Accounting treatment of some special items of Non-trading concerns
There are some special items which are used in the accounts of non-trading concerns or non-profit organizations. which are as under.
It is an amount paid by the members of non-trading concerns at regular intervals to keep their membership alive. It is the main and regular source of income of non-profit organizations. The name of a member may be deleted from the membership roll if he does not pay his subscriptions within a specified time. Normally it is paid annually.
It has already been mentioned that subscriptions are the main source of income of non-profit organizations. Therefore, it should be written as an income in Income and Expenditure Account. Subscriptions may be received for previous, current and next year, so care should be taken that subscription relating to current year only would be treated as an income.
Suppose, 2019 is a current year for which income and Expenditure Account is being prepared. How would the following subscriptions appear in the Income and Expenditure Account of 2019?
2. ADMISSION FEE OR ENTRANCE FEE
Amount received from the new members at the time of their admission in addition to the subscriptions is called admission fee or entrance fee. Every member pays admission fee once only, at the time of becoming a member.
The accountants are divided on the treatment of admission fee.
- Some accountants are of the view that admission fee is received only once from a member, so it is a receipt of non-recurring nature and should be treated as capital receipt and should be added to the capital fund.
- Another opinion is that, though it is received only once from the members, but membership remains open throughout the year. Every year many new members take admission, in this way admission becomes a receipt of a recurring nature and it is treated as an income. Generally, it is treated as an income.
- Where the amount of admission fee is small, just to cover the expenses of admission, it should be treated as revenue receipt and should be recorded on income side of Income and Expenditure Account.
- When a specific direction has been given it should be treated accordingly.
3. SALE OF NEWSPAPERS
Old newspapers and periodicals (Magazines) are sold at regular intervals. Amount realized so is very nominal and recurring in nature.
It is a revenue receipt and treated as an income and should be credited to Income and Expenditure Account.
4. SALE OF OLD SPORTS MATERIAL
It is a routine activity of the sports clubs that they sell their old sports material on regular basis because sports material gets older soon due to extensive use.
- Proceeds from the sale of old sports material is a revenue receipt and should be credited to Income and Expenditure Account.
- If, however, depreciation is being charged on sports material, then sports material is an asset and sale of old sports material will be deducted from sports material on the assets side of Balance Sheet.
Amount or item received by way of gift from members and general public is called donation. Amount of subscriptions may not sufficient to meet the expenses of non-trading concerns that’s why they receive donations. Donations may be received for general or specific purpose. For example, donation received for the constructions of a new building.
- If the donation is received for any specific purpose, it will be treated as capital receipt and will be recorded on liabilities side in the Balance Sheet.
- If the donation is not for a specific purpose and amount received is not a fairly large amount, it would be treated as an income and be recorded on the income side in Income and Expenditure Account.
- When a specific direction has been given, it should be treated accordingly.
6. LIFE MEMBERSHIP FEE
Sometimes an organization offers its members to become lifetime member by paying a lump sum amount. Thus the lump sum amount received by a non-profit organization from its members to give them lifetime membership is called Life Membership Fee.
- Amount received as Life Membership Fee is treated as capital receipt because organizations will have to provide services to these members for lifetime. Amount of Life Membership Fee will be recorded as a liability in the Balance Sheet. An amount equal to annual subscription is transferred every year to Income and Expenditure Account as an income. The balance will be shown as a liability in the Balance Sheet.
- If amount of Life Membership Fee is small then it may be treated as an income.
- When a specific direction has been given, it should be treated accordingly.
The amount or property received by non-trading concerns by way of the will of a deceased person
is called a legacy. It is a non-recurring receipt in its nature.
It is a capital receipt and will be added in the capital fund on the liabilities side of the Balance Sheet.
8. SPECIAL SUBSCRIPTIONS OR SECTIONAL SUBSCRIPTION
The additional amount collected from members for some special purposes is called special subscription. A special fund is created and special subscription is transferred to this fund for example Building fund, Tournament Fund and Prize Fund etc.
- Amount of special subscription is credited to the special fund that is recorded as a liability in Balance Sheet.
- Any expenses out of these funds will be deducted from the special fund in Balance Sheet and will not be recorded as an expense in Income and Expenditure Account.
9. SALE OF ASSETS
Sometimes non-trading concerns sell their old assets such as old furniture or old equipment etc. it is non-recurring in nature.
- Sale of assets is not an income rather it is a decrease in assets and will be deducted from the respective assets in Balance Sheet.
- Any loss on sale of asset is recorded on the debit side of Income and Expenditure Account.
- Any profit on sale of assets will be added to capital fund on liabilities side of Balance Sheet.
It is a token payment made to a person, who is invited to give a lecture or to perform for the members of the non-profit organizations. For example, payment made to a singer or renowned scholar.
It is a revenue payment and being an expense, will be recorded on debit side of Income and Expenditure Account.
11. PURCHASE OF NEWSPAPERS AND PERIODICALS
It is a recurring expense and recorded on the expenditure side of the Income and Expenditure Account.
12. PURCHASE OF SPORTS MATERIAL
In organizations such as Sports Clubs, Sports material is destroyed in a very short time. Therefore, sale and purchase of sports material is a routine activity for such clubs.
- Purchase of sports material is treated as revenue expenditure and it is recorded as an expense on debit side of Income and Expenditure Account
- If, however, depreciation is being charged on sports material or Sports Equipment, it is treated as an asset.
A permanent and gradual decrease in the value of fixed assets, due to their wear and tear and usage, is called depreciation.
It is revenue expenditure and it will be recorded on the debit side of Income and Expenditures Account.
14. CAPITAL FUND
It is nothing, but the capital of non-trading concerns. It is made up of contribution of the members, special donations, by capitalizing admission fee and by transferring surplus. Thus the excess of total assets over total liabilities of non-trading concerns is called “capital fund”.
Just like capital of trading concerns, it is recorded on the liabilities side of Balance Sheet. “Surplus” is added in it and “Deficit” is deducted from it.
15. UNRESTRICTED FUND
The fund which is at the disposal of the management committee of the non-trading concerns is called unrestricted fund. It is available for use as authorized by the management committee.
16. RESTRICTED FUND
The fund, the use of which is restricted by the donor is called restricted fund.
17. ENDOWMENT FUND
Endow means to provide permanent income for. An endowment fund is that the principal of
which is kept in an income-producing investment for an indefinite time period.
- Endowment fund like other funds is treated as a liability.
- Investment made out of endowment fund is treated as an asset.
- Interest on investment of endowment fund is treated as an income.
18. ANNUITY FUND
A fund established by non-trading concerns to make specified payment periodically for a
specified time period for the assets received.
19. LOAN FUND
This fund is established by the non-profit organizations to grant loans to the members.
20. AGENCY FUND
This fund is created with the amount, held by the non-profit organizations as custodian. For example, a fund established with the security deposits of the members. It is shown as a liability in the Balance Sheet.