EPFO EO/AO 2023 General Ability Test · Question 79 of 120

Correct — A, (a) ₹ 67,000. The four data lines are printed as an aligned two-column list, label at the left and amount at the right, not as a ruled table, and each label wraps onto a second printed line. Start from what the club EARNED, because that is the fixed point. There are 70 members and the annual subscription is ₹ 1,000, so the income for 2021–22 is ₹ 70,000. The question asks for something different — what the club actually RECEIVED in cash during the year — and the four balances are what convert one into the other. Work through them one at a time. Outstanding on 31.03.2021, ₹ 16,000: subscriptions earned last year but not then received. They are taken to have come in during this year, so they are cash received this year that is not this year's income. ADD. Outstanding on 31.03.2022, ₹ 18,000: earned this year but not yet received. They are this year's income without being this year's cash. DEDUCT. Advance on 31.03.2022, ₹ 11,000: received during this year but belonging to next year. Cash in this year, income next year. ADD. Advance on 31.03.2021, ₹ 12,000: received last year and credited to this year's income. This year's income without this year's cash. DEDUCT. So subscriptions received = 70,000 + 16,000 − 18,000 + 11,000 − 12,000 = ₹ 67,000. The safer way to get there, and the one to use under time pressure, is to draw the Subscription account. On the debit side: outstanding at the beginning ₹ 16,000 brought down, advance at the end ₹ 11,000 carried down, and the amount credited to Income and Expenditure ₹ 70,000 — total ₹ 97,000. On the credit side: advance at the beginning ₹ 12,000 brought down, outstanding at the end ₹ 18,000 carried down, and cash received as the balancing figure — ₹ 97,000 − ₹ 30,000 = ₹ 67,000. The account cannot be balanced any other way, and drawing it removes every sign decision from the problem, which is where all three wrong options come from.

• (b)₹ 71,000 — This is 70,000 + 18,000 − 16,000 + 11,000 − 12,000: the two OUTSTANDING items handled with their signs reversed, while the two advances are treated correctly. The candidate has added the closing outstanding and deducted the opening one. It is the natural mistake, because 'outstanding' feels like money owed to the club and therefore like something to be added — but a subscription still outstanding at the year end is precisely the money that did NOT come in, and the closing outstanding must always be deducted from income to reach receipts.
• (c)₹ 69,000 — The mirror image of option (b): 70,000 + 16,000 − 18,000 − 11,000 + 12,000, with the outstanding items right and the two ADVANCES reversed. Here the candidate has deducted the closing advance and added the opening one. Advances run the opposite way to arrears — an advance received at the end of this year is cash in hand now, so it is added to reach receipts, while an advance received at the end of last year was cash in hand then and must be taken out of this year's figure.
• (d)₹ 77,000 — This is 70,000 + 18,000 − 11,000, which uses only the two closing balances and gets both of their signs wrong as well. Two of the four figures given have simply been ignored. Any answer of this kind is caught by a rule of thumb worth keeping: a subscriptions question supplies exactly the balances it needs, so an answer that has not used every figure in the stem is almost certainly incomplete.

A not-for-profit organisation prepares a Receipts and Payments account, which is a summary of the cash book, and an Income and Expenditure account, which is drawn up on the accrual basis. Subscriptions are where the two diverge most sharply, and every question on the topic is a conversion between them. The income for a year is what the members owed for that year — usually members multiplied by the annual rate, as here. The receipts for the year are that figure adjusted by four balances: opening arrears are added because they are collected now, closing arrears are deducted because they are not, closing advances are added because that cash has come in early, and opening advances are deducted because that cash came in last year. Going the other way, from receipts to income, every sign flips. The reliable technique is not to memorise the formula but to draw the Subscription account, put the opening balances on their natural sides — arrears are an asset and so a debit, advances are a liability and so a credit — carry the closing balances down on the opposite sides, insert the income figure, and let the cash be the balancing figure. The same layout handles the harder variants in which some arrears are written off or the membership changes during the year.

Accounts of not-for-profit organisations are a standing part of the EO/AO accountancy block, and the subscription conversion is the part of it that can be examined in four printed lines. The examiner constructs the option list by flipping one pair of signs at a time, so the wrong answers are all within ₹ 10,000 of the right one and none of them can be spotted by inspection. The habit rewarded is drawing the account rather than reasoning the signs out in prose, because a T-account cannot be signed wrongly and still balance.

• Subscription income for the year = number of members × annual subscription = 70 × ₹ 1,000 = ₹ 70,000.
• Subscriptions received = income for the year + opening outstanding − closing outstanding + closing advance − opening advance.
• Here: 70,000 + 16,000 − 18,000 + 11,000 − 12,000 = ₹ 67,000.
• Outstanding subscriptions are an asset of the club; subscriptions received in advance are a liability.
• In the Subscription account the opening outstanding and the closing advance are debits, and the opening advance and the closing outstanding are credits, with cash received as the balancing figure.
• Debits 16,000 + 11,000 + 70,000 = ₹ 97,000; credits 12,000 + 18,000 = ₹ 30,000; balancing figure ₹ 67,000.
• The Receipts and Payments account records cash on both capital and revenue account for any period; the Income and Expenditure account records only revenue items of the current year, on the accrual basis.

• Adding the closing outstanding. It is income that has not been received, so it is deducted in reaching receipts.
• Deducting the closing advance. That cash has come in during the year and must be added.
• Using only the closing balances. All four figures are given because all four are needed.
• Confusing the direction of the conversion. From income to receipts, opening arrears and closing advances are added; going from receipts to income, every sign reverses.

Not-for-profit accounting reaches EO/AO as a short data set and a one-figure answer, usually about subscriptions and occasionally about entrance fees or consumable stores. The option list is always built by inverting one pair of signs, so the only reliable defence is to draw the ledger account and take the balancing figure rather than to apply a remembered formula.

No directly related past PYQ was found.

• practice — not a real PYQ

  A club received ₹ 90,000 as subscriptions during the year. Subscriptions outstanding were ₹ 8,000 at the beginning and ₹ 12,000 at the end, and there were no advances. The amount to be credited to the Income and Expenditure Account is :

  • (a)₹ 86,000
  • (b)₹ 90,000
  • (c)₹ 94,000
  • (d)₹ 1,10,000

  Answer(c) ₹ 94,000

• practice — not a real PYQ

  Subscriptions received in advance by a club at the end of the year are shown in its Balance Sheet as :

  • (a)An asset
  • (b)A liability
  • (c)An addition to the capital fund
  • (d)A deduction from subscriptions outstanding

  Answer(b) A liability