Mercentile Cash

This query is : Resolved

V CHANDRA SEKARA RAJU (Querist)
Follow

15 September 2010 A firm of three partners starts coaching classes on 1 April 2010 and receives entire fees of Rs 70 lacs in April for a session of 12 months.On 30 June 2010 two partners retire due to disputes and decide that they do not want any profit or loss for the business, and the remaining partner is running the business as a proprietor.
How should the fees be reflected in the accounts of the firm for the three months ending 30 June 2010.The expenses to run the classes per month are Rs.2.75 lacs.Whether the firm will show a net profit of Rs.61.75 lacs and pay tax on it.Whether the Proprietory firm will show a loss of Rs.24.75 lacs for the nine months ended 31 March 2011. Basis of Accounting is CASH.

shakuntala chhangani

shakuntala chhangani (Expert)
Follow

21 September 2010 Hi, as per AS 9 tution fees should be recognised over the period of instructions which here is 12 months i.e. revenue to be recognised per month is 5.83 lakhs.
Further two partners retire on 30.6.2010, the partnership firm was in existence for only three months after which it becomes proprietory firm (only one partner remaining)
Since it is agreed amongst the partners that retiring partners will not share any profit and will not bear any loss through mutual consent, the remaining partner will pay tax and retain after tax profit which is 17.5lakhs(5.83 x 3)- 8.25 lakh exp(2.75 x 3)- tax liability. from 1.7.2010 it will be a proprietory firm.
Regards, CA Shakuntala Chhangani

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now