Level: HOTS (KBAT)
HOTS (KBAT) Worked Examples: Accounting for Clubs and Societies
Six escalating higher-order (HOTS) examples in club and society accounting: Subscriptions Account adjustments, accrual versus cash basis, reconstructing purchases, computing the Accumulated Fund, distinguishing capital from revenue, and interpreting the Statement of Financial Position.
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Example 1: Subscriptions Account with Bad Subscriptions
Question
Solution plan
Arrears are an asset (Dr b/d, Cr c/d). Advances are a liability (Cr b/d, Dr c/d). Cash received is credited (the other account is Bank). The bad subscription is credited to clear the arrears and debited as an expense in the Income and Expenditure Account. The current-year subscription is the balancing figure on the debit side.
| Particulars (Dr) | RM | Particulars (Cr) | RM |
|---|---|---|---|
| Balance b/d (arrears) | 600 | Balance b/d (advance) | 300 |
| Income and Expenditure (current subscription) | 13,050 | Bank (subscriptions received) | 12,800 |
| Balance c/d (advance) | 450 | Bad subscriptions | 200 |
| Balance c/d (arrears) | 800 | ||
| 14,100 | 14,100 |
The bad subscription of RM200 is also debited as an expense in the Income and Expenditure Account.
Answer
The current-year subscription transferred to the Income and Expenditure Account is RM13,050. The bad subscription of RM200 is recorded as an expense. Both sides of the account total RM14,100.
Where marks are usually lost
Example 2: Rent: Receipts & Payments vs Income & Expenditure
Question
Solution plan
The Receipts and Payments Account is cash-based; the Income and Expenditure Account is accrual-based. In the Rent Account: opening prepaid (asset) is Dr b/d, opening accrued (liability) is Cr b/d; cash paid is Dr; closing accrued is Dr c/d, closing prepaid is Cr c/d. The rent expense is the balancing figure on the credit side.
| Particulars (Dr) | RM | Particulars (Cr) | RM |
|---|---|---|---|
| Balance b/d (prepaid) | 400 | Balance b/d (accrued) | 600 |
| Bank | 7,200 | Income and Expenditure (rent) | 7,400 |
| Balance c/d (accrued) | 900 | Balance c/d (prepaid) | 500 |
| 8,500 | 8,500 |
Answer
The rent expense charged to the Income and Expenditure Account is RM7,400. It differs from the RM7,200 in the Receipts and Payments Account because the accrual basis adjusts for accrued and prepaid rent: RM7,200 − 600 + 900 + 400 − 500 = RM7,400.
Where marks are usually lost
Example 3: Canteen Profit: Reconstructing Purchases and the Trading Account
Question
Solution plan
Cash paid is not the same as purchases. Reconstruct purchases via the Creditors Account: Purchases = Payments + closing creditors − opening creditors = 18,500 + 1,100 − 800 = 18,800. Then the Trading Account: Sales − cost of sales = gross profit, less canteen wages for the net profit transferred as income to the Income and Expenditure Account.
| Particulars (Dr) | RM | Particulars (Cr) | RM |
|---|---|---|---|
| Bank | 18,500 | Balance b/d | 800 |
| Balance c/d | 1,100 | Purchases (balancing figure) | 18,800 |
| 19,600 | 19,600 |
| Particulars | RM | RM |
|---|---|---|
| Sales | 26,000 | |
| Less: Cost of sales | ||
| Opening stock (1 Jan) | 1,200 | |
| Add: Purchases | 18,800 | |
| 20,000 | ||
| Less: Closing stock (31 Dec) | -1,500 | |
| Cost of sales | 18,500 | |
| Gross profit | 7,500 | |
| Less: Canteen workers' wages | 3,000 | |
| Canteen net profit (to I&E Account) | 4,500 |
Answer
Canteen purchases are RM18,800; gross profit RM7,500; and the canteen net profit of RM4,500 is transferred to the Income and Expenditure Account as income.
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Example 4: Computing the Accumulated Fund via a Statement of Affairs
Question
Solution plan
Accumulated Fund = Total Assets − Total Liabilities. The HOTS challenge here is classifying each item correctly. Subscriptions in arrears are an asset; subscriptions in advance, creditors and the bank loan are liabilities. Total the assets and deduct the liabilities.
| Particulars | RM | RM |
|---|---|---|
| Assets | ||
| Clubhouse | 50,000 | |
| Sports equipment | 8,000 | |
| Canteen stock | 1,200 | |
| Subscriptions in arrears | 600 | |
| Bank balance | 4,300 | |
| Cash | 200 | |
| Total Assets | 64,300 | |
| Less: Liabilities | ||
| Subscriptions in advance | 500 | |
| Canteen creditors | 800 | |
| Bank loan | 10,000 | |
| Total Liabilities | 11,300 | |
| Accumulated Fund | 53,000 |
Answer
Total assets RM64,300 less total liabilities RM11,300 gives an Accumulated Fund of RM53,000 at 1 January 2023. The Accumulated Fund represents the society's net assets and is equivalent to opening capital in a business.
Where marks are usually lost
Example 5: Income & Expenditure Account: Distinguishing Capital from Revenue
Question
Solution plan
Exclude capital items: the building-fund donation (capital receipt) and the purchase of stage equipment (capital expenditure). Adjust subscriptions to the accrual basis (15,000 − 700 + 1,000). Show the concert net (4,000 − 2,500). Adjust rent (+400 accrued). Add depreciation as a non-cash expense. Surplus = Income − Expenditure.
| Item | Working | RM |
|---|---|---|
| Subscriptions | 15,000 − 700 (opening arrears) + 1,000 (closing arrears) | 15,300 |
| Concert activity profit | 4,000 (tickets) − 2,500 (expenses) | 1,500 |
| Rent expense | 4,800 (paid) + 400 (accrued) | 5,200 |
| Particulars | RM | RM |
|---|---|---|
| Income | ||
| Subscriptions | 15,300 | |
| Concert activity profit | 1,500 | |
| Fixed-deposit interest | 500 | |
| Total Income | 17,300 | |
| Less: Expenditure | ||
| General expenses | 3,200 | |
| Rent | 5,200 | |
| Supervisor's salary | 6,000 | |
| Depreciation of equipment | 1,500 | |
| Total Expenditure | 15,900 | |
| Surplus of Income over Expenditure | 1,400 |
Excluded: building-fund donation RM6,000 (capital receipt) and purchase of stage equipment RM5,000 (capital expenditure).
Answer
Total income RM17,300 less total expenditure RM15,900 gives a surplus of income over expenditure of RM1,400. The building-fund donation RM6,000 (capital receipt) and the purchase of stage equipment RM5,000 (capital expenditure) are excluded from this account.
Where marks are usually lost
Example 6: Statement of Financial Position and Interpreting the Accumulated Fund
Question
Solution plan
Closing Accumulated Fund = opening balance + surplus (40,000 + 3,500). The building fund is shown separately from the Accumulated Fund because it is a special-purpose fund. Subscriptions in arrears are a current asset; advances and creditors are current liabilities, and the bank loan a non-current liability. Total assets must equal total funds and liabilities.
| Particulars | RM | RM |
|---|---|---|
| Non-current Assets | ||
| Clubhouse | 35,000 | |
| Equipment (net book value) | 7,000 | |
| 42,000 | ||
| Current Assets | ||
| Canteen stock | 900 | |
| Subscriptions in arrears | 1,200 | |
| Bank | 8,700 | |
| Cash | 300 | |
| 11,100 | ||
| Total Assets | 53,100 | |
| Financed by: Accumulated Fund | ||
| Balance at 1 January 2023 | 40,000 | |
| Add: Surplus for 2023 | 3,500 | |
| 43,500 | ||
| Building fund | 6,000 | |
| Non-current Liabilities | ||
| Bank loan | 2,000 | |
| Current Liabilities | ||
| Canteen creditors | 1,000 | |
| Subscriptions in advance | 600 | |
| 1,600 | ||
| Total Funds and Liabilities | 53,100 |
Answer
Total assets of RM53,100 equal total funds and liabilities of RM53,100, namely the Accumulated Fund RM43,500 (RM40,000 + RM3,500), building fund RM6,000, bank loan RM2,000 and current liabilities RM1,600. The Accumulated Fund is the society's net assets. It grows with the surplus (not distributable profit) and has no owner's drawings. A business's owner's equity, by contrast, is capital plus net profit less drawings.
Where marks are usually lost
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