Accounting treatment.

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TR Nagaraja (Querist)
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24 May 2010 Repected sir

1) It is a partnership firm, total turnover arount 98 lakhs. For running of business, partners took loans from out side financer by cash for amount of Rs 6,00,000/- & depsoited to bank. and they r paying interest 2.5% every month. There is no cash sales involved in business. my question is how treat this amount in the books of entry, Shal i take it as a capital or Loan pls advices us.

2) Another tranaction is, The firm took hand loan from out side party by cheque for amount of Rs 5,00,000/- and deposited to bank. Firm is paying interest @ 2.5% in every month along with Repayment by cash for amount of Rs 50,000/- in every month. Now loans is cleared. He paid cash for repayment of Loan. How to show in balance sheet for these traction. I now cash payment more than 20,000/-u/s 40A(3) Dissowled. kindly send us u r valuable advice to nagrja2008@yahoo.com

daya shankar singh

daya shankar singh (Expert)
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24 May 2010 1) The amount taken from outside is shown as loan and the amount paid as interest is charged from P/L/ a/c.If the amount paid by partner, then at its option u shall take it as capital provided that agreed by partnership deed

2)Where the amount paid more than Rs.20000 by way of cash sec 40A(3) gets attracted and whole amount shall disallowed .The amount of loan is reduced by the amount paid by firm

PHANI

PHANI (Expert)
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24 May 2010 Hi Nagraja,

In the first case, it would be better to show it as a capital coz since the firm has a turnover of 98lakhs, it would be liable for tax audit. As per Sec.269SS, 269T of the Income tax act, no loans or advances should be taken or given in excess of Rs.20,000 in cash otherwise than a/c payee cheque. So the firm would face a problem if their returns are picked up for scrutiny.

Will let you know about your second query shortly.

TR Nagaraja

TR Nagaraja (Querist)
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24 May 2010 For first case

if i will take as a capital accounts what about interest part?

daya shankar singh

daya shankar singh (Expert)
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24 May 2010 You will show the amount as interest on capital and debited from P/L appropriation a/c

PHANI

PHANI (Expert)
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24 May 2010 As Daya Shankar said u can show the amount as interest on capital and debit it to P&L a/c. But keep in mind that the interest payable on partner's capital should be contained in the partnership deed. Of course you can have the deed amended though.

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