Unsecured loan (creditors) to donation

Respected CA's
Somebody gave 1 lac rupees in trust as a unsecured loan by cheque, and in next year he has decided and told to trust management that now i don't want this amount and his wish to pay this amount as a donation..so my query is that what's account entry in books after convert unsecured amount to donation..
Replies (2)
Quick Summary
This discussion addresses how a trust should account for an unsecured loan that the lender later wishes to convert into a donation. The proposed accounting entries involve debiting the unsecured loan account and crediting the donation account, effectively removing the liability and recognising the donation. Subsequently, the donation is transferred to the Income & Expenditure account as income. An alternative treatment is mentioned where the donation could be credited to a Capital Fund account if the trust intends to capitalise it.

J .E  in the  Books  of Trust 

When loan received  by trust 

1)     Bank                             A/c    Dr               100000/- 

        To  unsecured  loan      A/c   Cr                                   100000/- 

( Being  loan  received  by trust  ) 

 

In the next  year   unsecured  loan  will be  converted in to  Donation  so entry  will be 

2)  Unsecured  loan            A/c     Dr                100000/- 

      Donation                       A/c      Cr                                    100000/-

(   Unsecured  loan  converted  in to non repayable   Donation ) 

 

3)  Then we  transfer this donation amount  to Income & Expenditure  account  as  this donation is  our  Income . entry  will be 

     Donation                              A/c     Dr            100000/- 

     To Income &  Expenditure   A/c     Cr                               100000/- 

(  Donation as  income  transfer to Income & expenditure ) 

Note - if trust  want to  capitalize  this amount  then  Capital  fund  account  will be  credited .  

          

     

 

Thanks for reply. but doner want to receipt against 1 lac to get benefit in their itr. then one receipt will be made ag. one lac or 10000 X10 receipt will be made in next year. meanwhile 1 short receipt can make or their any amount limit for donation receipt

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