donation is received for building fund. And the amount of building fund is shown in liability side of balance sheet. a building is purchased using this fund and the amounts of purchase is deducted from the fund. But why do we transfer an amounts equal the purchase of building to capital fund. What is the reason behind it.
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Explanation:
building fund is received for construction of buildings (not purchase)
construction of building is a capital expenditure so it is transferred from building fund which is a specific fund to capital fund
it is deducted from building fund as the amount is utilised for construction of building
it is shown on asset side as the amount is utilised for the creation of a fixed asset
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