Q.A club received life membership fees of ₹40,000 during the year ended 31.3.2025 from members who will not pay annual subscription hereafter. Show its treatment in the final accounts.
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Start your 14-day free trial to unlock the full solution →Reasoning. A member who pays a life membership fee is relieved of paying annual subscription for the rest of their membership of the club. The amount received is therefore not income earned for the current year's services alone — it is meant to substitute for a stream of future subscriptions and to permanently strengthen the club's resources. It is accordingly treated as a capital receipt.
Treatment. The ₹40,000 is added directly to the Capital Fund in the Balance Sheet as on 31.3.2025. Many clubs prefer to credit such amounts to a separate 'Life Membership Fund' account, shown as a distinct liability alongside the Capital Fund, so that the amount is clearly identified — either presentation is acceptable as long as the amount is kept out of the Income and Expenditure Account. …
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