STUDY UNIT

16
Nonprofit entities

Learning outcome

Students should be able to record all transactions related to organisations and societies not
for gain.

Contents
Key concepts 315
16.1 Introduction 315
16.2 Receipts and payments statement 315
16.3 Income and expenditure statement 316
16.4 Trading statement 317
16.5 Accumulated fund 317
16.6 Special funds 317
16.7 Exercises 318
16.8 Entrance fees 323
16.9 Comprehensive example 324
16.10 Revision exercises and solutions 330
16.10.1 Revision exercise 1 330
16.10.2 Revision exercise 2 336
Self-assessment 341

FAC1502/1 314
KEY CONCEPTS
. Receipts and payments statement
. Income and expenditure statement
. Trading statement
. Statement of financial position
. Special funds
. Nonexpendable special funds
. Expendable special funds
. Accumulated fund
. Entrance fees
. Membership fees

16.1 Introduction
A nonprofit organisation can be defined as an economic entity which has the legitimate goal of
furthering certain interests of the community. Its objective is not to distribute profits to the
members but to use the profits in order to achieve the stated goal. Such an entity is oriented to
render a service to its members, and not to pursue financial gain.
These entities/societies can range from informal social clubs, (for example an activity club for
the elderly) to formal societies (for example schools and churches). Revenue may be acquired
from a variety of sources, such as membership fees, donations, fund raising projects, bequests
and even government subsidies. Membership, and not ownership, is acquired through the
payment of membership fees. Members of a nonprofit organisation can therefore not claim the
same rights in the entity as, for example, shareholders in a company excluding section 21-
companies.

Study paragraphs 16.1 to 16.3.4 of the prescribed book.

16.2 Receipts and payments statement

Study paragraph 16.4.1 of the prescribed book.

A receipts and payments statement is an analysed and classified summary of the cash
transactions. It is the most elementary version of a statement for a club or association.
Smaller entities which have no other assets than cash will often only prepare a receipts and
payments statement as the annual financial statement.
The statement can be prepared in a T-format where the actual cash received is entered on
the debit side, and the actual cash paid out on the credit side. All the cash received and paid,
whether it was operational revenue/expenses or revenue/expenses of a capital nature, is
recorded in this statement. Prepayments, income received in advance and accrued amounts
received or paid will also be entered because the accrual principle is not applied when this
statement is prepared.
Since this statement is merely a summary of cash transactions, the opening balance of the
statement represents the opening balance of cash on hand (in the bank), and the closing
balance of the statement represents cash on hand (in the bank) at the end of the period.
It is obvious that no financial performance (surplus or shortage) or financial position (as
reflected in the statement of financial position) can be determined from this statement.

315 FAC1502/1
 Example

STEAR TENNIS CLUB

RECEIPTS AND PAYMENTS STATEMENT FOR THE YEAR ENDED 30 JUNE 20.2

Receipts R Payments R
Balance 30/6/20.1 b/d 4 700 Refreshments purchased 1 342
Entrance fees 500 Wages 4 220
Membership fees: 12 000 Tennis balls purchased 360
20.1 750 Tennis courts painted 750
20.2 10 000 Tennis courts built 7 000
20.3 1 250 Stationery and sundry
expenditure 1 590
Investment made at
Interest income 2 332 ABC Bank 5 000
Net proceeds from dance 620
Balance c/d 3 410
Donation 3 520

23 672 23 672

Balance b/d 3 410

This statement can also be prepared in a vertical (narrative) format.

The financial information needs of a larger club or society will require more than the mere
presentation of a receipts and payments statement. An income and expenditure statement
(statement of profit or loss and other comprehensive income) as well as a statement of financial
position, similar to those of an ordinary trading entity, are usually also required.

16.3 Income and expenditure statement

Study paragraphs 16.4.2 and 16.4.3 of the prescribed book.

For all practical purposes the income and expenditure statement is prepared according to the
guidelines provided in IFRS.

It is very important to remember that outstanding and prepaid income and/or expenditure at the
beginning and at the end of the period should be taken into account when preparing the income
and expenditure statement. These prepaid or arrear items at the end of the period should also
be shown on the statement of financial position in the usual way.

An income and expenditure statement is intended to determine the surplus or deficit for an
accounting period.

This statement is very similar to a statement of profit or loss and other comprehensive income
prepared by a trading concern. The layout may differ from that of a statement of profit or loss
and other comprehensive income because all the relevant sources of income, including
investment income, can be shown under the heading ‘‘Income’’ and all the expenses, including
finance costs, can be shown under the heading ‘‘Expenses’’. The income and expenditure

FAC1502/1 316
statement is also prepared according to the accrual principle. The difference between the
revenue (credits) and expenses (debits) represents the surplus/deficit for the accounting
period.

The following is a comparison between an income and expenditure statement and a receipts
and payments statement:

Income and expenditure statement Receipts and payments statement

1. Shows the total income and expenditure 1. Shows only actual cash receipts and
for the period, even if not yet received or payments.
paid (applying the accrual principle).
2. Indicates the result of the financial 2. Shows the amount of cash on hand at the
period’s transactions by showing a sur- beginning and at the end of a financial
plus or a deficit. period, but does not indicate a surplus or
deficit.
3. Receipts and payments of a capital 3. Receipts and payments of a capital
nature are not brought into account. nature are included.

16.4 Trading statement

The majority of the bigger clubs do trade in order to generate revenue which they use to
achieve their stated goals, for example, the provision of bar and refreshment facilities to their
members. If the scale on which trading takes place justifies it, a separate trading statement can
be prepared for each operational activity. Therefore it is possible to prepare more than one
trading statement for a specific entity/society. The layout of such a trading statement is similar
to the trading section of a statement of profit or loss and other comprehensive income of an
ordinary trading concern. It closes off with the determination of the gross profit. Since trading
takes place, the term ‘‘gross profit’’ instead of ‘‘surplus’’ is used. The gross profit is carried
forward to the income and expenditure statement. The sales, administrative and general
expenses in respect of each operational activity are deducted from the applicable gross profits
in the income and expenditure statement. (Refer to the income and expenditure statement of
Green Golf Club, paragraph 16.10, revision exercise 1, which is given further on in this study
unit.)

16.5 Accumulated fund

Any initial donations made to begin the organisation, entrance fees, the surplus/deficit for each
period and special funds donated for general expenses will form part of the accumulated fund.

When money is donated for a special purpose, separate investment accounts must be opened
for special funds. This makes it possible to issue meaningful reports on the acquisiton and
utilisation of funds.

16.6 Special funds

Study paragraph 16.3.5 of the prescribed book.

A nonprofit entity often sets money aside for a specific purpose so that not all the cash is spent

317 FAC1502/1
 on expenses of a general nature. Special funds are established for these purposes and they
are usually accounted for separately from the accumulated funds. Donations can then be made
to these funds or a special fund can be established for a conditional donation or legacy.

A separate investment account is usually opened for each special fund in which the capital is
deposited. Such donations and income earned from the investments thereof do not form part of
the general operating income of the organisation and should, as a general rule, not be included
in the income and expenditure statement. Likewise, the applicable expenses should also be
reflected through the fund account and not through the income and expenditure account.

Special funds can be divided into two main sections:

. Firstly, special funds can be established to save or set aside money for a specific
purpose; eg, to purchase specific equipment. When sufficient funds have been
accumulated or received, the equipment can be purchased with the capital amount as
well as the income earned from the capital, if any.
. Secondly, special funds can be established where only the income earned from the
investment of the capital amount may be applied. It is also possible that such income may
only be spent on stipulated items.
This implies that the capital amount of such funds must be invested in a sound security. This
capital amount must remain untouched and will appear under the heading ‘‘Special funds:
Nonexpendable funds’’ in the balance sheet. The investments relating to these funds must
be shown as separate items on the asset section of the statement of financial position.
Cross-references must be given on the statement of financial position.
The funds account must be credited with the investment income. Should the income from
the investment be greater than the expenses involved, the balance will be shown in the
statement of financial position under the heading: ‘‘Special funds: Expendable funds’’.
Obviously, a fund may not incur more expenses than the balance of the expendable portion
thereof. Should the income from a fund be insufficient to pay for all the relevant expenses/
costs, the organisation will have to find alternative means to finance the outstanding
amounts.

The application of the revenue from or/and capital of a special fund may result in an increase in
the assets of the non-profit entity. Although the purchase of such assets is financed by means
of a fund, the increase in the value of the assets concerned must be shown as such on the
asset side of the statement of financial position. Acknowledgement of the fact that an increase
in an asset resulted from a fund can be shown in a note.

The following exercises illustrate fund accounts and their disclosure in the statement of
financial position.

16.7 Exercises

E xer cise 16.1

Special fund
Income from a fund which must be used for a specific expense
On 1 July 20.0 Stear Tennis Club received a donation to the amount of R8 000 from S Star on
the express condition that the income received from the donation may only be used for the

FAC1502/1 318
 painting of the tennis courts. On the same date the amount was invested as a fixed deposit at
ABC Bank at an interest rate of 10% per annum. The interest is received annually on 30 June.
No tennis courts were painted during the year ended 30 June 20.1. It was decided, as a
general policy, to invest all surplus interest amounts at ABC Bank as fixed deposits for a year.
During the year ended 30 June 20.2, the tennis courts were painted at a cost of R750. The
surplus interest was invested according to general policy at an interest rate of 10% per annum.

Required:

Show how these transactions will be recorded in the Star fund account of the club.

Solution Exercise 16.1

Dr Star fund Cr

Expend- Non- Expend- Non-

able expend- able expend-
(income) able (income) able
(capital) (capital)

20.1 R R 20.0 R R
Jun 30 Balance c/d 800 8 000 Jul 1 Bank: Capital donation — 8 000
20.1
Jun 30 Bank: Interest on investment 800

800 8 000 800 8 000

20.2 20.1
Jun 30 Tennis courts painted 750 — Jul 1 Balance b/d 800 8 000
Balance c/d 930 8 000 20.2
Jun 30 Bank: Interest on investment 880 —
(a)
1 680 8 000 1 680 8 000

20.2
Jul 1 Balance b/d 930 8 000

CALCULATION
(a) (10% 6 R8 000) + (10% 6 R800) = R880

COMMENTS

. Because the interest earned and the expenses in respect of the tennis courts that were
painted are accounted for in the fund account, these items will not be disclosed in the
income and expenditure statement. The tennis courts were painted during the year.
The recording of these expenses would have been as follows: Debit the painting of
tennis courts account and credit the bank account. On 30 June 20.2, the date on which
the interest was received, the fund account was debited with this expense and the
painting of tennis courts account was credited. (This entry will balance the painting of
tennis courts account.)
. The statement of financial position of the Stear Tennis Club will show the items in
respect of the fund as follows:

319 FAC1502/1
 STEAR TENNIS CLUB
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20.2 (extract)

ASSETS Note R
Non-current assets
Financial assets: Star fund — Fixed deposit at 8 930
10% per annum at ABC Bank

FUNDS AND LIABILITIES

Funds
Special funds 8 930
Nonexpendable funds (capital)
Star fund 8 000
Expendable funds
Star fund 930

E xer cise 16.2

SPECIAL FUND
Income from a fund which must be used to purchase property, plant and equipment.
On 1 July 20.0 the Stear Tennis Club received a donation to the amount of R100 000
from S Superstar on the express condition that the revenue from the fund may only be
used for the building of tennis courts. On the same date the amount was invested as a fixed
deposit at ABC Bank at an interest rate of 10% per annum. The interest is received annually on
30 June. No tennis courts were built during the year ended 30 June 20.1. It was decided, as a
general policy, to invest all surplus interest amounts at ABC Bank as fixed deposits for a year.
During the year ended 30 June 20.2, the tennis courts were built at a cost of R70 000.

Required:

Show how these transactions are recorded in the Superstar Fund account of the club.

FAC1502/1 320
 Solution Exercise 16.2

Dr Superstar fund Cr

Expend- Non- Expend- Non-

able expend- able expend-
(income) able (income) able
(capital) (capital)

20.1 R R 20.0 R R
Jun 30 Balance c/d 10 000 100 000 Jul 1 Bank: Capital donation — 100 000
20.1
Jun 30 Bank: Interest on investment 10 000

10 000 100 000 10 000 100 000

20.2 20.1
Jun 30 Accumulated fund 21 000 — Jul 1 Balance b/d 10 000 100 000
Balance c/d — 100 000 20.2
Jun 30 Bank: Interest on investment 11 000 —
(a)
21 000 100 000 21 000 100 000

20.2
Jul 1 Balance b/d — 100 000

CALCULATION
(a) (10% 6 R100 000) + (10% 6 R10 000) = R11 000

COMMENTS

. Because a non-current asset was obtained from the income of the fund, the amount
contributed by the fund must be credited to the accumulated fund account. Bear in
mind that the asset account was debited during the year at the date of the purchase.
. The statement of financial position of Stear Tennis Club will show the items in respect
of the fund as follows:
STEAR TENNIS CLUB
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20.2 (extract)

ASSETS Note R
Non-current assets 170 000
Property, plant and equipment 1 70 000
Financial assets: Superstar fund — Fixed deposit at
10% per annum at ABC Bank 100 000

FUNDS AND LIABILITIES

Funds XX XXX
Accumulated fund XX XXX
Balance: 1 July 20.2 XXXXX
Add: Tennis court built 21 000
Special funds
Nonexpendable funds (capital)
Superstar fund 100 000

321 FAC1502/1
 STEAR TENNIS CLUB
NOTES FOR THE PERIOD ENDED 20 JUNE 20.2 (extract)
Note 1 (extract)

Property, plant and equipment Land and buildings

R
Additions (tennis courts): 70 000

From own funds 49 000

From income:
Superstar fund 21 000

Remark
The accumulated fund account will be credited with the amount which the fund
contributed to the building of the tennis courts. In other words, the amount of R21 000 will
be added to the balance of the accumulated fund account.

E xer cise 16.3

PART OF ACCUMULATED FUND
Income from a fund which must be used to pay general (operational) expenses
On 1 July 20.1 Mr T Trueman donated R3 520 to the club on the express condition that the
capital should be invested. The income from the investment can be used to pay general
(operational) expenses. On the same date the amount was invested as a fixed deposit at
ABC Bank at 10% interest per annum. The income was spent accordingly.

Solution Exercise 16.3

Because the income from the fund has to be used to pay general expenses, an income account
can be opened in the general ledger of the entity. The balance of this account will be disclosed
as follows in the income and expenditure statement:

STEAR TENNIS CLUB

INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 30 JUNE 20.2
(extract)

R
Revenue 10 972
Membership fees
10 000
Interest income (donation from T Trueman) 10 352
Net proceeds from dance 10 620

The accounting for the capital amount and the related investment is as follows:
Debit bank and credit the accumulated fund account with the capital amount of R3 520. Credit
bank and debit the general investments account of the club which is financed from the
accumulated fund. The investment will still be disclosed separately, but will form part of these
general investments.

FAC1502/1 322
 The Trueman fund and the related investment will be disclosed as follows in the statement of
financial position:

STEAR TENNIS CLUB

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20.2 (extract)

ASSETS Note R
Non-current assets 10 520
Property, plant and equipment 1 7 000
Financial assets: General fund — Fixed deposit at 10%
per annum at ABC Bank
Trueman fund 3 520

FUNDS AND LIABILITIES

Funds
Accumulated fund (includes donation by T Trueman) 10 520

COMMENT

. Assume that there were no conditions and that the donation of R3 520 could be spent
on general expenses. The amount would be debited to the bank account and credited
to the donation received account on the date on which the donation was received. The
donation received will be disclosed in the general income and expenditure statement
as follows:

STEAR TENNIS CLUB

INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 30 JUNE 20.2
(extract)

R
Revenue 14 140
Membership fees 10 000
Donation received (T Trueman) 3 520
Net proceeds from dance 620

16.8 Entrance fees

Refer to paragraph 16.3.1 of the prescribed book.

Entrance fees are payable by prospective members when they apply for membership of a club.
The entrance fees are entered on the debit side of the bank account, and are credited to the
entrance fees account.
These fees, being nonrecurrent, must be credited directly to the accumulated fund account
(capitalised) and are not shown in the income and expenditure statement as revenue.

323 FAC1502/1
 Study paragraphs 16.5 and 16.6 of the prescribed book.

16.9 Comprehensive example

The following information relates to Pretoria Modellers’ Club, an association of people who
build model boats as a hobby:

ITEMS ON THE PRE-ADJUSTMENT TRIAL BALANCE AT 28 FEBRUARY 20.2 R

Land and buildings (at cost) 50 000
Furniture and equipment:
At cost 10 000
Accumulated depreciation (28 February 20.1) 2 710
Membership fees (received) 15 000
Membership fees in arrears (28 February 20.1) 900
Membership fees received in advance (28 February 20.1) 1 100
Telephone expenses 450
Wages 5 000
Water and electricity 4 600
Maintenance of buildings 1 500
Jekyll fund (28 February 20.1) 20 000
Current account — Zeeland Bank (favourable balance) 1 400
Admission fees received (to hobbies fair) 6 300
Hobbies fair expenses 8 200
10% Long-term loan (SAL Bank) — 28 February 20.1 30 000
(Loan secured by first mortgage over land and buildings)
Accumulated fund (28 February 20.1) 25 940
Investment (SAL Bank) 20 000
Interest income — SAL Bank at 8% pa 1 600
Interest expense 3 000
Refreshments:
Inventory (28 February 20.1) 200
Purchases 3 600
Sales 6 200

ADDITIONAL INFORMATION
(a) The income from the Jekyll fund may only be used for the maintenance of the buildings of
the club.
(b) Membership fees:
In arrear at 28 February 20.2 R 800
Received in advance at 28 February 20.2 R1 300

(c) Depreciation on furniture and equipment is calculated at 10% per annum on the diminished
balance. The depreciation for the year ended 28 February 20.2 must still be brought into
account.
(d) Six new members joined the club during the year. The entrance fee of R200 per person is
included in the figure for membership fees received, but should be included in the
accumulated fund.
(e) Inventory of refreshments at 28 February 20.2 amounted to R300.
(f) The interest income (SAL Bank) was received in respect of the Jekyll fund.
(g) The current account — Zeeland Bank, had an unfavourable balance of R1 350 at
28 February 20.1.

FAC1502/1 324
 Required:

Prepare:
1. The Jekyll fund account in the general ledger of the club for the year ended
28 February 20.2
2. The following statements of the club for the year ended 28 February 20.2:
(a) Refreshments: trading statement
(b) Receipts and payments statement
(c) Income and expenditure statement
3. The statement of financial position of the club as at 28 February 20.2.
4. The property, plant and equipment note.

Solution: Comprehensive example

PRETORIA MODELLER’S CLUB
1 GENERAL LEDGER
Dr Jekyll fund Cr

Expend- Non- Expend- Non-

able expend- able expend-
(income) able (income) able
(capital) (capital)

20.2 R R 20.1 R R
Feb 28 Maintenance: buildings 1 500 — Mar 1 Balance b/d — 20 000
Balance c/d 100 20 000 20.2
Feb 28 Bank: Interest on investment 1 600

1 600 20 000 1 600 20 000

20.2
Mar 1 Balance b/d 100 20 000

PRETORIA MODELLERS’ CLUB

2(a) REFRESHMENTS: TRADING STATEMENT FOR THE YEAR ENDED
28 FEBRUARY 20.2

R
Revenue 6 200
Cost of sales (3 500)

Inventory (28 February 20.1) 200

Purchases 3 600
3 800
Inventory (28 February 20.2) (300)

Gross profit 2 700

325 FAC1502/1
 PRETORIA MODELLERS’ CLUB
2(b) RECEIPTS AND PAYMENTS STATEMENT FOR THE YEAR ENDED
28 FEBRUARY 20.2

R
Bank balance at 28 February 20.1 (1 350)
Receipts 29 100)

Membership fees 15 000

Hobbies fair admissions 6 300
Interest income 1 600
Refreshments sold 6 200

Payments (26 350)

Telephone expenses 450
Wages 5 000
Water and electricity 4 600
Maintenance of buildings 1 500
Hobbies fair expenses 8 200
Refreshments purchased 3 600
Interest expenses 3 000

Bank balance at 28 February 20.2 (favourable) 1 400)

PRETORIA MODELLERS’ CLUB

2(c) INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED
28 FEBRUARY 20.2

R
Income 22 500)
Membership fees
R(15 000 7 900 + 1 100 + 800 7 1 300 71 200) (a) 13 500
Admission fees (hobbies fair) 6 300
Gross profit on sale of refreshments 2 700

Expenditure (21 979)

Hobbies fair expenses 8 200

Depreciation on furniture and equipment 729
Interest (SAL Bank bond) 3 000
Telephone expenses 450
Wages 5 000
Water and electricity 4 600

Surplus for the year 521)

FAC1502/1 326
PRETORIA MODELLERS’ CLUB
(3) STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 20.2

ASSETS Note R
Non-current assets 76 561
Property, plant and equipment 3 56 561
Financial assets — SAL Bank at 8% pa 20 000
Jekyll fund 20 000

Current assets 2 500

Inventory (refreshments) 300
Trade and other receivables 800
Cash and cash equivalents 1 400

Total assets 79 061

FUNDS AND LIABILITIES

Funds 47 761
Accumulated fund (b) 27 661
Special funds 20 100
Nonexpendable funds 20 000
Jekyll maintenance fund 20 000
Expendable funds 100
Jekyll maintenance fund 100
Total liabilities 31 300
Non-current liabilities 30 000
Long-term borrowing — SAL Bank (secured by 30 000
first mortgage over land and buildings)
Current liabilities 1 300
Income received in advance 1 300

Total funds and liabilities 79 061

327 FAC1502/1
 PRETORIA MODELLERS’ CLUB
(4) NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.2
Note 3 (extract)

Land and Furniture

Property, plant and equipment buildings and Total
equipment

R R R
Carrying amount: Beginning of year 50 000 7 290 57 290

Cost price 50 000 10 000 60 000

Accumulated depreciation — (2 710) (2 710)

Depreciation for the year — (729) (729)

Carrying amount: End of year 50 000 6 561 56 561

Cost price 50 000 10 000 60 000

Accumulated depreciation — (3 439) (3 439)

CALCULATIONS
(a)
Dt Membership fees Cr

20.1 R 20.1 R
Mar 1 Balance b/d 900 Mar 1 Balance b/d 1 100
20.2 20.2
Feb 28 Entrance fees J 1 200 Feb 28 Bank CRJ 15 000
Income and Balance c/d 800
expenditure J *13 500
Balance c/d 1 300

16 900 16 900
20.2 20.2
Mar 1 Balance b/d 800 Mar 1 Balance b/d 1 300

* Balancing figure

Both balances must be disclosed in the statement of financial position: The debit balance of
R800 as a current asset and the R1 300 as a current liability.

The above membership fees account can be replaced by the following three accounts.

FAC1502/1 328
 Dt Membership fees Cr
20.1 R 20.1 R
Mar 1 Accrued income J 900 Mar 1 Income received
in advance J 1 100
20.2 20.2
Feb 28 Entrance fees J 1 200 Feb 28 Bank CRJ 15 000
Income received Accrued income J 800
in advance J 1 300
Income and
expenditure J 13 500*
16 900 16 900

* Balancing figure

Dt Accued income (Membership fees in arrears) Cr

20.1 R 20.1 R
Mar 1 Balance b/d 900 Mar 1 Membership fees J 900
20.2 20.2
Feb 28 Membership fees J 800 Feb 28 Balance c/d 800

1 700 1 700

20.2
Mar 1 Balance b/d 800

The closing balance of this account is shown as a current asset in the statement of financial
position.

Dr Income received in advance (Membership fees received in advance) Cr

20.1 R 20.1 R
Mar 1 Membership fees J 1 100 Mar 1 Balance c/d 1 100
20.2 20.2
Feb 28 Balance c/d 1 300 Feb 28 Membership fees J 1 300
2 400 2 400

20.2
Mar 1 Balance b/d 1 300

The closing balance of this account is shown as a current liability in the statement of financial
position.

(b) Accumulated fund = R(25 940 + 521 + 1 200) = R27 661

COMMENTS

. The above example is an illustration of the treatment of funds. Note the following:
. The income from the Jekyll fund is used to finance an expense item.
. The nonexpendable capital amounts of funds are treated separately from the
unspent portions of the interest which are still available for future applications
(expendable funds).

329 FAC1502/1
 . Should the income from a fund be insufficient to cover an expense, the shortage can
be debited to the income and expenditure account of the club.

. In the above example the income and expenditure in respect of the hobbies fair is
merely shown as a calculation in the income and expenditure statement. Had there
been a number of different items pertaining to the fair, it would have been necessary to
prepare a separate trading statement in respect of the hobbies fair.
. Entrance fees are capitalised, that is, credited directly to the accumulated fund
account.
. In the question the opening balance of the accumulated fund is given. If it is not given,
it can be calculated as the difference between the total debit balances and the total
credit balances supplied in any list of balances from which the final statements are to
be compiled.

16.10 Revision exercises and solutions

16.10.1 Revision exercise 1
The following information relates to the Green Golf Club:
BALANCES AS AT 31 DECEMBER 20.4 R
Green fees and caddy fees received 16 000
Bank (debit balance) 5 500
Crockery and linen at cost — 31 December 20.3 7 000
Sundry debtors 2 100
Sundry creditors 16 000
Telephone expenses 6 600
Dining room:
Purchases 14 500
Wages 10 000
Sales 30 000
Inventory — 31 December 20.3 1 000
Buildings (at cost) 160 000
Land and improvements (at cost) 520 000
Implements and tools:
At cost 21 000
Accumulated depreciation — 31 December 20.3 11 000
Maintenance expenses 10 900
Entrance fees received 10 500
Bar:
Purchases 50 000
Wages 12 000
Sales 100 000
Inventory — 31 December 20.3 3 000
Membership fees 84 000
Furniture:
At cost 25 000
Accumulated depreciation — 31 December 20.3 6 000
Accumulated fund — 31 December 20.3 150 000
Interest expenses (Paid on mortgage to 30 June 20.4) 37 500
Salaries and wages 35 000
Stationery consumed 2 000
15% Mortgage 500 000
Insurance prepaid — 31 December 20.3 400

FAC1502/1 330
ADDITIONAL INFORMATION
(a) Bar inventory at 31 December 20.4 amounted to R2 500.
(b) At 31 December 20.4, dining room inventory was not counted, but it can be assumed that
the usual gross profit margin of 50% on turnover was realised.
(c) At 31 December 20.4, crockery and linen were valued at R5 000.
(d) Implements and tools must be depreciated at 20% per annum, using the diminishing
balance method.
(e) Furniture must be depreciated by R1 000.
(f) Insurance premiums paid during the year, amounting to R1 600, were debited to the
telephone expense account. Half of this amount is to be regarded as insurance prepaid.
(g) The balance of the membership fees account was compiled from the following; an amount
of R1 800 in respect of prepaid membership fees at 31 December 20.3 and cash received
during the year, R82 200. The balance has still to be adjusted for the membership fees in
arrears to the amount of R1 000 and prepaid membership fees to the amount of R2 100 at
31 December 20.4.
(h) A new member’s register which is in use was designed and printed at a quoted price of
R100. This transaction has still to be recorded in the books.
(i) The club secretary went on leave before Christmas and was paid his January 20.5 salary
of R1 200 in advance. This amount forms part of the balance of the salaries and wages
account (R35 000).
(j) On 29 December 20.4 a club member deposited an amount of R500 in the club’s bank
account as a donation. This donation was only discovered when the bank balance was
compared with the balance of the bank statement and must still be taken into account.
(k) The mortgage is secured by a first mortgage over fixed property.

Required:

Prepare the following statements of Green Golf Club:

1. The income and expenditure statement for the year ended 31 December 20.4
(NB: Show the calculations of the gross profit for the bar and dining room
separately.)
2. The statement of financial position as at 31 December 20.4.
3. The property, plant and equipment note.

331 FAC1502/1
 Solution: Revision exercise 1
GREEN GOLF CLUB
(1) INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED
31 DECEMBER 20.4

R
Income 141 900 )

Membership fees 82 900)

R(1 800 + 82 200 7 2 100 + 1 000) (a)
Green fees and caddy fees 16 000)
Income from bar sales 37 500)

Gross profit (b) 49 500

Wages (12 000)

Income from dining room 5 000)

Gross profit (c) 15 000

Wages (10 000)

Donation received 500)

Expenses (133 000)

SalariesandwagesR(35000 – 1200) 33 800)

Interestonmortgage(15% 6
R500000) 75 000)
Maintenance 10 900)
TelephoneexpensesR(6600 – 1600) 5 000)
StationeryR(2000 + 100) 2 100)
InsuranceH[SHQVHVR(1600 + 400 – 800) 1 200)
Depreciation 5 000)

Implementsandtools(20%6
R10000) 2 000

Furniture 1 000
CrockeryandlinenR(7000±5000) 2 000

Surplus for the year 8 900

FAC1502/1 332
GREEN GOLF CLUB
(2) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.4

ASSETS Note R
Non-current assets
Property, plant and equipment 3 711 000
Current assets 14 100

Inventory (refreshments) 3 000

Prepayments R(800 + 1 200) 2 000
Trade and other receivables R(2 100 + 1 000) 3 100
Cash and cash equivalents 6 000

Total assets 725 100

FUNDS AND LIABILITIES

Funds 169 400

Accumulated fund (d) 169 400

Total liabilities 555 700

Non-current liabilities 500 000
Long-term borrowing — 15% mortgage
(Secured by first mortgage over fixed property) 500 000

Current liabilities 55 700

Trade and other payables

R[16 100 + 37 500 (e)] 53 600
Income received in advance 2 100

Total funds and liabilities 725 100

333 FAC1502/1
 GREEN GOLF CLUB
(3) NOTES FOR THE YEAR ENDED 31 DECEMBER 20.4
Note 3 (extract)

Property, plant and Land, build-

equipment ing and Crockery and Implements
improve- linen and tools Furniture Total
ments
R R R R R
Carrying amount:
Beginning of year 680 000 7 000 10 000 19 000 716 000
Cost 680 000 7 000 21 000 25 000 733 000
Accumulated depreciation (—) (—) (11 000) (6 000) (17 000)

Depreciation for the period (—) (—) (2 000) (1 000) (3 000)

Revaluation (—) (2 000) (—) (—) (2 000)
Carrying amount:
End of year 680 000 5 000 8 000 18 000 711 000
Cost 680 000 7 000 21 000 25 000 733 000
Accumulated depreciation (—) (2 000) (13 000) (7 000) (22 000)

CALCULATIONS
(a)
Dr Membership fees Cr
R R
Income and expenditure 82 900 Income received in advance 1 800
Income received in advance 2 100 Bank 82 200
Accrued income 1 000

85 000 85 000

(b) Bar gross profit R R

Sales 100 000
Less: Cost of sales 50 500
Opening inventory 3 000
Purchases 50 000
53 000
Less: Closing inventory 2 500
Gross profit 49 500

(c) Dining room gross profit

Sales 30 000
Less: Cost of sales (R30 000 6 50%) 15 000
Opening inventory 1 000
Purchases 14 500
15 500
Less: Closing inventory (Balancing figure) 500
Gross profit 15 000

FAC1502/1 334
 (d) Accumulated fund R
Balance (28 February 20.1) 150 000
Add: Surplus for the year 8 900
Entrance fees 10 500
169 400

(e) Interest payable R

15% of R500 000 75 000
Less: Paid 37 500
Due 37 500

COMMENTS

. Entrance fees are not shown in the income and expenditure statement because
. They represent nonrecurrent income.
. They are of a capital nature.

. The current expenses of a club, society or organisation not for gain should be
estimated in advance for the next financial year. The annual membership fees are
then determined by dividing the total budgeted expenses by the number of members.
. Smaller donations received can be regarded as normal revenue, but should a
donation be of a nonrecurrent nature and the amount is material (eg where
a benefactor makes a special donation, or where a testamentary legacy is
bequeathed), then it clearly becomes a receipt of a capital nature. Certain bodies,
such as welfare organisations, often receive large amounts from the proceeds of a
street collection, or from state grants-in-aid. These receipts are naturally not of a
capital nature (unless specifically labelled and awarded as such) and should
therefore bedisclosed intheincomeandexpenditurestatement.
.
Crockery, glassware, linen, et cetera are not current assets, but form part of the
equipmentthatmustbeprovidedbeforeincomecanbeearned.
.
Wages do not form part of gross profit and must be shown in the income and
expenditurestatement.
.
Notethatinpractice calculationsarenotshownonfinalstatements[eginsurance
(R40 + 1/2 of R160)]. For examination purposes, you may show calculations in this
manner, on condition that they are clearly indicated as calculations.

335 FAC1502/1
 16.10.2 Revision exercise 2
The following information relates to the Spring Tennis Club:

(1) Statement of financial position items as at 31 December 20.1

R R
Equipment (at cost) 21 600
Less: Accumulated depreciation 8 880 12 720
Fixed deposit at Trade Bank (at 12% per annum) 25 600
Inventory: Tennis balls 984
Accrued membership fees 192
Accrued interest on fixed deposit 1 024
Prepaid rental 480
Savings account (favourable) 2 880
Bank (favourable) 8 400
Accumulated fund 26 440
Special fund for championships 25 600
Prepaid membership fees 168
Accrued wages 72

(2) Cash transactions for the year ended 31 December 20.2

Receipts: R
Visitorsfees 4 860
Membershipfees: 20.1 120
 19 920
 48
(QWUDQFHIHHV 864
,QWHUHVWLQFRPH)L[HGGHSRVLW 3 584
Savingsaccount 156
Championshipentryfees 3 240
Donations 4 680

Payments:
Municipaltaxes 3 504
Refreshments 1 800
Stationery 1 512
Tennisballs 5 280
Affiliationfees 120
Championshipexpenses 6 400
Honorarium 2 880
Wages 3 360
Maintenance 2 232
Rental H[SHQVHV: Tenniscourts 4 800
Equipment(purchasedon30September20.2) 2 400
Transfertosavingsaccount 1 080

FAC1502/1 336
ADDITIONAL INFORMATION
(a) Entrance fees must be capitalised.
(b) Inventory on hand at 31 December 20.2:
Tennis balls — R420
Refreshments — R72
(c) Rental of tennis courts amounted to R480 per month.
(d) Unpaid membership fees for 20.1 are irrecoverable.
(e) The club has 84 members and membership fees amount to R20 per month.
(f) Stationery amounting to R120 was purchased on credit and used during the year.
(g) Wages of R360 are still outstanding.
(h) Used equipment with a cost price of R1 200 and accumulated depreciation of R960 at
31 December 20.1 must be written off as from 1 January 20.2.
(i) Provision must be made for depreciation on equipment at 20% per annum on the
diminished balance.
(j) The interest on the fixed deposit at Tradebank may only be used for championship
expenses. The capital amount of the special fund is not expendable.

Required:

Prepare the following account and statements of Spring Tennis Club:

1. The membership fees account for the year
2. The income and expenditure statement for the year ended 31 December 20.2
3. The statement of financial position as at 31 December 20.2.
4. The property, plant and equipment note to the financial statements.

Solution: Revision exercise 2

SPRING TENNIS CLUB

(1) GENERAL LEDGER
Dt Membership fees Cr

20.2 R 20.2 R
Jan 1 Balance b/d 192 Jan 1 Balance b/d 168
Dec 31 Income and ex- Dec 31 Bank — 20.1 120
penditure: Bank — 20.2 19 920
R(20 6 84 6 12) 20 160 Bank — 20.3 48
Balance (prepaid) c/d 48 Credit losses 72
Balance (in ar-
rears) c/d 72

20 400 20 400

20.3 20.3
Jan 1 Balance b/d 72 Jan 1 Balance b/d 48

337 FAC1502/1
 SPRING TENNIS CLUB
(2) INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED
31 DECEMBER 20.2

R
Income 29 856)
Visitors’ fees 4 860)
Membership fees 20 160)
Interest (savings account) 156)
Donations 4 680)
Expenses (30 364)
Municipal taxes 3 504)
Credit losses R(192 – 120) 72)
Refreshments R(1 800 – 72) 1 728)
Stationery R(1 512 + 120) 1 632)
Tennis balls R(984 + 5 280 – 420) 5 844)
Affiliation fees 120)
Honorarium 2 880)
Wages R(3 360 – 72 + 360) 3 648)
Maintenance 2 232)
Rental expenses R(480 6 12) 5 760)
Depreciation (a) 2 616)
Loss on the scrapping of equipment (a) 240)
Championship: shortage (b) 88)

Deficit for the year (508)

FAC1502/1 338
SPRING TENNIS CLUB
(3) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.2

ASSETS Note R
Non-current assets 37 864
Property, plant and equipment 3 12 264
Financial assets 25 600
Fixed deposit at Trade Bank (at 12% pa) 25 600
Current assets 15 540
Inventories R(420 + 72) 492
Trade and other receivables R[72 + 512 (c)] 584
Cash and cash equivalents R[3 960 + 10 504 (d and e)] 14 464

Total assets 53 404

FUNDS AND LIABILITIES

Funds 52 396
Accumulated fund (f) 26 796
Special funds 25 600
Non-expendable funds
Championships 25 600

Current liabilities 1 008

Trade and other payables
R[120 + 360 + 480 (g)] 960
Income received in advance 48

Total funds and liabilities

53 404

SPRING TENNIS CLUB

(4) NOTES FOR THE YEAR ENDED 31 DECEMBER 20.2
Note 3

Property, plant and equipment Equipment Total

R R
Carrying amount: Beginning of year 12 720) 12 720)
Cost price 21 600) 21 600)
Accumulated depreciation (8 880) (8 880)
Additions (from own funds) 2 400) 2 400)
Disposals at carrying amount (240) (240)
Cost price (1 200) (1 200)
Accumulated depreciation 960) 960)
Depreciation for the year (2 616) (2 616)

Carrying amount: End of year 12 264) 12 264)

Cost price 22 800) 22 800)

Accumulated depreciation (10 536) (10 536)

339 FAC1502/1
 CALCULATIONS
(a) Loss on sale of equipment and depreciation
Accumulated
Cost price depreciation
R R
Balance 21 600 8 880
Written off (1 200) (960)
20 400 7 920
Purchased 30 Septermber 20.2 2 400
22 800
Loss on scrapping of equipment R(1 200 – 960)
= R240
Depreciation for the year R
R(20 400 – 7 920) 6 20% 2 496
3
R2 400 6 20% 6 12 120
2 616
(b) Championship shortage R
Expenses 6 400
Income: Entry fees 3 240 —
Interest (R25 600 6 12%) 3 072 6 312
Shortage 88

(c) Interest accrued

Interest receivable for the year
(R25 600 6 12%) 3 072
Interest received 3 584
Less: Accrued interest (31 Dec 20.1) 1 024 2 560
Accrued interest (31 Dec 20.2) 512

(d) Savings account R

Balance 2 880
Add: Deposit 1 080
3 960
(e) Bank
Balance 8 400
Add: Receipts 37 472
45 872
Less: Payments 35 368
Balance 10 504
(f) Accumulated fund
Balance (31 Dec 20.1) 26 440
Add: Entrance fees 864
Less: Shortage for the year 508
Balance (31 Dec 20.2) 26 796
(g) Accrued rental expenses
Payable per annum = R480 6 12 5 760
Less: Amount paid 4 800
Balance (31 Dec 20.2) 960
Less: Prepaid 31 December 20.1 480
480

FAC1502/1 340
SELF-ASSESSMENT

Now that you have studied this study unit, can you

. prepare fund accounts?

. prepare receipts and payments statements?
. prepare trading statements?
. prepare income and expenditure statements?
. prepare the statement of financial position reflecting the financial position of the
organisation, including information regarding special funds?
. record all calculations required, including those in respect of membership fees?

341 FAC1502/1