The accounting policy of Metro Tradesmen Welfare Association requires of entrance fees to be capitalized, while the remaining portion is recognized as revenue income. During the year ended 31 December 2025, the association recorded the following receipts:
- Entrance fees: ₦
- General donations: ₦
- Legacy for constructing a new gymnasium: ₦
What is the total amount to be credited to the Income and Expenditure Account for the year?
- ₦650,000Answer
- B₦1,250,000
- C₦3,150,000
- D₦3,750,000
Answer
The total amount credited to the Income and Expenditure Account is ₦650,000.
In accordance with non-profit accounting rules, entrance fees are split according to organizational policy (25% revenue = ₦200,000). General donations of ₦450,000 are unrestricted revenue income. The legacy of ₦2,500,000 is earmarked for a specific capital project (building a gymnasium) and must be capitalized on the Balance Sheet. Therefore, total revenue credited to the Income and Expenditure Account is ₦200,000 + ₦450,000 = ₦650,000.
Step-by-Step Solution
Key Concept
Accounting treatment of entrance fees, general donations, and specific legacies in non-profit financial statements.