Q.Explain the accounting treatment of Life Membership Fees and Entrance/Admission Fees received by a not-for-profit organisation.

Life Membership Fees and Entrance Fees are both one-time receipts from a member, but only one of them has a single fixed rule — the other depends on the organisation's own policy.

Life Membership Fees: A Life Member pays a single lump sum once, instead of paying an annual subscription every year for the rest of their membership. Because this fee is meant to substitute for many years of future subscription income rather than reward the current year alone, Life Membership Fees are always capitalised — added directly to the Capital Fund in the Balance Sheet — and are never credited to the Income and Expenditure Account. This treatment applies uniformly, with no dependence on any stated policy, because spreading or crediting it as ordinary annual income would overstate the current year's surplus.

Entrance/Admission Fees: A new member's one-time entrance fee is more ambiguous in nature — it could be seen as a fee for the privilege of joining (revenue) or as a one-time capital contribution to the organisation's Fund (capital). Because of this genuine ambiguity, its treatment follows the organisation's own stated policy:

• If the rules fully capitalise entrance fees, the entire amount is added to the Capital Fund.
• If the rules treat it fully as revenue, the entire amount is credited to the Income and Expenditure Account. …

Students frequently apply the same 'depends on policy' rule to Life Membership Fees as to Entrance Fees — this is wrong; Life Membership Fees have only one correct treatment (always capitalised), with no policy dependence at all. The reverse error — assumi …