounting
period.
Calculate the amount of subscription that will be shown in the statement of income and expenditure.
(a) Rs. 100,000
(b) Rs. 900,000
(c) Rs. 1,200,000
(d) Rs. 800,000 09. Statement of income and expenditure shows:
(a) Cash available to an organization
(b) Closing capital of an organization
(c) Cash available in the bank account
(d) Surplus or deficit for the current accounting period
10. On what basis the ‘receipts and payments account’ is prepared?
(a) Cash basis
(b) Accrual basis
(c) Both accrual and cash basis
(d) None of the two
11. Statement of income and expenditure includes:
(a) Capital items
(b) Revenue items
(c) Both capital items and revenue items
(d) None of these
12. A club has 500 members. Annual membership fees are Rs. 1,000. Therefore, membership fees for
the year should be Rs. 500,000.
The club’s subscription records for the year ended 31 December 2013 show the following:
At 31 December 2012 At 31 December 2013
Subscriptions in advance 10,000 6,000
Subscriptions in arrears18,000 22,000
Calculate the amount of cash received during the year.

(a) Rs. 492,000
(b) Rs. 496,000
(c) Rs. 504,000
(d) Rs. 508,000
13. At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs. 48,000
and had received Rs. 12,000 subscriptions in advance.
31 March 2014 at Rs. 1,200 per annum in advance.
Calculate the amount of subscription income during the year.
(a) Rs. 552,000
(b) Rs. 576,000
(c) Rs. 600,000
(d) Rs. 648,000
14. At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs. 48,000
and had received Rs. 12,000 subscriptions in advance.
Required:
Calculate the amount of subscription income during the year.
(a) Rs. 552,000
(b) Rs. 576,000
(c) Rs. 600,000
(d) Rs. 648,000
15. Seaview Club started its operations on 1 February 2015. Total subscription received for the period
ended 31 December 2015 was Rs. 29,952,000
Annual subscription is Rs. 24,000. All new members pay three years’ subscription in advance. The
memberships were awarded as follows:
Month March June September December
No. of member 112 98 101 105
What amount of subscription income should be included in statement of income and expenditure for the
period ended 31 December 2015?
(a) Rs. 4,630,000
(b) Rs. 9,984,000
(c) Rs. 15,338,000
(d) None of above
16. Seaview Club started its operations on 1 February 2015. Total subscription received for the period
ended 31 December 2015 was Rs. 29,952,000
Annual subscription is Rs. 24,000. All new members pay three years’ subscription in advance. The
memberships were awarded as follows:
What amount of advance subscription should be included in non-current liabilities as at 31 December
2015?
(a) Rs. 4,630,000
(b) Rs. 9,984,000
(c) Rs. 15,338,000
(d) None of above
17. The main objective of an NPO is;
(a) To earn profits
(b) To create monopoly
(c) Welfare of the society or service to its members
(d) To provide for owner’s dividends
18. Receipt and payment account include:
(a) Revenue items
(b) Capital items
(c) Both capital and revenue items
(d) None of above
19. The ‘Accounting Standard for NPOs’ has been issued by:
(a) The Institute of Chartered Accountants of Pakistan
(b) The Securities and Exchange Commission of Pakistan
(c) International Accounting Standards Board
(d) All Pakistan Association of NPOs
20. According to ASNPO, the financial statements of an NPO use the following concept of capital
maintenance:
(a) Physical capital maintenance
(b) Welfare capital maintenance
(c) Financial capital maintenance (real terms)
(d) Financial capital maintenance (money terms)
21. An NPO has a fund that is subject to externally imposed stipulations specifying the resources
contributed be maintained permanently, although the constituent assets may change from time to time.
Which type of fund it is?
(a) Unrestricted fund
(b) Capital assets fund
(c) Restricted fund
(d) Endowment fund
22. Which of the following statement is incorrect with respect to restrictions on contribution revenue
of an NPO?
(a) Restrictions may be externally imposed.
(b) Restrictions may be internally imposed.
(c) Restrictions may be explicit.
(d) Restrictions may be implicit.
23. An NPO received endowment contributions of Rs. 2 million. How should the receipt be recognised
under deferral method?
(a) Recognise as revenue in statement of income and expenditure in endowment fund of the current
period.
(b) Recognise as revenue in statement of income and expenditure in general fund of the current
period.
(c) Recognise as direct increase in statement of changes in net assets in endowment fund of the
current period.
(d) Recognise as direct increase in statement of changes in net assets in general fund of the current
period.
24. An NPO received restricted contribution for the repayment of debt. The related debt was incurred
for
the payment of expenses expected to be incurred in next three years. How should the receipt be recognised
under deferral method?
(a) Recognise as revenue in statement of income and expenditures of the current period
(b) Defer and recognise as revenue in relevant periods applying the matching concept
(c) Recognise as direct increase in net assets in the statement of changes in net assets
(d) Recognise as deduction from related capital asset or related expenses
25. An NPO received restricted contribution for the repayment of debt. The related debt was taken to
fund
purchase of school’s furniture. How should the receipt be recognised under deferral method?
(b) Defer and recognise as revenue on the same basis as related depreciation expense is charged
26. An NPO received restricted contribution for the repayment of debt. The related debt was taken
neither
to fund expenses of future periods nor to fund purchase of any capital assets. How should the receipt be
recognised under deferral method?
(b) Defer and recognise as revenue in relevant period applying the matching concept

27. An NPO earned investment income that is externally restricted to be held for endowment. How
should
it be recognised under deferral method?
(b) Defer and recognise as revenue in relevant period applying the matching concept
28. An NPO has of 16,000 bags of rice to be sold only to members of an underprivileged community.
The
cost of rice to the NPO is Rs. 600 per bag. However, the NPO sells one bag to the underprivileged persons
for Rs. 50 only. How should these 16,000 bags be measured?
(a) At cost
(b) At lower of cost and NRV
(c) At lower of current replacement cost and NRV
(d) At lower of cost and current replacement cost
29. An NPO had capital asset of furniture at carrying value of Rs. 800,000 and related unamortised
deferred
contribution balance of Rs. 480,000 in statement of financial position. At that date, the furniture was
destroyed by fire completely and is now worth nothing. Which of the following is correct treatment?
(a) Write down the furniture by Rs. 480,000 against deferred contribution.
(b) Write down the furniture by Rs. 800,000 and recognise revenue of Rs. 480,000 related to
deferred contribution provided that all restrictions have been complied with.
(c) Write down the furniture by Rs. 800,000 and transfer Rs. 480,000 related to deferred
contribution, directly in net assets provided that all restrictions have been complied with.
(d) Both (b) and (c) are acceptable accounting treatments.
30. Morning Football Club has a monthly subscription fee of Rs. 800 per member. The club has 240
members on 31 December 2018. No fresh members were admitted during 2018 but 30 members left the
club on 1 July 2018. As at 31 December 2018, the club has received subscription in advance amounting to
Rs. 60,000. The club’s subscription income for 2018 would be:
(a) Rs. 2,448,000
(b) Rs. 2,388,000
(c) Rs. 2,160,000
(d) Rs. 2,100,000
31. Alpha Club’s financial year ends on 31 December. Following information pertain to its members’
subscription:
Rupees
Subscription received in 2018 for 2019 180,000
Subscription received in 2019 for 2019 1,400,000
Subscription for 2018 outstanding as on 31 December 2018 150,000
Subscription for 2019 outstanding as on 31 December 2019 325,000
Subscription income for the year ended 31 December 2019 is:

(a) Rs. 1,845,000
(b) Rs. 1,705,000
(c) Rs. 1,905,000
(d) Rs. 1,665,000
ANSWERS
01. (a) Trading companies, audit firms and insurance companies are profit oriented. A charitable
organisation is an NPO.
02. (d) Excess of expenditure over income of an NPO is called ‘deficit’.
03. (b) The subscription received in advance is unearned and shall be presented as a liability.
04. (b) Statement of income and expenditure is prepared on accrual basis while receipt and
payment account is prepared on cash basis.
05. (d) Cash Debit and Deferred life-membership fee Credit
06. (b) Profit or loss from running an operation shall be presented in statement of income and
expenditure.
07. (a) Subscription receivable is presented as a current asset.
08. (b)
Subscription a/c
Particulars Rs. Particulars Rs.
b/d 200,000 Cash received 1,000,000
I & E 900,000 c/d 100,000
1,100,000 1,100,000
09. (d) Statement of income and expenditure shows surplus or deficit for the current accounting
period.
10. (a) Statement of income and expenditure is prepared on accrual basis while receipt and
payment account is prepared on cash basis.
11. (b) Statement of income and expenditure includes only revenue items.
12. (a)
Subscriptions
Rs. Rs.
Balance b/d 18,000 Balance b/d 10,000
I&E 500,000 Cash 492,000
Balance c/d 6,000 Balance c/d 22,000
524,000 524,000
13. (b)
Subscriptions
Rs. Rs.
I&E 576,000 Cash 624,000
Balance c/d [26 x Rs. 1,200] 31,200 Balance c/d [16 x Rs. 1,200] 19,200
655,200 655,200

14. (c)
Subscriptions
Rs. Rs.
I&E 600,000 Cash 624,000
Bad debts
[48,000 x ¥2] 24,000
Balance c/d [26 x Rs. 1,200] 31,200 Balance c/d [16 x Rs. 1,200] 19,200
679,200 679,200
15. (a) Subscription for 3 years is Rs. 72,000 so subscription for 1 year is Rs. 24,000 or Rs. 2,000
per month
Rs.000
Receipt / I&E Current Non-current
Members Months Rs. Months Rs. Months Rs.
Mar / 112 10 2,240 12 2,688 14 3,136
Jun / 98 7 1,372 12 2,352 17 3,332
Sep / 101 4 808 12 2,424 20 4,040
Dec/105 1 210 12 2,520 23 4,830
4,630 9,984 15,338
16. (c) Subscription for 3 years is Rs. 72,000 so subscription for 1 year is Rs. 24,000 or Rs. 2,000
per month
Rs.000
Month / I&E Current Non-current
Members Months Rs. Months Rs. Months Rs.
Mar / 112 10 2,240 12 2,688 14 3,136
Jun / 98 7 1,372 12 2,352 17 3,332
Sep / 101 4 808 12 2,424 20 4,040
Dec/105 1 210 12 2,520 23 4,830

4,630 9,984 15,338
17. (c) Welfare of the society or service to its members

18. (c) Both capital and revenue items are included in receipt and payment account.
19. (a) ASNPO has been issued by ICAP.
20. (d) Financial statements of an NPO are prepared with capital maintenance measured in
financial terms and with no adjustment being made for the effect on capital of a change in the general
purchasing power of the currency during the period.

21. (d) Such stipulations relate to endowment contribution and related fund would be endowment
fund.
22. (b) Restrictions (explicit or implicit) on contributions may only be externally imposed.
23. (c) Endowment contributions are recognised ad direct increase in statement of changes in net
assets.
24. (b) As debt relates to expenses of future periods, the contribution for repayment thereof shall
be deferred and recognised as revenue in future relevant periods.
25. (b) Defer and recognise as revenue on the same basis as related depreciation expense is
charged
26. (a) Recognise as revenue in statement of income and expenditures of the current period
27. (c) Recognise as direct increase in net assets in the statement of changes in net assets
28. (d) At lower of cost and current replacement cost
29. (b) Write down the furniture by Rs. 800,000 and recognise revenue of Rs. 480,000 related to
deferred contribution provided that all restrictions have been complied with.
30. (a) Subscription income Rs.
[240 + 30] members x 6 months x Rs. 800 1,296,000
240 members x 6 months x Rs. 800 1,152,000
Total 2,448,000
31. (c)
Subscriptions
Rs. Rs.
I&E 1,905,000 Cash 1,690,000
Balance c/d 200,000 Balance c/d 385,000
2,255,000 2,255,000
.
STICKY NOTES
AT A GLANCE SPOTLIGHT STICKY NOTES
Net lossExcess of expenditure over income / Deficit
Equity / Share capital and equity reserves Net assets / Accumulated fund /
Accumulated surplus / Accumulated deficit / Fund balance
Specific reserve Restricted contribution / grant
Fee Subscription
Owners / Shareholders Trustees/ sponsors / donors
Different terminology
Restricted contribution A restricted contribution is a contribution subject to externally imposed
stipulations that specify the purpose for which the contributed asset is to be used.
Endowment contribution An endowment contribution is a type of restricted contribution subject to
externally imposed stipulations specifying that the resources contributed be maintained permanently,
although the constituent assets may change from time to time.

Unrestricted contribution An unrestricted contribution is a contribution that is neither a restricted
contribution nor an endowment contribution.
Types of contributions
Rs. Rs.
Balance b/d Balance b/d
(members in arrears) X (members who have prepaid) X
Income and expenditure X Cash X
Balance c/d Balance c/d
(members who have prepaid) X (members in arrears) X
X X
Balance b/d Balance b/d
(members in arrears) X (members who have prepaid) X
Profit (loss) from running an operation

Sales
Cost of sales
Opening inventory
Purchases
Closing inventory
Gross profit
Coffee shop worker’s salary (and other relevant expenses)
Profit (loss)

Statement of financial position as at
Capital assets (property, plant and equipment) XX
Collections XX
Investments XX
XX
Current assets
Office supplies stock XX
Prepaid expenses XX
Subscription receivable XX
Cash and cash equivalents XX
XX
XXX
General fund / Unrestricted net assets XX
Net assets: restricted for endowments XX
Net assets: internally restricted for special projects XX
XX
Deferred grants/contributions XX
Loans XX
XX
Current liabilities
Deferred grants/contributions XX
Subscriptions received in advance XX
Accrued expenses XX
XX
XX
Statement of income and expenditure for the year ended Income
Fee-for-services
Government grants
Contributions
Fundraising events
Profit from coffee bar / shop / canteen
Investment income
Other income
Expenditures
Salaries
Rent
Office supplies used
Utilities
Marketing and communications
Amortisation of capital assets
Excess of income over expenditure i.e. surplus
Statement of changes in net assets for the year ended
ACCOUNTING FOR NOT-FOR-PROFIT ORGANISATIONS

PART A (SIMPLE INCOME &EXPENDITURE)
THIS PORTION WAS MISSED IN PRINTING IN THE BOOK INADVERTANTLY. THE BOOK CONTAIN
SECOND PART WHICH BELONGS TO STANDARD.
LO1: INTRODUCTION
1.1 Introduction

Not-for-Profit Organisations (NPOs) are organisations, normally without transferable ownership interests,
organized and operated exclusively for social, educational, professional, religious, health, charitable or
any other not-for-profit purpose. An NPO's members, contributors and other resource providers do NOT,
in such capacity, receive any financial return directly from the NPO.
NPOs may be:

 companies formed under Section 42 of Companies Act, 2017;
 trusts formed under Trust Act, 1882;
 societies formed under the Societies Registration Act, 1860; or
 any other recognisable form of organisation giving value to the groups of people they
administer to.
The financial objective of a profit-oriented entity is to make profit and maximise shareholders’ wealth
while financial objective of NPO is to provide its services effectively by achieving value for money.
NPO applies or intends to apply its profits, if any, or other income in promoting its objects, and prohibits
the distribution of surplus to its members, sponsors, promoters, etc.
NPOs have INCOME which they raise and COSTS which must be paid just like other organisations and
although profit is not their objective but they have to account for their income and costs. NPOs are
accountable for their effectiveness, economy and efficiency in utilising the funds.
Revenues of NPOs normally arise from donations, government grants and other contributions as well as
from membership fees, the sale of goods, the rendering of services or the use by others of NPO resources
yielding rent, interest, royalties or dividends.
Some accounting rules are as relevant to NPOs as to profit-oriented entities, for example, requirements
relating to inventory, non-current assets and recognition of revenue. However, some areas might be
completely irrelevant, for example, earnings per share.

1.2 Different terminology

NPOs use different accounting terminology from profit-oriented entities.
Net loss Excess of expenditure over income / Deficit
Equity / Share capital and equity reserves Net assets / Accumulated fund / Accumulated surplus /
Accumulated deficit / Fund balance
1.3 Receipts and payments account
When accounts are prepared on cash or disbursement basis rather than accrual basis of accounting, a
receipt and payment account is prepared and presented. This is simply a summary of cash receipts and
payments during the accounting period. It includes capital and revenue items both.
A receipt and payment account gives far less information than a set of financial statements based on the
accruals concept.
Receipts and payments account
Balance b/d X Donation to Dam Fund X
Subscriptions X Repairs X
Functions – ticket revenue X Telephone X
Sale of land X Extension of building X
Bank interest X Furniture X
Bequest X Electricity expenses X
Sundry income X Salary and wages X
Sundry expenses X
Balance c/d X
X X
Balance b/d X
LO2: INCOME AND EXPENDITURE ACCOUNT
2.1 Introduction
An income and expenditure account is an accruals based statement listing the different types of income of a
club followed by the different categories of expenditure of the club.
2.2 Categories of income

A club may have several categories of income including:
 Membership fees and subscriptions;
 Life membership fees;
 Donations;
 Investment income;
 Surplus from running a coffee bar or a shop;
 Surplus from running an event;
Note that if a non-profit organisation has a coffee bar or shop or runs an event the “profit” from these is
generally calculated separately (in an account known as a trading account) and presented as a line item in
the income and expenditure account.
2.3 SUBSCRIPTIONS ACCOUNT

At each year end there will usually be some members who have paid their subscriptions in advance and
some who are in arrears. These are both included as balances brought down and carried down on a single

subscription account. Cash received is credited to this account and the balance on the account is
transferred to the income and expenditure account (as income for the year).
Usually it is called as Subscription account but I always called it Subscription Receivable account.
Dr. Subscription Receivable account Cr.

opening receivable (Membership in xxx opening (Membership fee received in Xxx
arrear) advance/ Prepaid by member)
Subscription Income (I&E) xxx Cash and Bank xxx
Membership fee for the year (bal.)
closing (advance) xxx closing receivable (arrear) xxx
xxx xxx
Example 01: Subscription account

Question: At 31 March 2016 a cricket club had membership subscriptions in arrears amounting to Rs.
48,000 and had received Rs. 12,000 subscriptions in advance.
Required: How the above transactions would be recorded in the subscription’s ledger account for
the year to 31 March 2017?
Answer;
opening receivable (Membership in arrear) 48,000 opening (Membership fee received in 12,000
advance/ Prepaid by member)
Subscription Income (I&E) 576,000 Cash and Bank 624,000
Membership fee for the year
closing (advance) (26 x 1200) 31,200 closing receivable (arrear) 19,200
16 x1200
655,200 655,200

Write off of subscriptions
Questions often include the write off of subscriptions from members who have stopped attending the
club/non profit organization.
It is actually bad debt.
Dr Cr
Bad Debt Expense(I&E)
Subscription Receivable
Example 02: Subscription account & Bad Debts

Question: At 31 March 2016 a cricket club had membership subscriptions in arrears amounting to Rs.
48,000 and had received Rs. 12,000 subscriptions in advance.
Required: How the above transactions would be recorded in the subscription’s ledger account for
the year to 31 March 2017?
Answer:
Subscription Income (I&E) 600,000 Cash and Bank 624,000
Membership fee for the year
Bad Debt (1/2 x 48,000) 24,000
closing (advance) (26 x 1200) 31,200 closing receivable (arrear) 19,200
16 x1200
679,200 679,200

2.2.2 LIFE MEMBERSHIP FEE
A non-profit organisation should have an accounting policy for these. Possible policies include:
 Recognition as income when received.
 Recognition as income over a specified period.
 Recognition in an equity reserve (an accumulated fund).
Example
A non-profit organization received Rs. 2,000,000 each from 3 life members in 2019. Year end is December
31. Prepare the necessary entries for 2019 and 2020 under following scenarios:
1. Recognize it as income when it is received.
2. Recognize as income over a period of 6 years.
3. Recognize it as equity reserve assuming 1 member passed away in 2013.
Case -1 Recognition as income when received
Date Particulars Dr. Cr.

Cash 6,000,000
2019 Life membership Income (I&E) 6,000,000
(On joining of 3 members)
Case -2 Recognition as income over a specified period.

Cash 6,000,000
1.1.2019 Deferred Income (Liability) 6,000,000
Deferred Income 1,000,000
31.12.2019 Life membership Income (I&E) 1,000,000
(6,000,000/6)
Deferred Income 1,000,000
31.12.2020 Life membership Income (I&E) 1,000,000
(6,000,000/6)
This treatment recognises the amount received as income over several years
Option-3 Recognition in an equity reserve (an accumulated fund)

Cash 6,000,000
Life-membership Fund (an accumulated
1.1.2019 6,000,000
fund in equity)
Life-membership Fund 2,000,000
2020 General Fund 2,000,000
(On death of 1 member)
This might then be transferred to the accumulated surplus (General Fund) over a pre-defined
period or on the death of the member

2.2.3 DONATION (in cash) or (bequest: transfer of property)
A club might receive a donation or bequest. If the donation has not been made for a specific purpose the
club might recognise the donation as income in the period in which it is received.
A club might receive a donation for a particular purpose. For example, a member might donate money for a
new cricket square. In this case the money is credited to a fund account set up for the purpose
DONATION
(a) General Purpose (b) Specific Purpose
(b i) Donation for Fixed Assets (b ii) Donation for Specific
Expenses
Cash Dr Cash Dr Cash Dr
Donation Income Cr Fixed Asset Fund Cr Expense Fund Cr
Fixed Asset Dr Expense Fund Dr
Cash Cr Cash Cr
Fixed Asset In this case in SOFP F.A will In this case in SOFP only Expense
Donation Income show in Asset and Fixed Asset Fund will show in Fund
Fund will show in Fund
IF specific fund is created from own accumulated fund/profits then

If created for fixed asset If created for specific expense fund
Accumulated Fund/General Fund Dr Accumulated Fund/General Fund Dr
Fixed Asset Fund Cr Expense Fund Cr
Fixed Asset Dr Expense Fund Dr
Cash Cr Cash Cr
In this case in SOFP F.A will show in Asset and Fixed Asset In this case in SOFP only Expense
Fund will show in Fund Fund will show in Fund
2.2.4 SURPLUS FROM RUNNING AN OPERATION

If a club has a coffee bar or shop the “profit” from these is generally calculated separately (in an account
known as a trading account).
Any expenses directly related to the operation of a coffee bar or shop would be deducted from the gross
profit of the operation and the net profit would be presented on a separate line in the income and
expenditure account.
Profit from trading activity
Revenue xxx
Less: Cost of sales
Opening stock xxx
Purchases (Note) xxx
Less: Closing Stock (xxx) (xxx)
Gross Profit xxx
Less: Salaries (xxx)
Net Profit
Note: For calculating purchases figure it is advised to prepare creditors account if opening closing balances
of creditors are appearing in the question

2.2.5 Surplus from running an event
If a club runs an event any surplus (or loss) generally calculated separately and presented as a separate
line in the income and expenditure account.
Sports day entry fees X

Cost of prizes (X)
Surplus/deficit (this figure to the face of the income and expenditure account) X
2.3 EXPENDITURE
The expenditures related to non -profit organization are quite similar to profit organizations like:
 Salaries
 Rent
 Electricity
 Repair and maintenance
 Depreciation of fixed assets etc.
2.4 Formats:
b) ABC Club
Income and Expenditure account (Statement Form)
for the year ended September 30, 2023
Incomes Rs.
Profit from bottles 5,200
Subscription 13,480
Other sales from devices 4,570
Interest on bank deposit 420
23,670
Expenses
Rent and rates 7,950
Entertainers expense 3,360
Printing and stationery 1,720
General expenses 4,490
(17,520)
Surplus/ (deficit) 6,150
Dr. Income and Expenditure account (Account Form) Cr.

Expenses Incomes
Rent and rates Profit from bottles
Entertainers expense Subscription
Printing and stationery Other sales from devices
General expenses
Surplus (Excess of Income over Deficit (Excess of Expenses over
Expenditures) Income)

LO:3 STATEMENT OF FINANCIAL POSITION OF NON PROFIT ORGANISATION

3.1 Format ABC Club
Balance Sheet as on September 30,2022
Fund and liabilities
Fund Rs.
Opening Fund 5,350
Surplus/(Deficit) 6,150
11,500
Current Liabilities
Subscription in advance 310
Creditors for bottles purchases 1,150
Rent and rates accrued 820
Fidelity bond given by steward 200
2,480
Total 13,980
Assets
Current Assets
Bottles stocks 1,850
Subscription in arrears 620
Current account 6,400
Deposit account 4,600
Cash 510
13,980
Total 13,980
Dr. Balance sheet (Account Form) Cr.

Assets Fund and liabilities
Current Assets Fund
Bottles stocks Opening Fund
Current account Surplus/(Deficit)
Deposit account
Cash Current Liabilities
Subscription in arrears Subscription in advance
Creditors for bottles purchases
Rent and rates accrued
Fidelity bond given by steward
Total Xxx Total Xxx

LO4: ACCOUNTING STANDARD FOR NOT-FOR-PROFIT ORGANISATIONS (ASNPO)

4.1 Introduction
So far in this chapter, we have discussed and applied accounting concepts that are normally used by many
small NPOs including those which do not maintain proper double entry records. However, some NPOs are
required to comply with Accounting Standards for Not-for-Profit Organisations.
The Institute of Chartered Accountants of Pakistan (ICAP) issued the ‘Accounting Standard for Not-for-
Profit Organisations’ and as per Securities and Exchange Commission of Pakistan’s (SECP) directives,
ASNPO is applicable to associations not-for-profit registered under the Companies Act, 2017.
ASNPO is applicable to NPOs registered under the Companies Act, 2017, however, for other NPOs it is
recommended to prepare financial statements in accordance with ASNPO and stating that its financial
statements have been prepared in accordance with ‘Accounting Standard for Not-for-Profit Organisations’.
An NPO that is registered under the Companies Act, 2017 is also required to comply with the presentation
and disclosure requirements of the Fifth Schedule of the Companies Act, 2017. ASNPO is applicable so far
as not in conflict with the provisions of the Companies Act, 2017.
An NPO applying ASNPO will also apply the primary source of how to account and report transactions and
events.
4.2 Primary sources: basis of accounting

An NPO applying ASNPO will also apply the primary source of how to account and report transactions and
events. The primary source of how to account and report transactions and events in financial statements
will vary according to the class of the NPO.
When the concepts contained in ASNPO, conflict with a primary source, the requirements of the primary
source shall prevail.
It is necessary to refer to other sources when the primary sources do not deal with the accounting and
reporting in financial statements of transactions or events encountered by the NPO or when additional
guidance is needed to apply a primary source to specific circumstances.
Applicable financial reporting framework (primary source)
The primary source for public interest entities and large sized NPOs is IFRS issued by International
Accounting Standards Board (IASB) and as notified by SECP.
The primary source for medium and small sized NPOs is International Financial Reporting Standards for
Small and Medium-sized Entities (IFRS for SMEs) issued by IASB and as notified by SECP.
Micro NPOs (defined in ASNPO as organisations not registered under Companies Act, 2017 with annual
gross revenue less than Rs. 25 million) may opt to prepare their accounts on cash and disbursement basis.
However, if a micro NPO opt to prepare and present its financial statements on accrual basis, it will prepare
financial statements in accordance with ASNPO and Accounting and Financial Reporting Standards for
Small Sized Entities (AFRS for SSE) as applicable in Pakistan.
Accounting policies
An NPO selects and applies its accounting policies for a period consistently for similar transactions, other
events and circumstances.
Accounting treatments that are not in accordance with ASNPO are not rectified either by disclosure of the
accounting policies used or by information provided in notes or supporting schedules.

4.3 Recognition and measurement

Recognition criteria
The recognition criteria under ASNPO are as follows:
 the item has an appropriate basis of measurement and a reasonable estimate can be made of the
amount involved; and
 for items involving obtaining or giving up economic benefits, it is probable that such benefits will be
obtained or given up.
The recognition criteria provide general guidance on when an item is recognized in the financial
statements. Professional judgment is required to consider the specific circumstances to identify whether
any particular item is recognized or not.
Revenue Revenues are generally recognized when performance is achieved and reasonable
assurance regarding measurement and collectability of the consideration exists.
Unrestricted Unrestricted contributions to NPO do NOT normally arise from the sale of goods or
contributions the rendering of services and, consequently, performance achievement is generally
not relevant to the recognition of unrestricted contributions; such revenues are
generally recognized when received or receivable.
Restricted Restricted contributions are recognized based on the nature of the related
contributions restriction.
Gains Gains are generally recognized when realized.
Expenses and Expenses and losses are generally recognized when an expenditure or previously
losses recognized asset does not have future economic benefit. Expenses are related to a
period on the basis of transactions or events occurring in that period or by
allocation applying the matching concept.
Measurement
Financial statements of NPOs are prepared primarily using the historical cost basis of measurement
whereby transactions and events are recognized in financial statements at the amount of cash or cash
equivalents paid or received or the fair value ascribed to them when they took place.
Financial statements are prepared with capital maintenance measured in financial terms and with no
adjustment being made for the effect on capital of a change in the general purchasing power of the
currency during the period.
4.4 Financial statements
Financial statements of NPO shall normally include:
 statement of financial position (or balance sheet)
 statement of income and expenditure
 statement of changes in net assets
 statement of cash flows.
Notes to financial statements and supporting schedules to which the financial statements are cross-
referenced are an integral part of such statements; the same does not apply to information set out in other
material attached to or submitted with financial statements.
Alternative titles of financial statements may be used in a manner that results in fair presentation.

Comparative information
Financial statements shall be prepared on a comparative basis, unless the comparative information is not
meaningful. Comparative information is normally meaningful. However, this may not be the case in some
rare circumstances, such as when the financial structure of the NPO has significantly changed.
4.5 Fund accounting

Definition: Fund accounting
Fund accounting comprises the collective accounting procedures resulting in a self-balancing
set of accounts for each fund established by legal, contractual or voluntary actions of an NPO.
Elements of a fund can include assets, liabilities, net assets, revenues and expenses (and
gains and losses, where appropriate). Fund accounting involves an accounting segregation,
although not necessarily a physical segregation, of resources.
Net assets or fund balances may be internally or externally restricted. Internally restricted net assets or
fund balances are often referred to as reserves or appropriations.
Definition: Restrictions
Restrictions are stipulations imposed that specify how resources must be used. External
restrictions are imposed from outside the NPO, usually by the contributor of the resources.
Internal restrictions are imposed in a formal manner by the NPO itself, usually by resolution
of the board of directors/council/board of trustees.
An NPO that uses fund accounting in its financial statements should provide a brief description of the
purpose of each fund reported.
Financial statements that are reported using fund accounting may follow the multi-column format whereby
resources or similar groups of resources are each assigned a separate column. Other formats may be used
to report using fund accounting provided that financial information about the NPO as a whole is presented
in the NPO's financial statements.
An NPO may present its financial statements using different formats for the individual statements. For
example, a statement of income and expenditure and changes in net assets presented in the multi-column
format may be accompanied by a statement of financial position that presents assets, liabilities and net
assets in a single column without presenting each financial statement item by individual fund.
There are two methods of fund accounting, restricted fund method and deferral method, both will be
discussed later in this chapter.
The funds can be classified into following three categories:
Endowment fund
An endowment fund is a self-balancing set of accounts which reports the accumulation of endowment
contributions. Only endowment contributions and investment income subject to restrictions
stipulating that it be added to the principal amount of the endowment fund would be reported as
revenue of the endowment fund.
Allocations of resources to the endowment fund that result from the imposition of internal restrictions are
recorded as inter-fund transfers.
Restricted fund
A restricted fund is a self-balancing set of accounts the elements of which are restricted or relate to the use
of restricted resources. Only restricted contributions, other than endowment contributions, and other
externally restricted revenue would be reported as revenue in a restricted fund.
Allocations of resources that result from the imposition of internal restrictions are recorded as inter-fund
transfers to the restricted fund.

General fund / unrestricted fund

A general fund is a self-balancing set of accounts which reports all unrestricted revenue and restricted
contributions for which no corresponding restricted fund is presented. The fund balance represents net
assets that are not subject to externally imposed restrictions.
Refer Example 01:
LO: 5 CONTRIBUTION REVENUE AND RECEIVABLE

5.1 Contribution
Contributions can come from many sources, including individuals, corporations, governments and other
NPOs. Contributions include contributions receivable that meet the criteria for recognition in the financial
statements.
Definition: Contribution
A contribution is a non-reciprocal transfer to an NPO of cash or other assets or a non-reciprocal
settlement or cancellation of its liabilities. Government funding provided to an NPO is considered to
be a contribution.
Restrictions
Restrictions (explicit or implicit) on contributions may only be externally imposed.
Types of contribution
Restricted A restricted contribution is a contribution subject to externally imposed stipulations
contribution that specify the purpose for which the contributed asset is to be used.
Endowment An endowment contribution is a type of restricted contribution subject to externally
contribution imposed stipulations specifying that the resources contributed be maintained
permanently, although the constituent assets may change from time to time.
Unrestricted An unrestricted contribution is a contribution that is neither a restricted
contribution contribution nor an endowment contribution.
Refer Example 02:
Revenue recognition
Revenue from contributions is recognised by following either restricted fund method or deferral method.
An NPO is required to select one method and apply it consistently over the periods and any change from
one method to the other shall be treated as change in accounting policy.
5.2 Contribution receivable

Recognition
A contribution receivable should be recognized as an asset when it meets the following criteria:
 the amount to be received can be reasonably estimated; and
 ultimate collection is reasonably assured.
Pledge
A pledge is a promise to contribute cash or other assets to an NPO. Similar to any other contribution
receivable, an uncollected pledge would only be recognized:
 if it meets the above recognition criteria;
 there is reasonable assurance that the NPO will comply with conditions, if any, attached to
the contribution; and
 contribution is not dependant on any contingent event outside NPO’s control.
Bequest
Bequests are often subject to considerable uncertainty surrounding both the timing of the receipt and the
amount that will actually be received. In many cases, the recognition criteria will not be satisfied and the
bequest will not be recognized until it is received.

5.3 Membership fee

Many NPOs receive membership fees. Such fees are considered fees for services when members receive
services having a value commensurate with fees paid. In other cases, membership fees may be in substance
contributions.
An NPO would decide whether its membership fees are contributions or fees for services and account for
them accordingly on a consistent basis. Some membership fees have characteristics of both fees for
services and contributions. Such fees would be divided into the portion that relates to fees for services and
the portion that is in substance a contribution.
Refer Example 03:
5.4 Government funding

Certain types of government funding are calculated and paid as if they were fees for services. However,
because the services being funded are provided to the NPO's community of service, and not directly to the
government funder, government funding is considered to be a contribution.
Government funding is a significant component of many NPOs’ total contributions. Restrictions on

government funding may be indicated by following factors:
 the fact that the funding is provided based on the NPO's approved operating budget.
 the requirement to report to the government funder as to how the resources were actually
used.
 the funding left over at the end of the period must be returned to the government funder.
 the funding received relates to expenses of the future period being funded.
Refer Example 04
5.5 Contributed materials and services
A contribution of assets other than cash would be measured at fair value estimated using market or
appraisal values. For contributed materials and services that are normally purchased, fair value would be
determined in relation to the purchase of similar materials and services.
Contributed materials and services that are part of a constructed or developed capital asset would be
recognized at fair value.
The NPO may choose to recognize contributions of materials and services, but should do so only when:
 a fair value can be reasonably estimated; and
 when the materials and services are used in the normal course of the NPO's operations
and would otherwise have been purchased.
Often these contributions are not recorded because of record-keeping and valuation difficulties. For
example, it may be impractical to record the receipt of contributed services where the NPO depends
heavily on the use of volunteers to provide services. Where contributed materials and services meet the
criteria of fair value measurement, recording their value would provide useful information.
5.6 Revenue recognition: restricted fund method
Restricted fund method

The restricted fund method of accounting for contributions is a specialized type of fund accounting that
involves the reporting of details of financial statement elements by fund in such a way that the NPO
reports:
 total general funds;
 one or more restricted funds; and
 an endowment fund, if applicable.

Reporting of financial statement elements segregated on a basis other than that of use restrictions (for
example, by program or geographic location) does not constitute the restricted fund method.
The contributions and related income are recognised as follows:

Endowment contributions Recognise as revenue of the endowment fund in the current

period.
Restricted contributions reported Restricted contributions for which a corresponding restricted fund
in restricted fund is presented should be recognized as revenue of that fund in the
current period.
Restricted contributions reported Restricted contributions for which no corresponding restricted

in general fund fund is presented should be recognized in the general fund in
accordance with the deferral method.
In such case, deferred contributions balances should be presented
in the statement of financial position outside net assets as liability.
Unrestricted contributions Recognise as revenue of the general fund in the current period.
Allocation of unrestricted This allocation shall be reported as an inter-fund transfer in the

resources to restricted fund statement of changes in net assets.
Net investment income (includes Externally restricted investment income that must be added to
revenue, gains or losses on principal resources held for endowment, recognise as direct
investments) increase or decrease in net assets.
Other externally restricted investment income, as per the type of
restrictions discussed above.
In case there is no external restriction, recognise in the statement
of income and expenditure.
5.7 Revenue recognition: deferral method

When an NPO uses fund accounting in their financial statements without following the restricted fund
method, contributions would be accounted for using the deferral method. The contributions and related
income are recognised as follows:
Endowment contributions Recognise as direct increases in net assets in the current period
and excluded from revenue.
Restricted contributions for expenses of Recognise as revenue in current period.

current period
Restricted contributions for expenses of Defer and recognise as revenue in the same period(s) as the
future periods related expenses are recognised.
When the only restriction on a contribution is that it cannot be
used until a particular future period, the total amount of the
contribution would be recognized as revenue in that future
period, whether or not it has been spent.

Restricted contributions for the In case of depreciable assets, defer and recognise as revenue on
purchase of capital assets the same basis as the depreciation/amortisation expense
related to the acquired capital assets.
In case of non-depreciable assets, recognise as direct increase in
net assets.
In order for a contribution to be accounted for as a contribution
restricted for the purchase of a capital asset, the contributor
must specify the portion of the contribution that is to be used to
purchase capital assets. If the contributor does not so specify,
then the contribution would be recognized as revenue when
spent for the particular purpose covered by the restriction,
regardless of the fact that some of the expenditures may relate
to the purchase of capital assets.
Restricted contributions for the In case debt was incurred to fund expenses of future periods,
repayment of debt defer and recognise as revenue in same period(s) as the related
expenses are recognised.
In case debt was incurred to fund the purchase of capital asset
(depreciable), defer and recognise as revenue on the same basis
as the depreciation/amortisation expense related to the
acquired capital assets.
In case debt was incurred to fund the purchase of capital asset
(non-depreciable), recognise as direct increase in net assets.
Otherwise, recognise as revenue in the current period.
Unrestricted contributions Recognise as revenue in the current period.
Net investment income (includes Externally restricted investment income that must be added to
revenue, gains or losses on principal resources held for endowment are recognised as
investments) direct increase or decrease in net assets.
Other externally restricted investment income are recognised
as per the type of restrictions discussed above.
In case there is no external restriction, recognise in the
statement of income and expenditure.
Deferred contributions balances should be presented in the statement of financial position outside net
assets as liability.
LO:6 INVENTORIES AND NON-CURRENT ASSETS

6.1 Inventories
Contribution of materials
When an NPO recognizes contributions of materials and goods, the cost of inventories shall reflect the fair
To be distributed at no charge or for a nominal charge

An NPO shall measure inventories at the lower of cost and current replacement cost when
they are held for:
 distribution at no charge or for a nominal charge; or
 consumption in the production process of goods to be distributed at no charge or for a
nominal charge.
Refer Example 05:
6.2 Collections
Definition: Collections
Collections are works of art, historical treasures or similar assets that are:
 held for public exhibition, education or research;
 protected, cared for and preserved; and
 subject to an organisational policy that requires any proceeds from their sale to be
used to acquire other items to be added to the collection or for the direct care of the
existing collection.
Although items meeting the definition of a collection exhibit the characteristics of ‘assets’ they are excluded
from the definition of property, plant & equipment, and intangible assets. Collections are made up of items
that are often rare and unique. They have cultural and historical significance.
Although collections are usually held by museums or galleries, other NPOs may also have items that meet
the definition of a collection. For example, an NPO's library may include rare books which might be
considered to be a collection. The regular library materials, however, would not usually meet the definition
of a collection.
NPOs holding collections act as custodians for the public interest. They undertake to protect and preserve
the collection for public exhibition, education or research. The existence of a policy requiring that any
proceeds on the sale of collection items be used to acquire additional items or for the direct care of the
collection provides evidence of the NPO's commitment to act as custodian of the collection.
Capitalisation
The cost of capitalizing collections often would exceed the incremental benefit of the information gained,
especially for NPOs that have been in existence for several decades. Accordingly, although the
capitalization of collections is not precluded, it is not required.
Certain works of art and historical treasure not to be depreciated

Certain works of art and historical treasures may have lives that are so long as to be virtually unlimited.
Works of art and historical treasures in this category are those that have cultural, aesthetic, or historical
value that is worth preserving perpetually. In addition, the NPO must have the technological and financial
ability to continue to protect and preserve them. Works of art and historical treasures of this type would
not be depreciated.

6.3 Property, plant and equipment
Definition: Tangible capital assets
Tangible capital assets are identifiable tangible assets that meet all of the following criteria:
 are held for use in the provision of services, for administrative purposes, for
production of goods or for the maintenance, repair, development or construction of
other tangible capital assets;
 have been acquired, constructed or developed with the intention of being used on a
continuing basis;
 are not intended for sale in the ordinary course of operations; and
 are not held as part of a collection.
Recognition
Property, Plant and Equipment (PPE) shall be recognized as an asset, if and only if:
 it is probable that future economic benefits associated with the item will flow to the NPO;
and
 the cost of the item can be measured reliably.
Measurement for contributed assets
A contributed asset would be recognized at its fair value at the date of contribution. Fair value of a
contributed asset may be estimated using market or appraisal values.
When an estimate of fair value cannot reasonably be made, both the asset and the related contribution
would be recognized at nominal value.
A tangible capital asset purchased by an NPO at a value substantially below fair value would also be
recognized at its fair value with the difference between the consideration paid for the tangible capital asset
and fair value reported as a contribution.
A tangible moveable capital asset procured from a grant may be recognised at carrying amount deducting
the grant. The grant is recognised in profit or loss over the life of the depreciable asset as a reduced
depreciation expense.
If it is a grant for a specified period and the asset has to be returned at the end of the grant period, asset
shall be valued at fair value less present value of the estimated residual amount at the time of grant /
contribution.
Construction or development over time

The cost of PPE includes direct construction or development costs (such as materials and labour) and
overhead costs directly attributable to the construction or development activity. PPE which is developed or
constructed by an NPO might include contributed materials or labour, which would be recognized at fair
Land
Land normally has an unlimited life and would not be depreciated.
Depreciation /Amortisation (under fund accounting)

When a fund accounting basis of reporting is used, the choice of the fund or funds to which depreciation
expense would be charged would be based on providing the most meaningful presentation.
Some NPOs may wish to show depreciation as an expense of the operating fund. This presentation
emphasizes that depreciation is part of the cost of service delivery.
Other NPOs may prefer to show depreciation as an expense of the PPE fund. This presentation shows all
revenues and expenses associated with tangible capital assets in a single fund.
Unamortised deferred contributions

When PPE no longer contribute to the NPO's ability to provide services, its carrying amount would be
written down to residual value, if any. A write-down would be necessary, for example, when the NPO no
longer plans to use the asset because it has been damaged or rendered obsolete.

When an asset's carrying amount is written down, a corresponding amount of any unamortized deferred
contributions related to the asset would be recognized as revenue, provided that all restrictions have been
complied with.
6.4 Intangible assets

Definition: Intangible asset
Intangible asset is defined as an identifiable non-monetary asset without physical substance held for
use in the production or supply of goods or services, for rental to others, or for administrative
purposes.
Recognition
The NPO shall recognize an intangible asset as an asset if, and only if:
 it is probable that the expected future economic benefits that are attributable to the asset
will flow to the NPO; and
 the cost or value of the asset can be measured reliably.
Internally generated assets: Expense
Internally Generated research costs, goodwill, brands, training costs are always expensed out.
Expenditure on intangible item that was initially recognized as an expense shall not subsequently be
capitalized as part of the cost of an intangible asset.
Internally generated assets: Capitalised (V Imp for MCQ)

Development costs, which is the next step after research phase, can be capitalized if all of the following
conditions are fulfilled:
(a) the technical feasibility of completing the asset;
(b) the intention to complete the asset exists;
(c) the ability to use or sell the asset;
(d) how the asset will generate the future economic benefit and ability to demonstrate the existence of
market;
(e) the availability of adequate resources to complete; and
(f) the NPO's ability to reliably measure the cost of development of the asset.
Website costs
Website costs are categorized into five basic stages that are:
 Stage 1: planning stage
 Stage 2: application and infrastructure development
 Stage 3: the graphical design development
 Stage 4: content development
 Stage 5: operations.
Costs incurred in stage 1 and stage 5 are always expensed. However, costs incurred from stage 2 to 4 can
be capitalized if it fulfils the criteria of capitalisation of development asset discussed earlier, particularly
criteria (d).
Unamortised deferred contributions

Same requirements as for PPE.
Contributed intangible assets
Same requirements as for PPE.
LO: 7 PREPARATION OF FINANCIAL STATEMENTS

7.1 General
The accounting and approach for preparation of financial statements of an NPO is similar to other entities
except for the issues specifically addressed in ASNPO.
This section will discuss general presentation requirements and formats of following
 statement of financial position (or balance sheet)
 statement of income and expenditure
 statement of changes in net assets
 statement of cash flows.
7.2 Statement of financial position
The preparation of financial statements of an NPO is same
The statement of financial position should present the following:
 net assets subject to restrictions to be maintained permanently as endowments;
 designated net assets;
 unrestricted net assets; and
 total net assets.
Information about the NPO's liquidity is presented by classifying current assets separately from
noncurrent assets and current liabilities separately from non-current liabilities. Cash and other assets
subject to external restrictions limiting their use to beyond one year from the date of the statement of
financial position would be classified as non-current assets.
Under the deferral method of accounting for contributions, endowment contributions are accumulated in
the net assets balance. Internally restricted balances are reflected as appropriations of unrestricted net
assets in the net assets balance. Externally restricted contributions are accumulated in the statement of
financial position as deferred contributions.
Under the restricted fund method of accounting for contributions, endowment contributions are
accumulated in the endowment fund balance. Other internally and externally restricted contributions are
accumulated in the statement of financial position as part of the appropriate restricted fund balance. If
there is no appropriate restricted fund, externally restricted contributions are accumulated as deferred
contributions in the general fund.

Illustration 02:
Statement of financial position (Format)
Statement of financial position
As at 31 December 20X2
20X2 20X1
Non-current assets Rs. 000 Rs. 000
Capital assets /property and equipment) 1,987 XX
Intangible assets 50 XX
Collections 80 XX
Investments 4,157 XX
6,274 XX
Current assets
Office supplies stock 55 XX
Prepaid expenses 58 XX
Grants/contribution receivable 17 XX
Cash and cash equivalents 183 XX
313 XX
6,587 XXX

Net assets: restricted for endowments 208 XX
Net assets: Externally restricted for specific projects 241 XX
Net assets: internally restricted for special projects 340 XX
General fund / Unrestricted net assets 2,698 XX
3,487 XX
Deferred grants/contributions 1,800 XX
Loans 300 XX
2,100 XX
Current liabilities
Deferred grants/contributions 600 XX
Accrued expenses 400 XX
1,000 XX
6,587 XX

Illustration 03:
Statement of financial position (Multi-Columnar Format)
Statement of financial position
20X2 20X1
Rs. 000 Rs.
000
General Special
Endowment Total
Non-current assets operations projects
Capital assets 1,580 407 1,987 XX
Intangible assets 50 50 XX
Collections 80 80 XX
Investments 3,052 897 208 4,157 XX
4,762 1,304 208 6,274 XXX
Current assets
Office supplies stock 52 3 55 XX
Prepaid expenses 51 7 58 XX
Grants/contribution 17 XX
17
receivable
Cash and cash equivalents 166 17 183 XX
286 27 0 313 XX
5,048 1,331 208 6,587 XXX

Externally restricted 241 208 449 XX
Internally restricted 340 340 XX
Unrestricted 2,698 2,698 XX
2,698 581 208 3,487 XX
Deferred grants/contributions 1,300 500 1,800 XX
Loans 300 300 XX
1,600 500 0 2,100 XX
Current liabilities
Deferred grants/contributions 400 200 0 600 XX
Accrued expenses 350 50 400 XX
750 250 0 1,000 XX
5,048 1,331 208 6,587 XX

7.3 Statement of income and expenditure
Classification of expenses
NPO may classify expenses in the statement of income and expenditure:
 by object (for example, salaries, rent, utilities);
 by function (for example, administrative, research, ancillary operations); or
 by program.
An NPO would classify its expenses in the manner that results in the most meaningful presentation in the
circumstances. Whether the NPO prepares its budgets by function or object would be a factor to consider in
deciding which method of expense classification would be most appropriate for the NPO's financial
statements.
Attribution of expenses (under classification by function)

When attributing an expense among various operating functions, an NPO considers an approach such as
the following:
 an expense that contributes directly to the output of one function is applied directly to
that function, for example, the cost of a staff member exclusively devoted to that
function.
 an expense that contributes directly to the output of more than one function is attributed
on a reasonable and consistent basis to each function to which it applies (for example,
the rent applicable to the space used for more than one separately reported function,
and the remuneration expense of an executive director of a small health care NPO who,
in addition to managing the NPO, provides direct health care services to clients of that
NPO).
Statement of income and expenditure — deferral method

The statement of income and expenditure should present:
 for each financial statement item, a total that includes all funds reported; and
 total excess or deficiency of revenues and gains over expenses and losses for the period.
Under the deferral method of accounting for contributions, total excess of revenues over expenses for all
funds reports the change in the NPO's unrestricted resources in the period.

Illustration 04:
Statement of income and expenditure (Format)
Statement of income and expenditure (deferral method)
For the year ended 31 December 20X2
20X2 20X1
Income Rs. 000 Rs. 000
Fee-for-services 5,300 XX
Government grants 1,200 XX
Contributions 170 XX
Fundraising events 350 XX
Investment income 31 XX
Other income 2 X
7,053 XXX
Expenditures
Salaries 3,070 XX
Rent 1,320 XX
Office supplies used 610 XX
Utilities 880 XX
Marketing and communications 422 XX
Amortisation of capital assets 153 XX
(6,455) (XXX)
Excess of income over expenditure 598 XX
Statement of income and expenditure — restricted fund method

The statement of income and expenditure should present the following for the period:
 the total for each financial statement item recognized in the general fund;
 the total for each financial statement item recognized in the restricted funds, other than
the endowment fund;
 the total for each financial statement item recognized in the endowment fund; and
 excess or deficiency of revenues and gains over expenses and losses for each of the general
fund, restricted funds other than the endowment fund and the endowment fund.
Under the restricted fund method of accounting for contributions, the general fund presents all revenues
and expenses related to unrestricted resources.

Illustration 05:
Statement of income and expenditure (Format)
Statement of income and expenditure (restricted fund method)
20X2 20X1
Rs. 000 Rs.
000
Genera Restricted Endowment
Total
Income l fund fund fund
Fee-for-services 5,300 5,300 XX
Government grants 1,200 500 1,700 XX
Contributions 170 20 20 210 XX
Fundraising events 350 350 XX
Investment income 31 8 18 57 XX
Other income 2 2 X
7,053 528 38 7,619 XXX
Expenditures
Salaries 3,070 320 3,390 XX
Rent 1,320 1,320 XX
Office supplies used 610 20 630 XX
Utilities 880 57 937 XX
Marketing & communications 422 422 XX
Amortisation of capital assets 153 30 183 XX
(6,455) (427) 0 (6,882) (XX)
Excess of income over 737 XX
598 101 38
expenditure

Presentation of revenues and expenses — gross versus net
Revenues and expenses should be recognized and presented at their gross amounts and this information
may be presented in the notes to the financial statements. The determination of whether to report the
revenues and expenses on a gross or net basis depends on the relative facts and circumstances and
requires significant judgment.
Refer Example 06:
Refer Example 07:
Refer Example 08:
Refer Example 09:
7.4 Statement of changes in net assets

The statement of changes in net assets should present changes in the following for the period:
 restricted net assets (to be maintained permanently as endowments);
 internally restricted net assets;
 externally restricted net assets (other than endowment assets);
 unrestricted net assets; and
 total net assets.
The statement of changes in net assets may be referred to as ‘the statement of changes in fund balances’
when the NPO uses fund accounting in its financial statements.
Inter-fund transfers should be presented in the statement of changes in net assets. Allocations of revenues
and expenses between funds that are made when the NPO first recognizes the revenue or expense are not
considered to be transfers.

Illustration 06:
Statement of changes in net assets (Format)
Statement of changes in net assets (deferral method)
Internally Externally
Externally
Unrestricted restricted restricted
restricted Total
General fund special endowment
fund
fund fund
Rs. 000
Balance 1 Jan 2,145 315 140 150 2,750
Surplus 598 598
Endowment Contributions 20 20
Restricted grants &
520 520
contributions
Investment income 8 18 26
Fund utilisation (427) (427)
Internally imposed
(25) 25 0
restrictions
Transfers (20) 20 0
Balance 31 Dec 2,698 340 241 208 3,487
Illustration 07:
Statement of changes in net assets (Format)
Statement of changes in net assets (restricted fund method)
Internally Externally
Externally
Unrestricted restricted restricted
restricted Total
General fund special endowment
fund
fund fund
Rs. 000
Balance 1 Jan 2,145 315 140 150 2,750
Surplus 598 101 38 737
Internally
imposed (25) 25 0
restrictions
Transfers (20) 20 0
Balance 31 Dec 2,698 340 241 208 3,487

7.5 Statement of cash flows
Operating activities
Cash flows from operations include all cash receipts and disbursements resulting from the main, ongoing
service delivery activities of an NPO and exclude cash flows from financing and investing activities.
Cash receipts from operations include unrestricted contributions, restricted contributions that are to be
used for operations and other revenues arising from the NPO's ordinary activities, such as fees for services,
proceeds on the sale of goods and unrestricted investment income.
Cash disbursements for operations would comprise expenditures made by the NPO in carrying out its
service delivery activities.
Investing activities
Components of cash flows from investing activities would include the acquisition of capital assets, the
purchase of investments, and the proceeds on disposal of major categories of assets, such as capital assets
and investments.
Financing activities
Components of cash flows from financing activities would include cash contributed that is restricted for the
purpose of acquiring capital assets and cash contributed for endowment. Cash receipts and disbursements
related to the assumption and repayment of debt would also be presented as components of cash flows
from financing activities.

Illustration 08:
Statement of cash flows (Format)
Statement of cash flows
20X2 20X1
Cash flows from operating activities Rs. 000 Rs. 000
Surplus (deficit) of income over expenditure 197 (14)
Adjustments:
Amortisation of capital assets 24 30
Amortisation of deferred grant / contributions (84) (80)
Finance cost 16 12
153 (52)
Changes in non-cash working capital balances
Office supplies (18) (8)
Prepaid expenses (3) 4
Accrued expenses 8 (11)
Cash generated from operations 140 (67)
Interest paid (20) (15)
Grants and contributions received 280 250
Net cash from operating activities 400 168
Cash flows from investing activities

Purchase of capital assets (800) (300)
Purchase of investments (1,400) (1,100)
Sale proceeds from investments 81 75
Investment income received 11 18
Net cash used in investing activities (2,108) (1,307)
Cash flows from financing activities

Loan obtained (repaid) 100 (500)
Endowment contributions 1,250 950
Restricted contributions for capital assets 300 800
Cash flows from financing activities 1,650 1,250
Net increase (decrease) in cash and cash equivalent (58) 111

Cash and cash equivalents at beginning of year 211 100
Cash and cash equivalents at end of year 153 211
Refer Example 10:
Refer Example 11:
Refer Example 12:

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CHAPTER-9 Accounting for Not-for-Profit Organisations

Syllabus Learning Outcomes Proficiency Testing levels

Ch9 Waseem Akram, ACA 454

1.4.2 Measurement [ASNPO: 2.47 & 2.48]

Ch9 Waseem Akram, ACA 455

2.4.1 Joining fee and life membership fee

Ch9 Waseem Akram, ACA 461

2.8 Fundraising events [ASNPO: 4.45 & 4.49 to 4.52]

3. INVENTORIES AND NON-CURRENT ASSETS

Ch9 Waseem Akram, ACA 463

*provided at nominal charge

3.2 Collections [ASNPO: Definitions, 10.2 to 10.4 & 8.8]

Ch9 Waseem Akram, ACA 464

Fund balances / Net assets

• by object (for example, salaries, rent, utilities);

Professional Sports Club

Deferred government funding [150 / 5] 30

Current assets: Cash and bank balances 9,200

Ch9 Waseem Akram, ACA 469

Financed by: Accumulated funds 72,000

Net assets (fund)

Ch9 Waseem Akram, ACA 472

Non-current liabilities: Deferred contribution 12,000

Ch9 Waseem Akram, ACA 474

Current assets: Bank 2,402

Net assets (fund)

Note 1: Property, plant and equipment

Carrying amount 3,500 2,750 341 248 6,839

Depreciation rate - 5% 10% 20%

Ch9 Waseem Akram, ACA 476

Ch9 Waseem Akram, ACA 477

Corresponding figures at 31 December 2015 are:

Statement of financial position as at 31 December 2015

Payable for shop and cafe

Payable for sportswear

Ch9 Waseem Akram, ACA 480

Loss on inventory transfer from new sportwear to used sportswear:

Ch9 Waseem Akram, ACA 482

Statement of financial position as at 30 April 2015

Net assets (fund)

Ch9 Waseem Akram, ACA 483

1.1 Amount received

1.2 Closing unearned subscription

Quarter 1 [9,900,000 x 0/12] 0

Rent and rates

Ch9 Waseem Akram, ACA 485

Opening WDV 800,000

4.2 Depreciation for the year

W6: Tuck shop operations

Ch9 Waseem Akram, ACA 486

Non-current assets Rs. 000

Net assets (fund) Rs. 000

Subscription in advanceW1 9,984

W1: Subscription income

Ch9 Waseem Akram, ACA 488

Payable for beverages

Following is the trial balance of Chongtar International Hospital as on 31 December 2019:

Ch9 Waseem Akram, ACA 489

Ch9 Waseem Akram, ACA 490