PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS

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Advance Financial Accounting (FIN-611)

LESSON # 8

PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT

ORGANIZATIONS FROM INCOMPLETE RECORDS

Questions often require candidates to prepare an Income & Expenditure Account and

Balance Sheet from incomplete records. Generally, a summary of bank and cash

transactions is provided along with information relating to opening and closing assets

and liabilities.

To solve these types of problems, the following steps are followed:

1. Prepare a receipt and payment account (if not given in the question).

2. Prepare statement of affairs as on opening date.

3. Post the balances of assets and liabilities from the statement of affairs into the

relevant ledger a/c as opening balance b/f or put these in the working for

further calculation of closing balance.

4. Pick up the revenue receipts and payment and pass these from the filter of

accruals to calculate incomes and expenses for the year.

5. Prepare such ledger accounts as are deemed necessary (like subscription a/c).

6. Work out depreciation charge for the fixed assets and treat them accordingly.

7. Prepare trading account for supporting trading activities undertaken by the

non-trading organization.

8. Draft the income and expenditure account and balance sheet.

Solved Problem 1

Karachi Golf Club prepared the following Receipts and Payments Account for the year

ended December 31, 2007

Receipts

Amount

Payments

Amount

Rupees

Opening balance b/f

3,800 Sports Equipments

10,000

Subscription

(purchased on 1.9.2007)

2,000 Tournament expenses

4,000

2006

18,500 Electricity

500

2007

900 Printing

300

2008

3,400

Entrance fees

Salaries and wages

800 Expenses for exhibition

2,100

(capital receipts)

1500 Closing Balance c/f

7,200

Interest on Investment

27,500

Additional information:

1. Non-current assets of the club on January 1, 2007 include the following:

Rupees

Club Ground

50,000

Sports Equipment

15,500

Furniture

2,000

Investment

12,000

Advance Financial Accounting (FIN-611)

2. Subscription for 2007 collected in 2006 Rs. 500

3. Unpaid subscriptions for 2007 Rs. 300

4. Depreciation to be provided

@ 5% p.a. on furniture and

@ 20% p.a. on sports equipment.

Required:

prepare Income statement and balance sheet for the year 2007.

Statement of Affairs

As on January 1, 2007

Assets

Club ground

50,000

Sports equipment

15,500

Furniture

2,000

Investments

12,000

Subscription due

2,000

Cash balance

3,800

85,300

Less Liabilities

Subscription received in advance

500

Capital fund

84,800

Sports Equipment Account

Date Particulars

Amount Date Particulars

Amount

Rupees

1 Jan Opening balance

15,500 31 Dec Depreciation

3,767

2007

1 Sep Addition

10,000 31 Dec Balance

21,733

2007 During the year

2007

25,500

Sports Equipment

Rupees

Opening balance

15,500

Add Addition 1.9.2007

10,000

25,500

Less Depreciation

15,500 x 20%

3,100

3,767

10,000 x 20% x 4/12 667

Net book value

21,733

Furniture

Opening balance

2,000

Add Addition

1.9.2007

2,000

Less Depreciation

2,000 x 5%

100

Advance Financial Accounting (FIN-611)

Net book value

1,900

Subscription Income

Subscriptions received during the year

21,400

Less Opening due

2,000

Add Closing due

300

Add Opening advance

500

Less Closing advance

900

19,300

Income & Expenditure Account

For the year ended December 31, 2007

Rupees

Incomes

Rupees

Subscription

19,300

20,800

Interest on Investment

1,500

Expenses

Tournament expenses

4,000

Electricity

500

Printing

300

Salaries and wages

3,400

Exhibition expenses

2,100

Depreciation

furniture

100

Sports equipment

3,767

14,167

6,633

Owner's Equity

Opening capital

xxx

Add Net profit

xxx

Add Fresh capital

xxx

Less Drawings

xxx

Closing capital

xxx

Capital Fund

Opening capital fund

xxx

Add Surplus

xxx

Add Capital receipts during the year

xxx

Closing capital fund

xxx

Capital fund as on December 31, 2007

Rupees

Opening capital

84,800

Add Surplus

6,633

Add Capital receipts

800

Closing capital fund

92,233

Advance Financial Accounting (FIN-611)

Balance Sheet

As on December 31, 2007

Amount Capital fund &

Amount

Assets

Rupees Liabilities

Rupees

Club building

50,000 Capital fund

92,233

Sports equipment

21,733 Subscription received in

Furniture

1,900 advance

900

Investments

12,000

Subscription due

300

Cash

7,200

93,133

Some of the non-profit organizations believe on self sufficiency. These types of

organizations run a trading activity within the organization. These may include a

canteen, a juice shop, a book shop, a tuck shop etc. Following is a solved problem that

covers working for such trading activity.

Solved Problem 2

The following summary of the Cash Book has been prepared by the Treasure of a club.

Receipts

Amount

Payment

Amount

Rupees

Cash in hand & at bank

Wages-Outdoor staff

13,380

on April 1, 2007

4,740

Restaurant purchases

50,400

Member's subscription

29,720

Rent-18 months June 30,

7,500

Entrance fee

3,200

2008

Restaurant fee

56,800

Rates

2,200

Games competition receipts

Secretary salary

3,120

13,640

Lighting, Cleaning &

Dues to secretary

7,700

for petty expenses

Sanitary service

Competition prizes

4,000

Printing, postage &

6,000

Sundries

Fixed deposit in bank

8,000

Balance

5,880

108,180

On April 1, 2007, the club assets were: Furniture and Equipment Rs. 48,000; Restaurant

stocks Rs. 2,600; Stock of prizes Rs. 800, and Rs 5,200 owed for supplies to the

restaurant.

Advance Financial Accounting (FIN-611)

On March 31, 2008 the restaurant Stocks were Rs. 3,000 and prizes on hand were Rs.

500 while the club owed Rs. 5,600 for restaurant supplies.

It was also found that member's subscription unpaid on March 31, 2008, amounted to

Rs. 1,000 and that the amount of Rs. 29,720 shown in cash book included Rs. 700 in

respect of previous year and Rs. 400 paid in advance for the following year.

Working for trading activity

Rupees

Supplies

Cash paid

50,400

Less Opening due

5,200

Add Closing due

5,600

Supplies purchase expenses

50,800

Cost of goods sold

Purchases of supplies

50,800

Add opening stock

2,600

Less closing stock

3,000

Cost of goods sold

50,400

Trading Account

Sales

56,800

Less Cost of Goods Sold

50,400

6,400

CLUB

Income and Expenditure Account

For the year ended 31.03.2008

Expenditure

Rs.

Income

Rs.

To Wages Outdoor staff

13,380 By Members' subscriptions

29,620

To Rent

5,000 By Games competition receipts

13,640

6,400

To Rates

2,200 By Restaurant profit

To Secretary's Salary

3,120

To Lighting, cleaning and

sanitary services

7,700

To Competition prizes

4,300

To Printing, postage and

sundries

6,000

To depreciation on Furniture &

Equipment 10%

4,800

To Excess of Income over

Expenditure

3,160

49,660

Advance Financial Accounting (FIN-611)

CLUB

Balance Sheet

As at 31.03.2008

Liabilities

Rs.

Assets

Rs.

Capital Fund:

Furniture & Equipment

48,000

Opening Balance

50,390

Less: 10% Depreciation

4,800

43,200

Add: Entrance Fees

3,200

Restaurant Stock

3,000

Add: Excess of Income

Prizes in hand

500

56,750 Fixed deposit with bank

8,000

over Expenditure

3,160

Subscriptions received in advance

Cash in hand at bank

5,880

Creditor for restaurant supply

400 Prepaid Rent (April to June 2008)

1,250

Due to secretary

5,600 Subscriptions outstanding

1,000

62,830

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