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FA6


UNIT 5


Accounting for Limited Liability Partnership


A typical partnership form of the business suffers from the problem of unlimited liability. Liabilities of partners of a firm extend right up to their personal assets. This makes regular partnerships undesirable for a lot of entrepreneurs. One solution for this issue exists in the form of Limited Liability Partnerships, better known as LLP.

 

LLP entities the worldwide Recognized form of business organization has now been introduced in India by way of LLP ACT, 2008. That came into effect by way of notification dated 31-03-2009.

 

LLP Companies advantages of both the company and partnership into a single form of organization.

 

In an LLP one partner is not responsible or liable for another partners miss conduct or negligence. In an LLP all partners have a Limited Liability. For each individual protection within the partnership, similar to that of shareholders of a corporation.

 


LLP is managed as per the LLP Agreement, however in the absence of such agreement LLP would be generated by the Framework provided in Schedule 1 of LLP ACT, 2008.

 


A limited liability partnership contains the following peculiar features:

1. Separate legal entity

Unlike regular partnership firms, limited liability partnerships are treated as separate legal entities. This means that LLPs can own assets and incur liabilities in their own names. They can also enter into contracts and sue and be sued in their own names.

2. Limited liability of partners

The liabilities of partners of an LLP are separate and limited. Their personal assets will not liable to attachment in case the LLP is winding up or suffering certain legal consequences of repayment of debt.

Partners’ liabilities, however, can become unlimited in cases of offenses like fraud, the commission of an offense, or any other wrongful and illegal act.

3. Sharing of profits

All partners of limited liability partnerships share profits of business just as partners of regular firms. They are, however, free to decide the ratio in which they will share profits.

4. Partners of LLPs

Partners of a limited liability partnership can be either natural persons, i.e. individuals, or even body corporates. Furthermore, an individual cannot be a partner if he suffers from unsoundness of mind or he is insolvent.

LLPs must have a minimum of two partners at all times. Also, the maximum number of partners is unlimited, while it is restricted to 50 for regular partnership firms. If at any time, the number of partners in an LLP becomes less than two, and the sole partner carries on business for more than six months under such circumstances, his liability towards the firm’s business will become unlimited.

 


  1. Well known and accepted form of business worldwide in comparison to company.
  2. Low cost of formation.
  3. Easy to Establish as compared to company.
  4. Easy to manage and run as compare to a company.
  5. No requirement of any minimum capital contribution.
  6. No restriction as to minimum number of partners.
  7. LLP and its partner as distinct from each other.

 


  1. Under some cases liability may extend to personal assets of partners.
  2. LLP cannot raise money from Public like Company.

 


(In Rupees ____________)

 

Sr. No

Particulars

Note

No

Amount

(in Rs.)

I

Contribution and Liabilities

 

 

 

Partners fund

 

 

 

a) Contribution Received

b) Reserves and Surplus

1

2

 

 

Liabilities

 

 

 

a) Secured Loans

3

 

 

b) Unsecured Loans

4

 

 

c) Short term Borrowings

5

 

 

d) Creditors/Trade Payables

6

 

 

e) Other Liabilities (specify)

7

 

 

f) Provisions

  1. For taxation
  2. For contingencies
  3. For insurance
  4. Other provisions

8

 

 

TOTAL

 

 

II

Assets

 

 

 

a) Gross Fixed Assets

Less: Depreciation and Amortisation

Net Fixed Assets

9

 

 

b) Investments

10

 

 

c) Loans and Advances

11

 

 

d) Inventories

12

 

 

e) Debtors/ Trade Receivables

13

 

 

f) Cash and Cash Equivalents

14

 

 

g) Other Assets (specify)

15

 

 

TOTAL

 

 

 


For the period from _____ to _____

 

Particulars

Note

No

Amount

(In Rs.)

Income

 

 

Gross Turnover

Less: Excise Duty

Net Turnover Details

16

 

Domestic Turnover

 

 

Export Turnover

 

 

Other Income (specify)

17

 

Increase/Decrease in Stocks

18

 

TOTAL INCOME

 

 

Expenses

 

 

Raw Material Consumed

19

 

Purchases made for Re-sale

20

 

Consumption of Stores and Spare Parts

21

 

Power and Fuel

22

 

Personnel Expenses

23

 

Administrative Expenses

24

 

Payment to Auditors

25

 

Selling Expenses

26

 

Insurance Expenses

27

 

Depreciation and Amortization

28

 

Interest

29

 

Other Expenses (specify)

30

 

TOTAL EXPENSES

 

 

Net Profit/ Net Loss before Taxes

 

 

Provision for Tax

 

 

Profit after Tax

 

 

Profit Transferred to Partners Account

 

 

A

 

 

B

 

 

Profit Transferred to Reserves and Surplus

 

 

 


 

Sr. No

Particulars

Amount

(in Rs.)

Amount

(in Rs.)

 

 

 

 

 

 

 

 

1

Contribution Received

 

 

 

 

 

 

 

 

 

 

2

Reserves and Surplus

 

 

 

 

 

 

 

 

 

 

3

Secured Loans

 

 

 

 

 

 

 

 

 

 

4

Unsecured Loans

 

 

 

 

 

 

 

 

 

 

5

Short term Borrowings

 

 

 

 

 

 

 

 

 

 

6

Creditors/Trade Payables

 

 

 

 

 

 

 

 

 

 

7

Other Liabilities (specify)

 

 

 

 

 

 

 

 

 

 

8

Provisions

 

 

 

 

 

 

 

 

 

 

9

Fixed Assets

 

 

 

 

 

 

 

 

 

 

10

Investments

 

 

 

 

 

 

 

 

 

 

11

Loans and Advances

 

 

 

 

 

 

 

 

 

 

12

Inventories

 

 

 

 

 

 

 

 

 

 

13

Debtors/ Trade Receivables

 

 

 

 

 

 

 

 

 

 

14

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

 

 

15

Other Assets (specify)

 

 

 

 

 

 

 

 

 

 

16

Total Turnover

 

 

 

 

 

 

 

 

 

 

17

Other Income

 

 

 

 

 

 

 

 

 

 

18

Increase/Decrease in Stock

 

 

 

 

 

 

 

 

 

 

19

Raw Material Consumed

 

 

 

 

 

 

 

 

 

 

20

Purchases made for Re-sale

 

 

 

 

 

 

 

 

 

 

21

Consumption of Stores and Spare Parts

 

 

 

 

 

 

 

 

 

 

22

Power and Fuel

 

 

 

 

 

 

 

 

 

 

23

Personnel Expenses

 

 

 

 

 

 

 

 

 

 

24

Administrative Expenses

 

 

 

 

 

 

 

 

 

 

25

Payment to Auditors

 

 

 

 

 

 

 

 

 

 

26

Selling Expenses

 

 

 

 

 

 

 

 

 

 

27

Insurance Expenses

 

 

 

 

 

 

 

 

 

 

28

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

 

29

Interest

 

 

 

 

 

 

 

 

 

 

30

Other Expenses (specify)

 

 

 

 

 

 

 

 

 

 

 


 

  1. Calculation of Purchase Consideration:

There are two methods for calculation of PC:

  1. Net Asset Method: In this case, asset and liabilities are taken over at Agreed value and then liabilities are deducted from assets. In case, agreed values are not given, net assets will be taken over at balance sheet value.
  2. Net Payment Method: In this case, Purchase Consideration=Cash paid by new firm.

 

2.      Given in problem:

  1. Balance sheet of Vendor
  2. Adjustments

3.      Required in Solution:

  1. Calculation of Purchase Consideration.
  2. Close books of Vendor by preparing ledger accounts or bypassing journal entries.
  3. Pass opening journal entries in new firm.
  4. Prepare opening balance sheet in new firm.

4.      Proforma of journal entries in the books of vendor:

  1. Transfer of Capital Reserves and Surplus to capital a\c:

Capital Reserve A\c             Dr.

Reserves and Surplus A\c      Dr.

To Capital A\c

Ii.            Transfer of Fictitious assets to Capital:

Capital A\c                                Dr.

To Fictitious assets A\c

Iii.            Transfer of Assets to Realization A\c:

Realization A\c                         Dr.

To Sundry Assets A\c

 

Iv.            Transfer of Sundry Liabilities to Realization A\c:

Sundry Liabilities A\c             Dr.

To Realization A\c

v.            Recording of PC:

New Firm A\c                          Dr.

To Realization A\c

Vi.            Transfer of Realization profit or loss to capital a\c:

  1. If Profit:

Realization A\c          Dr.

To Capital A\c

b.     If Loss:

Capital A\c                 Dr.

To Realization A\c

Vii.            Balance in Capital A\c transfer to New firm:

Capital A\c.                            Dr.

To New Firm A\c

  1. Proforma Journal entries in books of new firm:

Assets Taken Over (at Agreed Value)     Dr.

To Liabilities Taken Over (at agreed value)

To Capital (of vendor firm)

 

[As no Liquidation, so NO entries of Liquidation]


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