Life Memberships & Donations

A life membership is a single, larger payment that gives a member the right to belong to the club for many years (often for life). If the whole amount were taken as income in the year received, that year's surplus would be overstated and future years', when the member still benefits but pays nothing, would be understated.

The accruals (matching) concept therefore requires the life-membership receipt to be spread over the period it relates to:

• only the year's share is recognised as income in the income & expenditure account;
• the remaining balance is carried forward as a liability (a life membership fund or deferred income), because the club still 'owes' those members future membership.

Example. A $5,000 life membership spread over 10 years gives $500 income each year, with the balance held in the fund.

The usual method uses a life membership fund (a liability):

1. On receipt: Dr Bank, Cr Life membership fund (the whole amount — not income yet).
2. Each year: transfer the year's share from the fund to the income & expenditure account as income — Dr Life membership fund, Cr Income & expenditure.
3. The balance on the fund is shown as a liability (often long-term) in the statement of financial position.

$\text{Annual income} = \frac{\text{Life membership received}}{\text{Number of years spread}}$

Some clubs instead add life memberships directly to the accumulated fund (capitalise them) — a valid alternative when the syllabus/question specifies it. But the default examined method is to spread the amount and hold the balance in a life membership fund, releasing a share to income each year.

A donation is a gift to the club. Its treatment depends on its size, purpose and any restriction:

• Small / general donations — usually treated as revenue income for the year in the income & expenditure account (they help fund running costs).
• Large / specific donations — e.g. a substantial gift towards a new clubhouse or equipment — may be capitalised: added directly to the accumulated fund (or a dedicated fund), not taken as income. This avoids distorting one year's surplus with a one-off windfall and respects any donor restriction on how the money is used.

There is judgement involved. A good answer states what factors decide the treatment — the amount (material or not), the purpose (running costs vs a capital project), and any conditions the donor attached. Consistency and the matching concept guide the choice.

Bringing it together, these special receipts affect the statements as follows:

• Income & expenditure account: the year's share of life membership and any revenue donations appear as income.
• Statement of financial position (liabilities): the unreleased balance of the life membership fund is a liability.
• Statement of financial position ('financed by'): any capitalised donation is added to the accumulated fund (or shown as a separate fund).

So a life membership splits between income (this year's share) and a liability (the rest), while a donation goes either to income or to the accumulated fund depending on its nature. Keeping these flows separate prevents double-counting — a capitalised donation must not also appear as income, and the life-membership balance must not be recognised as income early.