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Difficulty: MediumTreatment of Entrance Fees, Donations, and Legacies

Harmony Cultural Association recorded the following receipts during the financial year ended 31 December 2025:

- General donations received: ₦120,000
- Legacy for auditorium building fund: ₦450,000
- Entrance fees received: ₦200,000

According to the association's constitution, 75% of entrance fees are to be capitalized. What is the total amount to be credited to the Income and Expenditure Account for the year?

  1. ₦170,000Answer
  2. B
    ₦320,000
  3. C
    ₦620,000
  4. D
    ₦770,000

Answer

₦170,000 should be credited to the Income and Expenditure Account.
General donations of ₦120,000 are unrestricted revenue receipts credited directly to the Income and Expenditure Account. The specific legacy of ₦450,000 is a capital receipt designated for an auditorium building fund, so it is credited to the building fund in the Statement of Financial Position. Entrance fees total ₦200,000; since 75% (₦150,000) is capitalized, the remaining 25% (₦50,000) is treated as revenue income. Therefore, the total credited to the Income and Expenditure Account is ₦120,000 + ₦50,000 = ₦170,000.

Step-by-Step Solution

1
Identify the accounting treatment for general donations
General donations of ₦120,000 are treated as revenue income and credited to the Income and Expenditure Account.
Unrestricted/general donations support regular operating activities.
2
Identify the accounting treatment for the specific legacy
The legacy of ₦450,000 is for a specific capital project (auditorium building fund) and must be capitalized in the Statement of Financial Position.
Donations or legacies tied to specific capital assets are capital receipts.
3
Calculate the revenue portion of entrance fees
Revenue portion = 25% of ₦200,000 = ₦50,000.
Since 75% is capitalized, the remaining 25% (100% - 75%) is recognized as revenue income.
4
Sum up all revenue items credited to Income and Expenditure Account
Total credited = ₦120,000 + ₦50,000 = ₦170,000.
Only revenue items are included in the Income and Expenditure Account.

Key Concept

Distinction between revenue receipts and capital receipts in non-profit organization accounting
Estimated Time:1m 30s
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Topics

Treatment of Entrance Fees, Donations, and Legacies