In: Accounting
A wealthy Melbourne businessman donated $2 million to Monash University as a gift.
This he said was a recognition of his gratitude to the excellent tuition he received from the teaching staff in the Department of Accounting whilst studying as an undergraduate student back in the 1960’s.
In the light of the definition and recognition criteria contained in the Conceptual Framework would this gift be treated as income in the books of Monash University? Justify your answer.
Yes This gift will be treated as income in the year of receipt.
Reason: Complete accounting has only Five Major Category for every Transaction viz. are 1. Assets, 2 Liabilities, 3 Income & 4 Expenses & 5th Equity.
1. Assets are the items what one can own & having value for E.g. Computer , Debtor, Investment
though the Cash/ Bank received is asset for university but The Gift is not an assets
2. Liability are the items which company owes to other. Like Loan, sundry creditors
even amount received with specific purpose of use is also liability until it is spend for those specific purpose.
But Here gift is received and gift it self says that it does not need to repay and also there is no specific purpose linked with gift hence it is not liability
3. Income: any receipt against sale of goods or provision of service is income . income also includes Any amount received which is not refundable and having no obligation with respect to its spending
Hence Amount Received as a gift is income / Revenue
4. Expense : Expenses results in out flow of money wether immediate or in future
Here there is inflow of money hence it is not an income
5.Equity : equity is nothing but the owners fund invested in the entity
Gift is received from ex student of the university and not from the owners or promoters
Hence Gift is not the Equity
From Above it is cleare that Amount received as Gift is Income