FS of Non Profit Organisation Test - 4

Annuity is a fixed sum of money paid to someone each year, typically for the rest of their life of that name beneficiary. 

Annuities may be created under a trust or they may be purchased from a life insurance company.

Balance sheet is a statement which shows all assets and liabilities from which the financial position of business can be ascertain.

Legacy is an amount of money or property left to someone in a will of a decased person. It is an liability for NPO which is to be shown in balance sheet.

Classifying the expense on the basis of Programme and supporting activity is called functional basis. Since, Programme Exp. are the expense incurred to carry out programme of NPO and supporting expense are incurred for raising funds and For management.

All revenue and expense of NPO are recorded in statement of activity which is income and expenditure account.

The receipt and payment account is Summary of cash book on that basis it is a real account.

A nonprofit's statement of activities is issued instead of the income statement which is issued by a for-profit business which shows revenue such as contributions, program fees, membership dues, grants, investment income, and amounts released from restrictions.All these contribution are shows under the head revenues in the statement of activity.

NPO are those which have service motive and don't have any profit motive. examples - School, Hospital ,charitable organisation etc.

Restricted fund are those which can be utilized for the purpose only for which they are made like prize fund for giving prize etc. Hence Genral fund is not a restricted fund.

Cash flow statement shows the inflow or outflow of cash during a year in the entity. It can be prepared with two ways:- one is Direct method and other is Indirect method.

Direct method uses actual cash flow information from the company's operations segment, instead of using accrual accounting values, While under Indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of non-cash transaction

Under both the direct and indirect method, the presentation of the cash flow from investing and financing activities will be identical,

If a donor does not specify a restriction on his or her contribution, the amount received by the nonprofit is recorded as an asset and these are called unrestricted net assets. Unrestricted contribution revenues (reported on the statement of activities) also cause the amount of unrestricted net assets to increase.

Hence, A nonprofit organization's assets that have been designated by its board of directors for a specific project should be reported on the external financial statements as unrestricted net assets.

If a donor does not specify a restriction on his or her contribution, the amount received by the nonprofit is recorded as an asset and called unrestricted net assets. we show the change in net assets (Revenue - Expense) as unrestricted as the amount received can be utilized for any purpose or expense.

Income and expenditure account shows the amount earned and incurred during a year after adjusting all prepaid and outstanding amount. 

NPO are allowed to take debt for meeting their capital expenditure.

NPO make income and expenditure account which shows surplus if income exceeds exp. or Surplus if Exp. exceeds income.

Natural basis report the expense by categories such as rent , salary etc. 

Temporarily restricted contribution are those that are subject to a time period condtion .

Permanently Restricted Assets are Assets of a not-for-profit organization that come with certain restrictions. Permanently restricted assets are any assets that are given to a not-for-profit by an outside individual or agency with restrictions on their use or purpose and the prinicpal portion of endowment fund is classified as Permanently restricted net assets.

Non-performing asset (NPA): It is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Non Performing Assets are classified into 3 categories:

• Sub-standard assets: When the NPAs have aged <=12 months.
• Doubtful assets: When the NPAs have aged >12 months.
• Loss assets: identified loss, but it has not been written off.

Hence, the correct option is (D).

NPO make only Receipt and Payment account, income and expenditure and Balance sheet but income statement is prepared by profit making entity.