Explain how , " any expenditure of capital nature out of special fund should be shown on the assets side of the balance sheet and an equal amount should be transferred from that special fund to capital fund "

Question

Explain how , " any expenditure of capital nature out of special
fund should be shown on the assets side of the balance sheet and an
equal amount should be transferred from that special fund to
capital fund "

Komal Verma · Accepted Answer

Special
Funds are created for specific purposes such as Prize Fund,
Building Fund, etc If any Investment or Capital expenditure is made
out of this fund then such Investment is shown on the Assets side
of Balance Sheet On the other hand, as such investments increases
the overall capital base of the organisation so these are added to
the Capital Fund

Lets
understand this concept with an example Roshan Club, which is a
well established Sports Club In response to the excessive demand,
the club decided to construct a new extension building as an indoor
badminton stadium The club has Building Fund of Rs 12,00,000 It
took Rs 10,00,000 from this fund It is treated in following
way:

In
this case, 10,00,000 is credited in the Receipts and Payments
Account as 'Payment made for Construction of Building' On the other
hand, this is shown on the Assets side of the Balance Sheet as
'Building in Progress'

On the
Liabilities side of the Balance Sheet, we deduct 10,00,000 from the
Building Fund (as the amount is taken out from the fund) and
parallely we also add 10,00,000 to the Capital Fund (as the new
extension building increases the overall capital base of the
organisation)