New RBI Grade B 2025 Notification will come Soon! Enroll Here

    Question

    What is the appropriate accounting treatment for

    general donations and legacies received by a non-profit organization in India?
    A Income & expenditure account Correct Answer Incorrect Answer
    B Capital fund account Correct Answer Incorrect Answer
    C Reserve Fund account Correct Answer Incorrect Answer
    D Asset account Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    A charitable institution often received donations, donations may be a general donation or a specific donation. 1.    General donation is a donation in which donor does not specify any condition for its use. This account of general donation is accounted as an income and credited to income and expenditure account. 2.    Specific donation is a donation where the donor specifies the purpose for which the donation can be used. Specific donations are capitalised and is shown in the liability side of balance sheet.   Legacy is the amount received as donation by a Not-for-profit organization under WILL of a deceased person. The donor may or may not specify conditions for its use. In case no conditions are specified it is accounted as general donation and if a specific condition is specified, it is accounted as ‘Specific donation’. In the absence of information in the above question regarding imposing any specific condition by the donor on utilisation of Donation & Legacy amount, it is assumed that they fall in category of general donation and hence will be credited to revenue account i.e., Income and expenditure account

    Practice Next

    Relevant for Exams: