Case Study Information:Pragya Madan, an ex-Indian hockey player, decided to start a hockey academy named "Bright Hockey Academy" on 1st April 2022 to train young girls.Her neighbor, Ishwar, died and willed his land to start the academy.Her father, Ramkumar, spent ₹20,00,000 for the construction of a pavilion.100 young girls joined the academy and paid an annual subscription of ₹1,000 each.10 members paid a single amount of ₹25,000 each to obtain life membership.Hockey sticks and balls purchased during the year amounted to ₹27,000. Closing stock of these items is nil.Question: The accounting treatment for the expenditure incurred on the construction of the pavilion (₹20,00,000) is:
- AAdded to general or capital fund and also shown on the assets side of the Balance sheet.
- BShown only on the assets side of the Balance sheet.
- CAdded to only capital fund
- DDebited to Income and expenditure account
Solution & Step-by-step Explanation
The construction of a pavilion is a capital expenditure that creates a fixed asset for the NPO. When an asset like a building/pavilion is constructed, its cost is capitalized on the Assets side of the Balance Sheet. Concurrently, an equivalent capital contribution amount increases the equity representation within the Capital/General Fund.