Accountancy Part AAccounts for Non Profit Organsiation

Identify the treatment of Government Grant received from the governme…

Identify the treatment of Government Grant received from the government from following:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Treated as Revenue Income

Schools, colleges and hospitals receive grants from the government mostly to meet their running costs. Such a recurring (maintenance) grant is income of the current year and is credited to the Income and Expenditure Account.

Option (2) Treated as capital Income — Incorrect. Only a grant given for a specific capital purpose, such as a building grant, is a capital receipt taken to a fund in the Balance Sheet; a government grant without such a purpose is revenue income.
Option (3) Treated as deferred Income — Incorrect. A not-for-profit organisation does not spread a government grant over later years; it is income of the year in which it is received.
Option (4) Treated as both capital as well as deferred income — Incorrect. A grant is either revenue or capital; it is never deferred income in these accounts.

Note: This question is from the pre-rationalised NCERT book. The topic is not there in the latest NCERT book (2026-27), but it is still in the CUET 2026 syllabus, so do not skip it.

NCERT (Pre-rationalised edition):
Government Grant – “Schools, colleges, public hospitals, etc. depend upon government grant for their activities. The recurring grants in the form of maintenance grant is treated as revenue receipt (i.e. income of the current year) and credited to Income and Expenditure account. However, grants such as building grant are treated as capital receipt and transferred to the building fund account.”

Identify the treatment of Government Grant received from the government from following:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Treated as Revenue Income

Option (2) Treated as capital Income — Incorrect. Only a grant given for a specific capital purpose, such as a building grant, is a capital receipt taken to a fund in the Balance Sheet; a government grant without such a purpose is revenue income.
Option (3) Treated as deferred Income — Incorrect. A not-for-profit organisation does not spread a government grant over later years; it is income of the year in which it is received.
Option (4) Treated as both capital as well as deferred income — Incorrect. A grant is either revenue or capital; it is never deferred income in these accounts.

Note: This question is from the pre-rationalised NCERT book. The topic is not there in the latest NCERT book (2026-27), but it is still in the CUET 2026 syllabus, so do not skip it.