Accounting For
Limited Liability Partnership
Meaning
LLP is a globally recognized form
of business organization which is brought into being in India by passing LLP
Act 2008.
LLP is a form of organization in which designated partners manage the
business as per the provisions specified in LLP Agreement. In this form of
organization liability of partners is limited. It has a separated legal
independent status distinct from the members.
Features of LLP
Creation
– It is created by LLP Act 2008. Hence it is a legal entity.
Registration – Registration of LLP is compulsory under the LLP Act
2008.
Governance – It is governed by the provisions of LLP Act 2008.
Perpetual Succession – LLP has a perpetual succession. It has
continuous life. Partners may come, partners may go LLP continues its operation
till the law says no.
LLP Agreement – It has a agreement which is a charter of LLP. It
shows the scope of operations and rights and duties of partners.
Liability – Liability of partners is limited to the extent of their
contribution towards LLP.
Member – Minimum 2 members are required to form LLP. There is no
limit on the maximum no. of partners.
DPIN – Each designated partner is required to have DPIN before
appointment as Designated Partners.
Dissolution – It can be dissolved voluntarily or by the order of
NCLT.
Transfer of Interest – A partner
can transfer his interest subject to the provisions of LLP agreement.
Common Seal – LLP
may have its own common seal depending upon the terms of the agreement.
Benefits of LLP
1) Easy
to form
2) Easy
to operate
3) No
restriction on maximum number of members
4) Separate
legal entity
5) Lesser
amount of compliance
6) Personal
assets are safe
7) Less
requirement of Statutory books
8) Less
interference of the Government
9) Ease
in winding up
10) Worldwide
acceptance
Consequences of Conversion of a Proprietary/ Partnership Concern into LLP
A. Dissolution
of Proprietary/ Partnership Concern
B. Formation
of a LLP to take over the business
Problems
to deal with
a) Valuation
of assets and liabilities
b) Determination
of purchase consideration – Net Assets and Net Payment Method
c) Disposal
of assets and liabilities not taken over by LLP
d) Settlement
of purchase consideration
Accounting
Procedure
Accounts
to be prepared
Realisation Account, Capital Accounts,
LLP Account and Cash/ Bank Account 1) Transfer accumulated profits and
reserves to the capital account.
Reserves
Account Dr.
To Capital Account
2) Transfer accumulated losses, Deferred Revenue Expenses Account to the capital accounts.
Capital
Account Dr.
To P & L A/c (Dr. Bal.)
To Def. Rev. Exp. Account
3) Transfer all assets to Realisation Account
Realisation
Account Dr.
To Sundry Assets A/c
Note – Cash/ Bank Balance shall be transferred to Realisation Account only to the extent taken over.
4) Transfer Liabilities to Realisation Account
|
Sundry
Liabilities A/c To Realisation Account
5) Purchase Consideration Due |
Dr. |
|
LLP
Account To Realisation Account |
Dr. |
6) Receiving
Purchase Consideration
Cash/
Bank Account Dr.
To LLP Account
7) Assets
sold
Cash/
Bank Account Dr.
To Realisation Account
8) Assets
tekn over by vendor
Capital
Account Dr.
To Relisation Account
9) Liabilities
discharge by vendor firm
Realisation
Account Dr.
To Cash/ Bank Account
10) Liabilities
discharge by vendor
Realisation
Account Dr.
To Capital Account
11) Payment
of Realisation Expenses
Realisation
account Dr.
To Cash/ Bank Account
12) Close
Realisation Account and transfer the balance to Capital Account a) If there is
a credit balance (i.e. profit)
Realisation Account Dr.
To Capital Account
b) If there is a debit balance (i.e. loss)
Capital Account Dr.
To Realisation Account
Accounting Entries in the books of a LLP 1. Recording Purchase Consideration
Business Purchase Account Dr.
To Vendor Firm’s Account
2. Recording
Purchase Consideration
Assets Account Dr.
To Liabilities Account
To Business Purchase Account
Note – Any difference in the
above entry should be treated as Goodwill or Capital Reserve.
3. Settlement
of Purchase Consideration
Vendor Firm’s Account Dr.
To Cash/ Bank Account
Statement of Assets and Liabilities
|
|
Particulars |
Figures
as at the end of the current reporting period |
Figures
as at the end of the previous
reporting period |
|
I. 1. 2. II. |
CONTRIBUTION AND LIABILITIES Partner’s Fund a) Contribution b) Reserves and
Surplus Liabilities a) Secured
Loan b) Unsecured
Loan c) Short
Term Borrowings d) Creditors/
Trade Payables Advance from customers e) Other
Liabilities (to specify) f) Provisions i) for taxation ii) for contingencies iv) for insurance v) other provisions (if any) TOTAL ASSETS a) Fixed
Assets b) Investments
c) Loans
and Advances d) Inventories
e) Debtors/
Trade Receivables f) Cash
and Cash Equivalents g) Other
assets (to specify) TOTAL
|
|
|
Notes: Contingent liabilities not provided for.
Statement of Income and Expenditure
|
Particulars |
Current Year |
Previous Year |
|
Turnover Other Income (to specify) Increase/ (decrease) in stocks (including R.M., WIP and F.G.) TOTAL INCOME Expenses Purchases Personnel Expenses Administration Expenses Selling Expenses Depreciation Interest Other Expenses (to specify)
Profit before Taxes Provision for Tax Profit After Tax Profit transferred to
Partners’ Account Profit
transferred to Reserves and Surplus |
|
|
Q. 1 A, B and C were partners sharing profits and losses as 3 : 2 : 2.The following is the Balance Sheet of A , B and C as on 31.03.2022.
Balance
Sheet as at 31st March 2022
|
Liabilities |
Rs |
Assets |
Rs. |
|
Capitals:
A B C Creditors |
1,45,000 87,000 37,500 24,000 |
Land
and Building Machinery
Stock Bills
Receivables Debtors |
1,44,000 42,000 18,000 36,000 54,000 |
|
2,94,000 |
2,94,000 |
The partners decided to convert
the business into a LLP on 31st March 2022 on the following terms:
1) LLP
which consists of A, B and C as partners contributes Rs. 1,50,000 each.
2) The
company took over all assets except stock, which was taken by A for Rs. 15,000
and assumed all the liabilities. It also agreed to pay Rs. 45,000 for
goodwill.
3) The
purchase consideration was paid in cash.
You are required to given : a) Realisation Account
b) Partner’s
Capital Account
c) Cash
Account
d) Journal
Entries in the books of LLP and
e) Statement
of Assets and Liabilities
Q. 2 R and K were equal partners
in a firm. Their Balance Sheet as on 31st March 2022 is as
under:
Balance
Sheet as at 31st March 2022
|
Liabilities |
Rs |
Assets |
Rs. |
|
Capital
Accounts: R K Sundry
Creditors Loan
on Mortgage |
1,10,000 40,000 50,000 20,000 |
Building
Furniture
Debtors
(Less RDD) Stock Cash |
1,28,000 12,000 30,000 36,000 14,000 |
|
2,20,000 |
2,20,000 |
On the above date, they converted
their business into LLP on the following terms:
1) To
take over Debtors at Rs. 28,000, stock at Rs. 44,000, furniture at Rs. 8,000,
Building at Rs. 1,40,000 and Goodwill at Rs. 44,000.
2) To
take over Sundry Creditors from whom a discount of Rs. 4,000 would be
earned.
3) To
take over Mortgage Loan along with unrecorded interest of Rs. 2,000.
4) Dissolution
expenses were Rs. 4,000.
Calculate:
1) Statement
of purchase consideration.
2) Open
Realisation Account, R and K’s Capital Account and LLP’s Account in the books
of the firm. LLP which consists of A, B and C as partners contributes Rs.
1,50,000 each.
1) The
company took over all assets except stock, which was taken by A for Rs. 15,000 and
assumed all the liabilities. It also agreed to pay Rs. 45,000 for
goodwill.
2) The
purchase consideration was paid in cash.
You are required to given : a) Realisation Account
b) Partner’s
Capital Account
c) Cash
Account
d) Journal
Entries in the books of LLP and
e) Statement
of Assets and Liabilities
Q.3 Mr. Deepak decided to convert his business into a LLP on st
March, 2018 when balance sheet stood and follows :
|
Liabilities |
Rs. |
Assets |
Rs. |
|
Creditors Loans Bank
Overdraft Reserve Capital
Accounts: Deepak |
48,000 40,000 16,000 6,000 80,000 |
Debtors Bills receivable Stock –in – Trade Patents Plant
& Machinery Land
& Building |
60,000 10,000 36,000 8,000 16,000 60,000 1,90,000 |
|
1,90,000 |
1. M/s
Sanjay, Vijay LLP is formed to takeover
the business of Deepak.
2. The
Loan Creditors were settled
3. Loan
and Building and plant and Machinery were to be valued at Rs. 2,00,000 and
Rs, 24,000 respectively
4. The
vendors were to be settled by payment of Rs. 2,10,000
5. Sanjay & Vijay contributed RS. 3,50,000 each
You are required to show
realization account of Deepak. Journal of LLP & Balance Sheet after
Conversion
Q.4.Asha and Bina are in
partnership and share profits losses in
equal proportion. On 30th September, 2018. They sold their assets to
Ashawadi & Co. LLP having Asha & wadi as partners who contributed Rs
1.50.000 each. The balance Sheet as on
30.9.18 stood as under:
|
Liabilities |
Rs |
Assets |
Rs. |
|
Creditors
Capital Asha 47,800
Bina 50,400
Loan
from sagar |
1,63,500 4,700 98,200 21,000 |
Sundry Assets Cash in Hand |
1,63,500 4,700 |
|
1,68,200 |
1,68,200 |
The buyers Ashawadi & Co.
agree as follows :
1. To
Pay Rs. 1,59,300 for sundry assets and
Rs. 30,000 as Goodwill
2. To
deposit Rs. 50,000 immediately to enable payments to creditors and the balance
on completion of all formalities
as 31.12.18 They agree to pay interest at 5% P.a on the balance of purchase price Asha
and Bina are to be allowed interest at 10% p.a on their opening capital.
3. Sagar
loan account is to be credited with interest at 12% p.a
Show necessary ledger accounts in the books of vender and Journal of Ashawadi & Co. LLP
Q.5. L and M are equal partners. The Balance Sheet of the firm as
on 31st march, 2018 was as follows:
|
Liabilities |
Rs. |
Assets
|
Rs. |
|
Sundry Creditors Bills payable 10% Mortgage Loan Reserve Fund Capital Accounts: L M |
20,000 10,000 5,000 4,000 60,000 40,000 |
Bank Balance Bills
Receivable Debtors Stock Machinery Building |
8,000 11,000 23,000 25,000 15,000 57,000 |
|
1,39,000 |
1,39,000 |
On 1st April 2018 the firm decided to convert into
LLP. The terms were as follows :
1. Buildings
and stock to be taken over at Rs. 60,000 and Rs, 26,000 respectively. The remaining assets to be taken over at Book
values
2. The
Goodwill of the firm to be valued at tow years of averages profit of the
preceding four years. The firms ‘s
profit were Rs. 16,000 in 2015, Rs 18,000 in 2016, Rs.
20,000 in 2017 and Rs 26,000 in 2018
after setting aside RS. 1,000 to reserve
found each year
3. The
firms is to discharge the 10% mortgage
Loan. Other Liabilities to be taken over by the LLP.
4. Dissolution
expenses amounted to RS. 1,000 which are to be borne by the firm.
Show:
a) Closing
entries in the Books of the firm
b) Opining
entries in the books of the LLP: and C)
Opining Balance Sheet of the LLP.
Q.5. From the following
trial balance of Mitali and shraddha
you are required to prepare statement pf income and Expenditures
for the year ended 31st March, 2018 and The statement
Of Assets And Liabilities as on that Date after taking into Consideration the
Additional Information
|
Particulars |
Dr. |
Cr. |
|
Mitali’s Capital Shraddha’s Capital Mitali ‘s Drawings Shraddha’s Drawings Stock 1.4.2017 Bills Receivable |
28,900 20,000 4,40,000 60,000 |
4,00,000 3,60,000 |
Adjustments
1. Depreciate
plant and Machinery by 5% and Patents by 15%
2. Provide
for research for bad and Doubtful debts
@ 5% on sundry debtors
3. Prepaid
insurance Rs. 1,200.
4. Provide
for Outstanding expenses : salary Rs, 4,000: Wages Rs.2,000 advertisement
Rs.
1,400.
5. Stock
on 31ST March 2018 was Valued at 2,40,000
6. Goods
Costing Rs 12,000 were destroyed by fire and Insurance Company Has Admitted
a Claim for Rs, 7,600
7. Partners
share profit and Losses Equally
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