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Zorluk: KolayTreatment of Entrance Fees, Donations, and Legacies

Unity Social Club received a donation of ₦500,000 specifically intended for the construction of a new library building. What is the correct accounting treatment for this donation in the club's financial statements?

  1. Credit it to a Special Building Fund account as a capital receiptCevap
  2. B
    Credit it to the Income and Expenditure Account as revenue income
  3. C
    Debit it to the Receipts and Payments Account as a revenue expense
  4. D
    Credit it to the Trading Account as operating profit

Cevap

The donation should be credited to a Special Building Fund account in the Statement of Financial Position as a capital receipt.
Donations designated for a specific capital purpose, such as constructing a building, are capitalized and credited directly to a dedicated capital fund account in the Statement of Financial Position (Balance Sheet).

Adım Adım Çözüm

1
Identify the nature of the receipt
The donation is tied to a specific project (construction of a library building).
Specific donations carry a legal or constitutional restriction on how the funds must be spent.
2
Determine accounting classification (Capital vs Revenue)
Specific donations are classified as capital receipts rather than general revenue income.
Capital receipts create or add to long-term funds or non-current asset financing rather than supporting day-to-day operational activities.
3
Select the correct accounting record and statement placement
Credit the Special Library/Building Fund account shown on the liabilities side of the Balance Sheet (Statement of Financial Position).
This keeps the funds earmarked until utilized for the intended capital asset construction.

Anahtar Kavram

Accounting Treatment of Specific Donations in Non-Profit Organizations
Tahmini Süre:45s
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Konular

Treatment of Entrance Fees, Donations, and Legacies