Class 12 Commerce Accountancy - Accounting For Not-For-Profit Organisations

Mrs. Indu started a voluntary association of 10 peoples, who are also consumers. She collected the capital by selling shares to members and opened a retail shop so that they can eliminate middlemen and get the goods at low price.
(a) State the type of organisation mentioned in above case.
(b) State any 2 merits organisation.

(a) Co-operative Society:- The word cooperative means working together and with others for a common purpose. The cooperative society is a voluntary association of persons, who join together with the motive of the welfare of the members. They are driven by the need to protect their economic interests in the face of possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits.

The cooperative society is compulsorily required to be registered under the Cooperative Societies Act 1912. The process of setting up a cooperative society is simple enough and at the most what is required is the consent of at least ten adult persons to form a society. The capital of a society is raised from its members through the issue of shares. Society acquires a distinct legal identity after its registration.

(b) Merits:-

The cooperative society offers many benefits to its members. Two of the merits of the cooperative form of organisation are as follows:-

(i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

(ii) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts.

Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.

It is important to choose an appropriate form of business organization because if one is planning to start a business or is interested in expanding an existing one, one important decision relates to the choice of the form of organization A business firm can be owned & managed in several forms. Once a form of business is chosen it is difficult to change it. Therefore, the form of business enterprise should be selected with due care & thought The factors that determine the choice of form of organization are:-

a)- Cost and Ease of Starting Business: Sole proprietorship is started easily as far as initial business setting-up costs and legal requirements are concerned, In the case of partnership also, the advantage of less legal formalities and lower cost is there because of the limited scale of operations. Registration is compulsory in the case of cooperative societies and companies. The formation of a company involves a lengthy and expensive legal procedure.

b)- Liability. In the case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. This may result in the payment of the debt from personal assets of the owners. In joint Hindu family business, only the Karta has unlimited liability. In co-operative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company's assets.

c)-Continuity: The continuity of sole proprietorship and partnership firms is affected By EVEHS such as death, insolvency, or insanity of the owners. However, such factors do not affect the continuity of business in the case of organizations like joint Hindu family businesses, cooperative societies, and companies.

d)- Managerial Ability: It is difficult for a sole proprietor to have expertise in all functional areas of business. In other forms of organizations like partnership and company, there is a division of work among the members which allows the managers to specialize in specific areas, leading to better decision making. But this may sometimes lead to conflicts due to differences of opinion. The company form of organization is a better alternative if the operations are complex in nature and require professional management.

e)-Capital Requirements: For large-scale operations, company forms are the most suitable as a large amount of funds can be arranged by issuing shares in this form. For medium and small sized businesses, one can opt for partnership or sole proprietorship. Capital requirements for expansion can also be met more easily in company form.

f)- Degree of Control: Sole proprietorship provides direct control over operations and absolute decision making power But if the owners want to share control for a more effective decision-making partnership or company form of organization can be adopted. In the company form of organization, professionals are appointed to manage the affairs of a company as there is a complete separation of ownership and management.

g)- Nature of Business Sole proprietorship is more suitable for businesses in which direct personal contact is needed with the customers such as in the case of a beauty parlor or grocery store The company form of organization is suited for large manufacturing units. Partnership form is much more suitable in the case of professional services The factors stated above are interrelated and therefore, all the relevant factors must be taken into consideration while making a decision with respect to the form of organization.

Name the type of cooperative society set up:
(a) To help the small producers in selling their products.
(b) To provide easy credit on reasonable terms to the members.
Also, distinguish between the two on the basis of:
(i) Members (ii) Aim.
(a) Producer Cooperative (b) Credit Cooperative

Basis	Producer's Co-operative Societies	Credit Co-operative Societies
Members	members may be farmers, landowners, owners of the fishing operations. Producers are the member of this society.	member-owned financial cooperatives.
Aim.	To increase the marketing possibilities and production efficiency

(a)- Producer's Co-operative Societies These societies are comprised to protect the interest of small producers and are set up to provide the supplying of raw materials equipment and other Inputs to the members and buying their output for sale Profits among the members are distributed on the basis of their contributions to the society.

(b)- Credit Co-operative Societies- Credit co-operative societies are formed for providing easy credit on reasonable terms to the members These societies provide loans at low rates to members out of the amounts collected as capital and deposits from the members thereby eliminating exploitation by moneylenders.

Explain the difference between the cooperative organisations and company form of business.

Difference between cooperatives and companies.

1. Objectives:

There is a difference in basic objectives of cooperatives from companies. The basic objective of a cooperative organisation is to provide essential service for the benefit of members.

On the other hand, a company is a business organisation with the objective of earning profit.

2. Membership:

The membership of a cooperative society is generally drawn from a particular locality while the shareholders of a company are drawn from all over the country. The minimum number of members required for the registration of a cooperative is 10 while the Companies Act requires at least 7 persons for the formation of a public limited company and at least 2 persons for the formation of a private limited company.

3. Members’ Liability:

The liability of members of a company is limited but the liability of the members of a cooperative society is generally unlimited.

4. Capital:

A cooperative society may or may not have share capital. A member cannot transfer the shares of the society. On the other hand, a company must have capital divided into shares by its shareholders. The shares of a company are freely transferable.

5. Surplus:

In a company, the profits are distributed among members by way of dividend which varies according to the amount of capital by individual members. But a cooperative society does not distribute its profit according to the capital held by the shareholders. The surplus or profit earned by a cooperative is given away to the members on tine basis of the purchase made by them.

Enumerate various types of cooperative societies.

The main types of cooperative societies are given below:

1. Consumers cooperative societies:

Consumers' cooperatives are formed by the consumers to obtain their daily requirements at reasonable prices. Such a society buys goods directly from manufacturers and wholesalers to eliminate the profits of middlemen.

2. Producers cooperatives:

Producers or industrial cooperatives are voluntary associations of small producers and artisans who join hands to face competition and increase production.

3. Marketing Cooperatives:

These are voluntary associations of independent producers who want to sell their output at remunerative prices. The output of different members is pooled and sold through a centralised agency to eliminate middlemen. The sale proceeds are distributed among the members in the ratio of their outputs.

4. Cooperative Farming Societies:

These are voluntary associations of small farmers who join together to obtain the economies of large scale farming. In India farmers are economically weak and their land-holdings are small.

5. Housing Cooperatives:

These societies are formed by low and middle income group people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses.

6. Credit Cooperatives:

These societies are formed by poor people to provide financial help and to develop the habit of savings among members. They help to protect members from exploitation of money lenders who charge exorbitant interest from borrowers.

State three merits of cooperative society.

Three merits of the cooperative organisation are:-

Equality in voting status:- The cooperative societies work with the democratic system. They are based on the principle of one-man-one-vote. All members have an equal chance to participate in the management irrespective of the capital contributed by them.
Limited Liability:- The liability of members of the cooperative organization is limited to the extent of their capital contribution to the cooperative organization. At the time of losses, the creditors cannot have a claim over the personal property of members.
Stable Existence:- The cooperative society has a separate legal existence. The death of insolvency or incapacity of any member does not affect the existence of a society. The cooperative organization has a stable and continuous life and exists for a long period of time.

What do you mean by not-for-profit organization? Give examples.

Not-for-Profit Organizations are organizations which are set up for the welfare of the society or for the promotion of art and culture in the society. These are usually set up as charitable institutions with the service motive.
For example, charitable institutions, schools, religious , organizations, trade unions, welfare societies and societies for the promotion of art and culture.

What are the major sources of income of not-for-profit organizations?

The main aim of a not-for-profit organization is to provide service to a specific group or the public at large. The major sources of income of not-for-profit organizations usually are subscriptions from their members' donations, grants-in-aid, income from investments.

Discuss about the authority to which not-for-profit organizations submit their records.

A not-for-profit organization needs to submit its records to the Registrar of Societies.

Registrar of Cooperative Societies functioning under the Cooperative Societies Act is a public authority. As a public authority, the Registrar of Co-operative Societies has been conferred with a lot of statutory powers under the respective Act under which he is functioning.

Prize Fund Rs.22,Intrest on prize fund investment Rs.3,Prizes given Rs.5,Prize Fund Investments Rs.18,000.

In the above case Prize Fund is invested somewhere. Hence, the following treatment will be there in the balance sheet.
Balance Sheet
as on.............

Liabilities	Amt.(Rs.)	Assests	Amt(Rs.)
Prize Fund 22,000 (+) Intrest on Investment 3,000 25,000 (-) Prize distributed 5,000	20,000	Prize Fund Investment	18,000

Explain the statement,"Receipt and Payment Account is a summarised version of Cash Book".

Receipts and Payments Account is a summary of the Cash Book. This account is prepared by those organisations which maintain their books on cash basis. All cash receipts are recorded on the Payments side (i.e.Debit side) and all cash payments are recorded on the payments side(i.e.Credit side) of receipts and payment Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book.
It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the according period. It records all the cash and bank transactions both of capital and revenue nature.
It only records the cash and bank transactions relating to the current accounting period, but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period. This account only helps us to ascertain the closing balance of the cash bank and helps in assessing the cash position of an NPO. It also forms the basis for the preparation of Income and Expenditure Account.
Similarities between Receipt and Payments Account and Cash Book
The following are the features of receipt and payment Account that are common to those of Cash Book
(i) Nature It is a summarised version of the Cash Book. Similar to the Cash Book, the Receipt and Payment and Account is also a Real Account.
(ii) Nature of Transactions It records only cash and bank transactions similar to a Two-Column Cash Book. Transactions other than cash and bank like depreciation, loss/profit on sale of assets, etc are not recorded in this account.
(iii) No Distinction between Capital and Revenue Items It records all the cash and bank receipts and payments of both capital and revenue nature. Likewise, the transactions recorded in the Cash Book are also of both capital and revenue nature.
(iv) Opening and Closing Balance It begins with opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.
(v) Purpose It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period. Similarly, a Cash Book also helps us to assess the cash position of an organisation.
Thus, on the basis of the above mentioned points and similarities, the statement 'Receipt and Payment Account is a summarised version of Cash Book ' is justified.

What is the subscription? How is it calculated?

In case of Not-for-profit organisation Subscription is the main source of income. A subscription is basically the amount of money paid by the members on periodic basis for keeping their membership with the organisation continue. It may be paid monthly, quarterly, half yearly or annually by the members. In Receipts and payment Account it is shown in the Receipts side after making necessary adjustment related to the subscription.
In computing the amount of subscription for the current period, advance subscription received for the current period in the previous period and outstanding subscription for the current period are added to the subscription received during current period, on the other hand, advance subscription received for the next accounting period during the current period and outstanding subscription for the preceding period are deducted from the subscription received during the current period.
Calculation of Subscription

Subscription received during the year
(+) Subscription received (in advance) during previous year
for current year
(+) Subscription outstanding at the end of the year

(-) Subscription received in advance for the next year
(-) Subscription outstanding for the previous year
Subscription shown in Income and Expenditure Account

-
-

-
-

-

-

-

State the meaning of Receipt and Payment Account.

Receipts and is payments Account is a summary of the cash book. Receipts and payment account helps in ascertaining the closing balance of the cash and bank and helps in assessing the cash position of a Not-for-Profit Organisation. Actually, it gives us a Summarised picture of various receipts and payments, irrespective of whether they are of capital or revenue nature.
It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balance of cash and bank (balancing figure) at the end of the accounting period. It records all cash and bank transactions both of capital and revenue nature.
It may be noted that this account does not show any non-cash item like In depreciation. In the debit side i.e., Receipts side all the cash receipt s are recorded on the other hand in the credit side of i.e. Payment side all the cash payment are recorded. The Proforma of Receipts and payment accounts is as follows
Receipts and payments Accounts
Dr As on ....... Cr

Receipts	Amt.(Rs)	Payments	Amt.(rs)
Balance b/d cash in hand Cash in bank Subscription Donation Sales of newspaper Charity Subscription Locker rent Miscellaneous receipts Life membership fees Interest on specific funds Sales of investments Balance b/d (Bank overdraft)		Balance b/d (Bank Overdraft) Wages and Salaries Rent Rates and Taxes Insurance Printing and stationery Periodicals/wast paper Postage and courier Advertisement Sundry expenses Payment of salary Purchase of furniture Balance c/d Cash at Bank Cash in Hand

Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure
(a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
(b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.
(c) Registration fees paid at the time of purchase of the building.
(d) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years.
(e) Depreciation charged on a plant.
(f) The expenditure incurred in erecting platform on which a machine will be fixed.
(g) Advertising expenditure,the benefits of which will last for four years.

When the benefit of expenditure is to be received over a series of accounting years, it is termed as capital expenditure. Account incurred on purchase of fixed assets like land and building, plant and machinery, patents,trademark etc is termed as capital expenditure because the benefit is to be received over a number of years. On the other hand, when the benefit of expenditure is confined to a short period of time, normally a year, it is termed as revenue expenditure. e.g., rent of building, salaries, insurance premium, wages,audit fees etc.
(a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable (Capital Expenditure)
(b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order. (Capital Expenditure).
(c) Registration fees paid at the time of purchase of a building. (Capital Expenditure).
(d) Expenditure incurred in the maintenance of tea garden which will produce tea after four years.(Revenue Expenditure).
(e) Depreciation charged on a plant.(Revenue Expenditure).
(f) The expenditure incurred in erecting platform on which a machine will be fixed.(Capital Expenditure).
(g) Advertising expenditure,the benefits of which will last for four years.(Revenue Expenditure).

How would you treat the following items in the case of a 'not-for-profit' organisation?
Tournament Fund Rs.40,Tournament Expencess Rs.14,Receipt from Tournament Rs.16,000.

In case of a Club tournament fund will be shown in the liabilities side of the Balance Sheet.
The Accounting treatment for the above mentioned items will be there in the liabilities side of the balance sheet as follows
Balance Sheet
as on........

Liabilities	Amt.(Rs.)	Assests	Amt.(Rs.)
Tournament Fund 40,000 (+)Receipts from turnament 16,000 (-)Tournament Expenses 14,000	42,000

What is capital Fund? How is it calculated?

In case of Not-for-profit organisation, Capital fund can be considered as excess of its assets over its liabilities. Any surplus or deficit ascertained from Income and Expenditure account is added to (deducted from ) the capital fund. This is termed as Accumulated Fund.
Calculation of Capital Fund

Capital Fund at the beginning of the year
(+) Surplus from Income and Expenditure Account
(Through b/f)
(+) Subscription Amount (Capitalised Amount )
(+) Life membership fee.
(-) Deficit from Income and Expenditure Account
(Through b/f)
Capital Fund at the end of the year

-
-
-

-

-

-

Sharad Singh Company Ltd. has been incorporated with an authorised capital of $Rs. 10,00,000$ divided into $10,000$ equity shares of $Rs. 100$ each. The company issued $5,000$ shares to the public payable $Rs. 20$ per share on application, $Rs. 20$ per share on allotment, $Rs. 30$ per share on first call and the balance on the final call. All the money was duly received. Make Journal entries to record the issues of share. Also prepare Bank Account and the Balance Sheet.

Journal entries for the following transactions are recorded as follows

$Bank\quad a/c\quad Dr\quad Rs1,00,000\\ \quad \quad To\quad share\quad application\quad a/c\quad Rs1,00,000$

$Share\quad application\quad a/c\quad Dr\quad Rs1,00,000\\ \quad \quad To\quad sharee\quad capital\quad a/c\quad Rs1,00,000$

$Share\quad allotment\quad a/c\quad Dr\quad Rs1,00,000\\ \quad \quad To\quad share\quad capital\quad a/c\quad Rs1,00,000$

$Bank\quad a/c\quad Dr\quad Rs1,00,000\\ \quad \quad To\quad share\quad allotment\quad a/c\quad Rs1,00,000$

$Share\quad first\quad call\quad a/c\quad Dr\quad Rs1,50,000\\ \quad \quad To\quad share\quad capital\quad a/c\quad Rs1,50,000$

$Bank\quad a/c\quad Dr\quad Rs1,50,000\\ \quad \quad To\quad share\quad first\quad call\quad a/c\quad Rs1,50,000$

$Share\quad second\quad call\quad a/c\quad Dr\quad Rs1,50,000\\ \quad \quad To\quad share\quad capital\quad a/c\quad Rs1,50,000$

$Bank\quad a/c\quad Dr\quad Rs1,50,000\\ \quad \quad To\quad share\quad second\quad call\quad a/c\quad Rs1,50,000$

Bank account

Particular

Amount

Particular

Amount

To share application a/c

To share allotment a/c

To share first call a/c

To share second call a/c

Rs1,00,000

Rs1,50,000

Rs1,50,000.

To balance c/d

Rs5,00,000

State whether the following would result in inflow, outflow, or no flow of cash:
(i) Bill Receivable endorsed to Creditors
(ii) Old vehicle written off

(i) Bills receivables endorsed to creditors indicates neither an inflow nor an outflow. There is no flow of cash involved in such a transaction. It is referred to as mutual indebtedness wherein only the current liabilities and current asset balance gets reduced in the Balance Sheet. Cash balance remains unaffected.

(ii) Writing off old vehicles implies charging depreciation in the Profit and Loss Account on a year-to-year basis. No cash is involved in such a transaction. Depreciation itself is a non-cash transaction. Furthermore, if the vehicle has become obsolete, the entire amount of vehicle could be charged to the Profit and Loss Account in the year in which the vehicle became obsolete.

List the factors that help in selecting a suitable form of organisation.

For a new or proposed business, the selection of a suitable form of ownership organisation is generally governed by the following factors:

1. Nature of business activity:

This is an important factor having a direct bearing on the choice of a form of ownership. In small trading businesses, professions, and personal service trades, sole-proprietorship is predominant.

Examples are Laundromats, beauty parlours, repair shops, consulting agencies, small retail stores, medicine, dentist accounting concerns, painters, decorators, bakers, confectioners, tailoring shops, small scale shoe repairers and manufactures, etc. The partnership is suitable in all those cases where sole proprietorship is suitable, provided the business is to be carried on a slightly bigger scale.

Besides, partnership is also advantageous in case of manufacturing activities on a modest scale. The finance, insurance, and real estate industries seem to be suited to partnership form of organisation. Some of the financial businesses that find this form advantageous are tax, accounting, and stockbrokerage firms, and consulting agencies.

Service enterprises like hotels and lodging places; trading enterprises, such as wholesale trade, large scale retail houses; manufacturing enterprises, such as small drug manufacturers, etc. can be undertaken in the form of partnership. Manufacturing contains the highest percentage of companies among all industries. Similarly large chain stores, multiple shops, super-bazaars, engineering companies are in the form of companies.

2. Scale of operations:

The second factor that affects the form of ownership organisation is the scale of operations. If the scale of operations of business activities is small, sole proprietorship is suitable; if this scale of operations is modest — neither too small nor too large — partnership is preferable; whereas, in case of large scale of operations, the company form is advantageous.

The scale of business operations depends upon the size of the market area served, which, in turn, depends upon the size of demand for goods and services. If the market area is small, local, sole-proprietorship or partnership is opted. If the demand originates from a large area, partnership or company may be adopted.

3. Capital requirements:

Capital is one of the most crucial factors affecting the choice of a particular form of ownership organisation. Requirement of capital is closely related to the type of business and scale of operations. Enterprises requiring heavy investment (like iron and steel plants, medicinal plants, etc.) should be organised as joint stock companies.

Enterprises requiring small investment (like retail business stores, personal service enterprises, etc.) can be best organised as sole proprietorships. Apart from the initial capital required to start a business, the future capital requirements—to meet modernisation, expansion, and diversification plans —also affect the choice of form of ownership organisation.

In sole proprietorship, the owner may raise additional capital by borrowing, by purchasing on credit, and by investing additional amounts himself. Banks and suppliers, however, will look closely at the proprietor’s individual financial resources before sanctioning loans or advances.

Partnerships can often raise funds with greater ease, since the resources and credit of all partners are combined in a single enterprise. Companies are usually best able to attract capital because investors are assured that their liability will be limited.

4. Degree of control and management:

The degree of control and management that an entrepreneur desires to have over business affects the choice of ownership organisation. In sole proprietorship, ownership, management, and control are completely fused, and therefore, the entrepreneur has complete control over business. In partnership, management and control of business is jointly shared by partners.

They have equal voice in the management of partnership business except to the extent that they agree to divide among themselves the business responsibilities.

Even then, they are legally accountable to each other. In a company, however, there is divorce between ownership and management. The management and control of company business is entrusted to the elected representatives of shareholders.

Thus, a person wishing to have complete and direct control of business prefers proprietary organisation rather than partnership or company. If he is prepared to share it with others, he will choose partnership. But, if he is just not bothered about it, he will go in for company.

5. Degree of risk and liability:

The size of risk and the willingness of owners to bear it is an important consideration in the selection of a legal form of ownership organisation. The amount of risk involved in a business depends, among other, on the nature and size of business. Smaller the size of business, smaller the amount of risk.

Thus, a sole proprietary business carries small amount of risk with it as compared to partnership or company. However, the sole proprietor is personally liable for all the debts of the business to the extent of his entire property. Likewise, in partnership, partners are individually and jointly responsible for the liabilities of the partnership firm.

Companies have a real advantage, as far as the risk goes, over other forms of ownership. Creditors can force payment on their claims only to the limit of the company’s assets. Thus, while a shareholder may lose the entire money he put into the company, he cannot be forced to contribute additional funds out of his own pocket to satisfy business debts.

6. Stability of business:

Stability of business is yet another factor that governs the choice of an ownership organisation. A stable business is preferred by the owners insofar as it helps him in attracting suppliers of capital who look for safety of investment and regular return, and also helps in getting competent workers and managers who look for security of service and opportunities of advancement. From this point of view, sole proprietorships are not stable, although no time limit is placed on them by law.

The illness of owner may derange the business and his death cause the demise of the business. Partnerships are also unstable, since they are terminated by the death, insolvency, insanity, or withdrawal of one of the partners. Companies have the most permanent legal structure. The life of the company is not dependent upon the life of this member. Members may come, members may go, but the company goes on forever.

7. Flexibility of administration:

As far as possible, the form of organisation chosen should allow flexibility of administration. The flexibility of administration is closely related to the internal organisation of a business, i.e., the manner in which organisational activities are structured into departments, sections, and units with a clear definition of authority and responsibility.

The internal organisation of a sole proprietary business, for instance, is very simple, and therefore, any change in its administration can be effected with least inconvenience and loss. To a large extent, the same is true of a partnership business also. In a company organisation, however, administration is not that flexible because its activities are conducted on a large scale and they are quite rigidly structured.

Any substantial change in the existing line of business activity — say from cotton textiles to sugar manufacturing — may not be permitted by law if such a provision is not made in the ‘objects clause’ of the Memorandum of Association of the company.

Even when it is permitted by the Memorandum, it might have to be endorsed by the shareholders at the general meeting of the company. Thus, from flexibility point of view, sole proprietorship has a distinct edge over other forms.

8. Division of profit:

Profit is the guiding force of private business and it has a tremendous influence on the selection of a particular form of ownership organisation. An entrepreneur desiring to pocket all the profits of business will naturally prefer sole proprietorship.

Of course, in sole proprietorship, the personal liability is also unlimited. But, if he is willing to share the profits partnership is best. In company organisation, however, the profits (whenever the Board of Directors decides) are distributed among shareholders in proportion to their shareholding, but the liability is also limited. The rate of dividend is generally quite low.

9. Costs, procedure, and government regulation:

This is also an important factor that should be taken into account while choosing a particular form of organisation. Different forms of organisation involve different procedure for establishment, and are governed by different laws which affect the immediate and long-term functioning of a business enterprise. From this point of view, sole proprietorships are the easiest and cheapest to get started. There is no government regulation. What is necessary is the technical competence and the business acumen of the owner.

Partnerships are also quite simple initiated. Even a written document is not necessarily a prerequisite, since an oral agreement can be equally effective. Company form of ownership is more complicated to from.

It can be created by law, dissolved by law, and operate under the complicated provisions of the law. In the formation of a company, a large number of legal formalities is to be gone through which entails, at times, quite a substantial amount of expenditure.

Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation. Why? Give merits of sole proprietorship.

Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation. This is because of the following merits of sole proprietorship-

1. Ease of formation and dissolution:The sole proprietorship is the simplest form of business ownership. There is hardly any formality involved in setting up this type of organization. This ownership organization is not governed by any special Act.However, general laws like Law of Contracts, Sale of Goods Act, etc., are applicable. Dissolution, or sale of business, is equally convenient in most cases. Satisfaction of creditors’ claims is usually the only restriction in winding up the business.

2. Simplicity of operation and flexible management:A sole trader need not consult anyone, refer to others, discuss with anybody, or take the opinion of any person, before he decides the affairs of his organization. In addition to this, the owner is not required to submit the results of the business to the prescribed authorities. Quick decision and prompt action enable him to take advantage of business opportunities.

3. Sole claim on profits:The sole trader is the only person to whom the profits belong. This always acts as a stimulant to personal incentive.

4. Favorable credit standing:Since the owner is personally liable for all debts of the proprietorship, this form often enjoys a favorable rating among creditors. When creditors know that a proprietor has valuable personal assets, they can anticipate satisfaction from these sources if the business fails or debts remain unpaid.

5. Preferential treatment by Government:Not only that it is free from government regulations, it also gets subsidies, concessions, and a host of facilities from the government being socially useful, it gets loans on concessional rates, liberal repayment schedule, etc.

6. Social usefulness:The sole proprietorship is often organised as a small business. Thus, it affords opportunities of the widest possible dispersal of ownership, more opportunities for employment — self and public, wider distribution of the giants of industrial development, prevention/reduction in the formation of monopolies, etc.

7. Tax advantage:A sole proprietor pays income tax the same as any individual, and the business is not taxed. Under the Income Tax Act, 1961, an individual assessed does not pay any tax if his or her income does not exceed a particular limit (called tax exemption limit), and beyond this the tax is levied on the basis of income slabs. As such, the burden of tax on smaller amount of profit is less in sole proprietorship as compared to other forms of ownership organization.

Because of these advantages found in a small business, William Basset once remarked, “The one-man control is the best in the world, if that man is big enough to manage everything.”

With the help of the Balance Sheet and Receipts and Payments Accounts of Adarsh Cultural Club, Mumbai, prepare Income and Expenditure Account for the year ended $31^{st}$ March, 2013 and the Balance Sheet as on that date:
You are also required to consider the additional information given below:
(1) The club had 100 members, each paying Rs. 500 as annual subscription.
(2) Furniture to be depreciated at 20% p.a.
(3) Salaries include Rs. 1,300 paid for outstanding salaries for the year 2011-12.
Salaries outstanding for the tear 2012-13 were Rs. 700.

Income and Expenditure A/c

For the year ending 31.3.2013

Expenditure	Amount	Income	Amount
To Salaries 35300		By Subscriptions (2012-13)48000	50000
Less: last year O/S (1300)		Add: current O/s 2000
Add: current O/S 700	34700	By drama receipts	28000
To depreciation on furniture	6000
To general expenses	8400
To Printing and stationary	4200
To drama expenses	16000
To excess of income over expenditure	8700

	78000		78000

Balance Sheet

As on 31.3.2013

Liabilities	Amount	Assets	Amount
Capital fund 257000	265700	Buildings	250000
Add: Surplus 8700		Furniture 20000
Building fund 50000	70000	Add: purchases 10000
Add: donations 20000		Less: depreciation (6000)	24000
O/S salaries	700	Cash in hand	4600
Advance Subscriptions	2000	O/S Subscriptions	2000
		Cash at bank	57800

	338400		338400

Write a word/term/phrase which can substituted each of the following statements:
Excess of expenditure over income of 'not for profit' concerns.

Not-For-Profit concerns

The sole purpose of any business organization is to earn a profit. In other words, they work for self-interest. However, there are some organizations whose basic aim is to serve the society i.e. they work for the benefit of society as a whole. These are called not-for-profit organizations or nonprofit organizations.

They are formed for some idealistic purposes and provide service to its members and the public in general. Their aim may be educational, religious, charitable or social welfare of the people at large. They are working in a variety of forms ranging from small to large. In small forms, they are working in the shape of resident welfare associations (RWAs), charitable dispensaries, religious societies etc.

Explain how a cooperative organisation is a democratic set-up.

The cooperative organisation is a democratic set-up in following cases-I.Voluntary Membership:

Everyone is at liberty to enter or leave the co-operative society as and when he likes. Nobody is compelled to join a co-operative society. The members are also free to use or not to use the services of the society. Though there is no limit on the membership of the societies, sometimes certain limits are imposed to keep the society as a workable group. Consumer co-operatives, insurance societies etc. may limit membership to a number which is properly managed. Voluntary member is the main ingredient of co-operation. Everybody willing to join a society is allowed to do so. Voluntary membership has been responsible for the success of co-operatives movement.

II. Political and Religious Neutrality:- The membership of a co-operative society is opened to all irrespective of religion, caste, creed, colour or political affiliation. The co-operative movement can attract a large membership only by staying out of politics where people have divided opinions. Co-operatives represent universal brotherhood and it should not lose its path in political contradictions. There is no place for caste or discrimination in co-operative . The primary aim of co-operatives is to serve its members. So, co-operative societies are neutral as far as political and religious affiliations are concerned.

III. Democratic Management:- The management of a co-operative society is always on democratic lines. All the members of a society elect a body of persons to conduct and control the day-to-day working of the society. The members frequently meet and give guidelines to its executive. The management is elected through one man one-vote system. The day-to-day work is conducted by expert persons but the ultimate control lies with the members. In a co-operative, democracy is more than a system, it is a condition of its business success. Co-operative business stands or falls with democracy.

IV. One Man, One Vote:- In co-operative societies every member is given one vote irrespective of his contribution towards their basis of number of shares held by a person. So persons having large number of shares control the organisation. In a co-operative, nobody can control the society on the strength of his wealth. All members have equal voice in the management of the society.

V. Service Motive:- The primary objective of co-operative societies is to provide service to their members. The aim is not to earn profits as is the case in all other forms of organisations. The service of members is the fundamental object of co-operative societies. The societies earn a small amount of profit to cover up administrative expenses. The profit is generally earned when goods are sold to non-members.

Give any two examples of Non-profit organisation.

Human Rights Campaign

The Human Rights Campaign is a very impressive example of using Facebook profile photos to spread the word far and wide about a campaign. In 2015, when the Supreme Court was making a major decision about marriage equality, the Human Rights Campaign encouraged people to change their Facebook profile photo to the organisation’s logo – a red “equals” sign.

Celebrities such as Martha Stewart and Beyonce and brands such as Bud Light, HBO and Kenneth Cole used the image. Users changed their photo to demonstrate their support of marriage equality and the campaign went viral, spreading quickly across Facebook. Millions of Facebook users got involved, which led to coverage on big news organisations. It is a truly impressive example of using grassroots engagement to spread a message.

Charity: Water

This clean water organisation used social media in a very innovative and creative way when they hosted a Google Hangout fundraiser event with several different thought leaders from all over the world. For a full 24 hours these featured speakers were available for intimate Q&A session of 30 minutes each. People were able to purchase a limited number of seats within the hangout and have the chance to ask any questions they wanted. It was a win-win situation as they got to pose specific questions to very innovative thinkers, while supporting a great cause.

This was a very effective method and it was successful in helping Charity: Water reach their fundraising goals of $10,000 in one day. An incredible lineup of 24 speakers got involved, including global adventurer and nomad Natalie Sessions, marketing expert Clay Hebert and author and entrepreneur Jenny Blake.

From the following ledger balance, prepare Receipts and Payment Account of Shree Sports Club for the ending 31-03-2016.
Rs.
Cash balance 10,000
Subscription to newspapers 3,000
Upkeep of ground 10,000
Proceeds from concerts 10,000
Computers purchased 5,000
Subscriptions Received 40,000
Endowment fund 2,000
Rent received 2,000
Books purchased 5,000

1446450_1690639_ans_0bb560ab30be4a748e3e7d36e5a1b01d.PNG

State any two features of Receipts and payments account.

It is also known as Cash Book Summary for the Not-for-Profit organizations because it records all the cash and cash equivalents like cheques transactions throughout the year.
It starts with beginning cash and bank balance and ends with ending cash and bank balance.

How are Specific donations treated while preparing final accounts of a 'Not-For -Profit Organisation'?

Not-for-Profit Organisations are set up with the prime objective of providing services and not to earn profit thereby enhancing the welfare of the society. Such organisations include schools, hospitals, trade unions, religious organisations, etc. The person or the groups of individuals who govern and manage the working of an NPO are known as trustees.

Specific donations are capital receipts and hence they are shown under liability side of the balance sheet.

State the main aim of a not-for-profit organisation.

The main aim of a not-for-profit organization is to serve society for its benefit as a whole.

Give the meaning of 'Cash Equivalents' for the purpose of preparing Cash Flow Statement.

Cash Equivalents are short-term highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of change in value. Cash equivalents are held for the purpose of meeting short term commitments rather than for investments or other purpose. An investment held for short-term maturity, say three months can be regraded as cash equivalent. For example Treasury bills, Commercial papers, etc.

State the basis of accounting of preparing 'Income and Expenditure Account' of a Not For - Profit Organisation.

Income and Expenditure account is similar to the Profit and Loss account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period, the latter is prepared to ascertain net profit or net loss during an accounting period. I&E account is a nominal account and is prepared on accrual basis.

It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side and all income and gains are recorded on the credit side of I&E account. The closing balance or the balancing figure of I&E account is termed as surplus (or deficit), if the sum total of the income side exceeds (is lesser than) the sum total of the Expenditure side.

From the following information extracted from the Statement of Profit of Loss for the years ended $31^{st}$ March, 2017 and 2018, prepare a comparative Statement of Profit & Loss.
Particulars 2017-18 2016-18
Revenue from operations
Other incomes (% of revenue from operations)
Employee benefit expense (% of Total Revenue)
Tax rate
Rs. 6,00,000
20%
40%
50% Rs. 5,00,000
20%
30%
50%

Comparative Statement of Profit & Loss

For the year ended 31^st March, 2017 and 2018

Particulars	2016-17 (Rs.)	2017-18 (Rs.)	Absolute Change (Rs.)	Percentage Change
I. Revenue from Operations	5,00,000	6,00,000	1,00,000	20%
II. Other Income	1,00,000	1,20,000	20,000	20%
Total Revenue (I + II)	6,00,000	7,20,000	1,20,000	20%
Less: Employee Benefit Expenses	1,80,000	2,88,000	1,08,000	60%
Profit before Interest and Tax	4,20,000	4,32,000	12000	2.857%
Less: Tax	2,10,000	2,16,000	6,000	2.857%
Profit After Interest and Tax	2,10,000	2,16,000	6,000	2.857%

From the following balances and particulars of AS College, prepare Income & Expenditure Account for the year March, $2020$ and a Balance Sheet as on the date :

Particulars Amount
(Rs.) Amount
(Rs.)
Security Deposit - Students
Capital Fund
Building Fund
Tuition Fee Received
Government Grants
Interest & Dividends on Investments
Hostel Room Rent
Mess Receipts (Net)
College Stores - Sales
Outstanding expenses
Stock of Stores and Supplies (opening)
Purchases - Stores & Supplies
Salaries - Teaching
Salaries - Research
Scholarships
Students Welfare expenses
Game & Sports expenses
Other investments
Land
Building
Plant and Machinery
Furniture and Fittings
Motor Vehicle
Provision for Depreciation:
Building
Plant & Equipment
Furniture & Fittings
Cash at bank
Library

$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$3,10,000$
$8,20,000$
$8,75,000$
$1,25,000$
$85,000$
$37,000$
$52,000$
$12,75,000$
$1,50,000$
$15,50,000$
$8,50,000$
$5,40,000$
$2,40,000$

$-$
$-$
$-$
$3,16,000$
$3,20,000$
$\overline{75,45,000}$ $1,55,000$
$13,08,000$
$19,10,000$
$8,10,000$
$5,01,000$
$1,75,000$
$1,65,000$
$2,05,000$
$7,60,000$
$2,35,000$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$-$
$4,90,000$
$5,05,000$
$3,26,000$

$\overline{75,45,000}$

Adjustments:
(a) Materials & Supplies consumed : (From College stores)
Teaching - $Rs. 52,000$
Research - $Rs. 1 , 45, 000$
Students Welfare - $Rs. 78,000$
Games or Sports - $Rs. 24,000$

(b) Tuition fee receivable from Government for backward class Scholars - $Rs. 82,000$

(c) Stores selling prices are fixed to give a net profit of $15\%$ on selling price.

(d) Depreciation is provided on straight line basis at the following rates :
Building $5\%$
Plant & Equipment $10\%$
Furniture & Fixtures $10\%$
Motor Vehicle $20\%$

Working Note :

Opening Stock

$=$

$3,10,000$

(+) Purchases

$=$

$8,20,000$

$\overline{11,30,000}$

(-) Material Supplies

Consumed

$2,99,000$

(-) Cost of Good Sold

$(7,60,000 - (7,60,000 \times 15\%)$

$6,46,000$

Closing Stock

$\underline{\overline{1,85,000}}$

2034140_1959276_ans_a6841dcb16e64d8184c3c30e3fd00cd2.png

What are the ways by which not-for-profit organizations earn a reputation in society?

Not-for-profit organizations earn their reputation on the basis of their contributions to the welfare of society rather than on the customers' satisfaction. The major sources of its income are donations, subscriptions from members, and government grants.

State the meaning of ' Not-for-profit' Organisations.

Not-for-Profit Organisation (NOP) are those organisations which are set up with the prime objective of social welfare of the society; profit earning is not the objectives of such organisations includes schools, hospitals, trade unions, religious organisations, etc.
The management of such organisation is in the hands of trustees. As these organisations are not involved in making profit the main source of income for these organisations are donations, subscriptions, life membership fees, grants etc. Like other organisation Trading and Profit and loss account is not prepared in case of NPO rather receipts and payment account, income and Expenditure Account and Balance sheet is prepared.

Sanjana and Alok were partners in a firm sharing profit and losses in the ratio $3:2$ . On $31^{st}$ March, 2018 their Balance Sheet was as follows:
Balance Sheet of Sanjana and Alok as on 31-3-2018
Liabilities Amount
(Rs,) Assets Amount
(Rs,)
Creditors
Work men's Compensation Fund
Capital:
Sanjana $5,00,000$
Alok $\underline{4,00,000}$

$60,000$
$60,000$

$9,00,000$

Cash
Debtors $1,46,000$
Less:Provision for
doubtful debts $\underline{2,000}$
Stock
Investment
Furniture

$1,66,000$

$1,44,000$
$1,50,000$
$2,60,000$
$3,00,000$

$10,20,000$ $10,20,000$
On $1^{st}$ April, 2018, they admitted Nidhi as a new partner for $\dfrac{1}{4}^{th}$ share in me proms on the following terms:
(a) Goodwill of the firm was valued at Rs. 4,00,000 and Nidhi brought the necessary amount in each for her share of goodwill premium, half of which was withdrawn by the old partners.
(b) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(c) Investments were to be valued at Rs. 3,00,Alok took over investments at this value.
(d) Nidhi brought Rs. 3,00,000 as her capital and the capitals of Sanjana and Alok were adjusted in the new profit sharing ratio.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the reconstituted firm on Nidhi's admission.

Dr. Revaluation Account Cr.
Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)	Amount (Rs.)
To Furniture		30,000	By Stock		30,000
To Profit on revaluation transferred to Old Partner’s Capital accounts			By Investments		40,000
Sanjana	24,000
Alok	16,000	40,000
		70,000			70,000

Dr. Partner’s Capital Accounts Cr.
Particulars	L.F.	Sanjana	Alok	Nidhi	Particulars	L.F.	Sanjana	Alok	Nidhi
To Cash A/c		30,000	20,000		By Balance c/d		5,00,000	4,00,000
To Investments A/c			3,00,000		By Cash A/c				3,00,000
To Cash A/c		1,40,000			By WCF		36,000	24,000
					By Premium for Goodwill A/c		60,000	40,000
To Balance c/d		4,50,000	3,00,000	3,00,000	By Revaluation A/c		24,000	16,000
					By Cash A/c			1,40,000
		6,20,000	6,20,000	3,00,000			6,20,000	6,20,000	3,00,000

Balance Sheet
As on 31^st March, 2018
Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Creditors		60,000	Cash at bank		5,16,000
Partner’s Capital Accounts			Debtors	1,46,000
Sanjana	4,50,000		Less: Provision	2,000	1,44,000
Alok	3,00,000		Stock		1,80,000
Nidhi	3,00,000	10,50,000	Furniture		2,70,000
		11,10,000			11,10,000

Working Note:

1. Computation of amount of goodwill to be brought in by Nidhi and adjusted to sacrificing partners

Revalued goodwill of the firm = Rs. 4,00,000

Nidhi’s share in goodwill = 4,00,000 * ¼ = 1,00,000

Sacrificing ratio of old partners = Old profit sharing ratio of old partners

Sanjana’s share in premium for goodwill = 1,00,000 * 3/5 = 60,000

Alok’s share premium for goodwill = 1,00,000 * 2/5 = 40,000

2. Computation of partner’s adjusted capital after Nidhi’s admission in the new profit sharing ratio

New profit sharing ratio of Sanjana – Remaining profit share after Nidhi’s admission * Old profit sharing ratio

New profit sharing ratio of Sanjana = (1-1/4) * 3/5 = ¾ * 3/5 = 9/20

New profit sharing ratio of Alok = (1-1/4) * 2/5 = ¾ * 2/5 = 6/20

Profit sharing ratio of Nidhi = ¼ = 5/20

Total adjusted capital of Sanjana, Alok and Nidhi = 5,90,000 + 1,60,000 = 7,50,000

New capital of Sanjana = 7,50,000 * 9/15 = 4,50,000

New capital of Alok = 7,50,000 * 6/15 = 3,00,000

From the following Receipts and Payments Account of A.S.C. College of Commerce, Ramanand Nagar, for the year ending $31^{st}$ March, $2016$ and additional information, prepare Income and Expenditure Account for the year ending $31$ st March, $2016$ and Balance Sheet as on that date.
Receipts and Payments Account for the year ended on $31$ March, $2016$
Receipts Amount(Rs.) Dr. Payments Amount(Rs.) Cr.
To Balance b/d
By Salaries $67,000$
Cash in hand $7,950$ By Electricity $26,200$
Cash at bank $50,800$ By Books $41,300$
To Life membership fees $20,500$ By Furniture $45,000$
To Donations $1,00,000$ By Stationery $18,300$
To Tuition fees $1,30,000$ By Fixed deposits $2,00,000$
To Term fees $1,00,000$ By Balance c/d
To Admission fees $40,000$ Cash $1,450$
Bank $50,000$

$4,49,250$ $4,49,250$
Additional information:
$(1)$
Particulars $01.04.2015$ Amount (Rs.) $31.03.2016$ Amount $$(Rs.)
Furniture $40,000$ $75,000$
Building fund $1,50,000$ -
Fixed deposits $1,60,000$ -
Capital fund $1,20,750$ -
$(2)$ $50\%$ of donations are received for building fund.
$(3)$ Life membership fees are to be capitalised.
$(4)$ Tuition fees includes Rs. $12,000$ received for the last year.
$(5)$ Outstanding tuition fees for the current year amounted to Rs. $4,200$ .

1162484_864967_ans_58e59e34fe074bf09e4df6e7bbd91b0f.png

	Rs.
Cash balance	10,000
Subscription to newspapers	3,000
Upkeep of ground	10,000
Proceeds from concerts	10,000
Computers purchased	5,000
Subscriptions Received	40,000
Endowment fund	2,000
Rent received	2,000
Books purchased	5,000

Particulars	2017-18	2016-18
Revenue from operations Other incomes (% of revenue from operations) Employee benefit expense (% of Total Revenue) Tax rate	Rs. 6,00,000 20% 40% 50%	Rs. 5,00,000 20% 30% 50%

Particulars	Amount (Rs.)	Amount (Rs.)
Security Deposit - Students Capital Fund Building Fund Tuition Fee Received Government Grants Interest & Dividends on Investments Hostel Room Rent Mess Receipts (Net) College Stores - Sales Outstanding expenses Stock of Stores and Supplies (opening) Purchases - Stores & Supplies Salaries - Teaching Salaries - Research Scholarships Students Welfare expenses Game & Sports expenses Other investments Land Building Plant and Machinery Furniture and Fittings Motor Vehicle Provision for Depreciation: Building Plant & Equipment Furniture & Fittings Cash at bank Library	$-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $3,10,000$ $8,20,000$ $8,75,000$ $1,25,000$ $85,000$ $37,000$ $52,000$ $12,75,000$ $1,50,000$ $15,50,000$ $8,50,000$ $5,40,000$ $2,40,000$ $-$ $-$ $-$ $3,16,000$ $3,20,000$ $\overline{75,45,000}$	$1,55,000$ $13,08,000$ $19,10,000$ $8,10,000$ $5,01,000$ $1,75,000$ $1,65,000$ $2,05,000$ $7,60,000$ $2,35,000$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $-$ $4,90,000$ $5,05,000$ $3,26,000$ $\overline{75,45,000}$

Liabilities	Amount (Rs,)	Assets	Amount (Rs,)
Creditors Work men's Compensation Fund Capital: Sanjana $5,00,000$ Alok $\underline{4,00,000}$	$60,000$ $60,000$ $9,00,000$	Cash Debtors $1,46,000$ Less:Provision for doubtful debts $\underline{2,000}$ Stock Investment Furniture	$1,66,000$ $1,44,000$ $1,50,000$ $2,60,000$ $3,00,000$
	$10,20,000$		$10,20,000$

Receipts	Amount(Rs.) Dr.	Payments	Amount(Rs.) Cr.
To Balance b/d		By Salaries	$67,000$
Cash in hand	$7,950$	By Electricity	$26,200$
Cash at bank	$50,800$	By Books	$41,300$
To Life membership fees	$20,500$	By Furniture	$45,000$
To Donations	$1,00,000$	By Stationery	$18,300$
To Tuition fees	$1,30,000$	By Fixed deposits	$2,00,000$
To Term fees	$1,00,000$	By Balance c/d
To Admission fees	$40,000$	Cash	$1,450$
		Bank	$50,000$
	$4,49,250$		$4,49,250$

Particulars	$01.04.2015$ Amount (Rs.)	$31.03.2016$ Amount $$(Rs.)
Furniture	$40,000$	$75,000$
Building fund	$1,50,000$	-
Fixed deposits	$1,60,000$	-
Capital fund	$1,20,750$	-

Accounting For Not-For-Profit Organisations - Class 12 Commerce Accountancy - Extra Questions