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Difficulty: HardTreatment of Entrance Fees, Donations, and Legacies

During the financial year ended 31st December 2025, Apex Social Club received ₦150,000 as entrance fees, ₦80,000 as general donations, a legacy of ₦200,000 specifically earmarked for the construction of a new sports pavilion, and a special donation of ₦120,000 for purchasing club equipment. According to the club's financial policy, 60% of all entrance fees should be capitalized. What total amount should be credited to the Income and Expenditure Account for the year?

  1. ₦140,000Answer
  2. B
    ₦230,000
  3. C
    ₦260,000
  4. D
    ₦550,000

Answer

The total amount credited to the Income and Expenditure Account for the year is ₦140,000.
The correct figure of ₦140,000 is derived by recognizing only revenue items in the Income and Expenditure Account. Entrance fees are 40% revenue income (40%×₦150,000=₦60,00040\% \times ₦150,000 = ₦60,000), and general donations of ₦80,000 are revenue receipts (₦60,000+₦80,000=₦140,000₦60,000 + ₦80,000 = ₦140,000). Specific legacies (₦200,000) and special donations for equipment (₦120,000) are capital receipts credited directly to reserve/fund accounts in the Statement of Financial Position.

Step-by-Step Solution

1
Calculate the revenue portion of entrance fees to be credited to the Income and Expenditure Account.
Revenue Entrance Fees = (100%−60%)×₦150,000=40%×₦150,000=₦60,000(100\% - 60\%) \times ₦150,000 = 40\% \times ₦150,000 = ₦60,000
By policy, 60% of entrance fees must be capitalized (credited to the Statement of Financial Position / Accumulated Fund), leaving 40% to be recognized as revenue income.
2
Identify revenue income items among donations and legacies.
General Donations = ₦80,000 (Revenue Income). Specific Legacy = ₦200,000 (Capital Receipt). Special Equipment Donation = ₦120,000 (Capital Receipt).
General donations with no specific conditions are treated as revenue income. Legacies and donations earmarked for specific capital projects or asset acquisitions are capital receipts and credited directly to specific fund accounts in the Statement of Financial Position.
3
Sum all revenue income items to determine the total credit to the Income and Expenditure Account.
Total Credit = ₦60,000 (Revenue Entrance Fees)+₦80,000 (General Donations)=₦140,000₦60,000 \text{ (Revenue Entrance Fees)} + ₦80,000 \text{ (General Donations)} = ₦140,000
Only revenue items belong in the Income and Expenditure Account.

Key Concept

Accounting Treatment of Entrance Fees, Specific Legacies, and Special Donations in Non-Profit Organizations
Estimated Time:2m 0s
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Topics

Treatment of Entrance Fees, Donations, and Legacies