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Difficulty: MediumNature and Features of Non-Profit Organizations

In a non-profit organization, any excess of income over expenditure (surplus) realized at the end of a financial period is distributed among its subscribing members in the form of dividends.

Answer: Answer

Answer

The statement is False. Surpluses generated by non-profit organizations are retained and transferred to the Accumulated Fund to support organizational goals, rather than being distributed to members as dividends.
The statement is false because non-profit entities are prohibited from distributing financial gains to members. Any surplus achieved must be transferred to the Accumulated Fund to further the objective of the organization.

Step-by-Step Solution

1
Examine the fundamental motive and nature of a non-profit organization.
Non-profit organizations (such as clubs, societies, and voluntary associations) exist to render services to members and society, not to yield monetary returns to owners.
Distinguishing the service motive of NPOs from the profit motive of commercial enterprises is essential.
2
Determine the accounting treatment of operational surpluses.
The excess of income over expenditure (surplus) is credited directly to the Accumulated Fund on the Statement of Financial Position.
Non-profit organizations do not have share capital or proprietary equity accounts through which dividends can be declared or paid.

Key Concept

Nature and Features of Non-Profit Organizations (Retention of Operational Surplus)
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Nature and Features of Non-Profit Organizations