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Why is loss posted on assets side?

Akshay Dwivedi (Student CA IPC / IPCC) (79 Points)

28 January 2015

Is the 'Net Loss' from the P&L Account transferred to 'Miscellaneous Expenditure' in Assets side or only accumulated losses are transferred there?

What is the logic behind doing this? I read some places where it is said that this is done due to 'seperate entity' of a company but I wasn't able to understand... Can someone please explain in detail?

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9 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 28 January 2015

Earlier, under Old Schedule VI, any debit balance in profit and loss account carried forward after deduction from uncommitted reserves was required to be shown as the last item on the assets side of the balance sheet. This is a redundant practice now.
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At present, under Schedule III of the Companies Act, 2013 or Revised Schedule VI notified under the Companies Act, 1956, debit balance of statement of profit and loss shall be shown as a negative figure under the head ‘Surplus’.
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Similarly, the balance of ‘Reserves & Surplus’, after adjusting negative balance of surplus, if any, shall be shown under the head ‘Reserves & Surplus’ even if the resulting figure is in the negative.

PRADEEP S (Finance Manager(B.Com. M.Com. M.Phil. LLB. MA. MBA. MFT. MCS. CA Inter CMA Inter)) (216 Points)
Replied 29 January 2015

Hi Akshay,

To put in simple and logical way, a business, whatever form of organisation, is separate from its owners or shareholders or partners. When a business is earning profit,it means it has earned more than what is invested and hence it is repayable to the owners/shareholders/partners so it is shown as Liability(Payable). On the contrary, in case of Loss, it means business has lost money which is contributed by the owners and it has to be reimbursed, so shown as Asset(Receiveble). Please note i am explaining this in a very simple language and do not compare with any statutes or standards but only for logical understanding.

Regards

Pradeep S

5 Like

SACHIN KOLI (Accountant) (40 Points)
Replied 29 January 2015

Originally posted by : PRADEEP S
	Hi Akshay, To put in simple and logical way, a business, whatever form of organisation, is separate from its owners or shareholders or partners. When a business is earning profit,it means it has earned more than what is invested and hence it is repayable to the owners/shareholders/partners so it is shown as Liability(Payable). On the contrary, in case of Loss, it means business has lost money which is contributed by the owners and it has to be reimbursed, so shown as Asset(Receiveble). Please note i am explaining this in a very simple language and do not compare with any statutes or standards but only for logical understanding. Regards Pradeep S

I completely agree with Pradeep Sir

1 Like

Arif Ali (Apt Co Advisory) (1230 Points)
Replied 29 January 2015

completely agree with Pradeep.

Now as per new law, loss will be shown in Equity and liabilitiy side as minus.

Akshay Dwivedi (Student CA IPC / IPCC) (79 Points)
Replied 29 January 2015

Originally posted by : PRADEEP S
	Hi Akshay, To put in simple and logical way, a business, whatever form of organisation, is separate from its owners or shareholders or partners. When a business is earning profit,it means it has earned more than what is invested and hence it is repayable to the owners/shareholders/partners so it is shown as Liability(Payable). On the contrary, in case of Loss, it means business has lost money which is contributed by the owners and it has to be reimbursed, so shown as Asset(Receiveble). Please note i am explaining this in a very simple language and do not compare with any statutes or standards but only for logical understanding. Regards Pradeep S

But Pradeep, it is not posted in Accounts Receivable... It is posted in Miscellaneous Expenditure of Assets Side if I'm not wrong?

Although this method of entry might be outdated, I would still like to understand the logic behind it...

PRADEEP S (Finance Manager(B.Com. M.Com. M.Phil. LLB. MA. MBA. MFT. MCS. CA Inter CMA Inter)) (216 Points)
Replied 29 January 2015

Akshay, Strictly this is neither Accounts Receivable nor Accounts Payable, this requires separate disclosure, so that readers of the Financial Statements can easily understand the position of the business. Showing under Miscellaneous Expenditure is as per Statute.