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Difficulty: MediumNature and Features of Non-Profit Organizations

In accounting for non-profit organizations, life membership fees collected from members are treated as revenue receipts and credited in full to the Income and Expenditure Account for the year in which they are received.

Answer: Answer

Answer

The statement is False. Life membership fees represent non-recurring lump-sum receipts that provide long-term benefits across multiple periods. Consequently, they are treated as capital receipts and credited to the Accumulated Fund (or capitalized), rather than being recognized in full as revenue income in the Income and Expenditure Account during the year of receipt.
Life membership fees grant membership rights over a member's lifetime and do not recur annually. In non-profit accounting, non-recurring receipts of a capital nature must be credited to the Accumulated Fund or capitalized, rather than treated as regular revenue in the Income and Expenditure Account.

Step-by-Step Solution

1
Identify the nature of the transaction
Life membership fees are paid once by a member to secure lifetime membership rights in a non-profit organization.
Understanding the frequency and duration of benefit helps distinguish between capital and revenue receipts.
2
Determine the proper accounting classification
Because the benefit extends over many years and the payment is non-recurring, it is classified as a capital receipt.
Revenue receipts are recurring items meant for regular operations, whereas capital receipts provide enduring benefits.
3
Evaluate the statement against standard NPO accounting treatment
Capital receipts are added to the Accumulated Fund or deferred on the balance sheet, not credited in full to the Income and Expenditure Account.
Crediting the full lump-sum payment to a single period's Income and Expenditure Account would distort the surplus or deficit for that year.

Key Concept

Classification of Capital vs Revenue Receipts in Non-Profit Organizations
Estimated Time:1m 0s
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Topics

Nature and Features of Non-Profit Organizations