Partnership firm
This query is : Resolved
15 June 2013
hello experts,
Please solve this query as early as possible
There is one partnership firm(let say M/s AB & co.) which has 2 partner Mr.A & Mr.B, they both contributed in firm & made 1 Asset which is registered in the name of Mr.B.Now Asset earn a hire charges which received by M/s B & co.(Mr.B's proprietor concern), Now Mr.B paid share of hire charges to Mr.A. from M/s B & co. So My Query is...
1) How we treat that Payment made by Mr.B to Mr.A?
2)Whether M/s AB & co. require to come to the picture or not?
Please give me feedback as early as possible.
Please solve this query as early as possible
There is one partnership firm(let say M/s AB & co.) which has 2 partner Mr.A & Mr.B, they both contributed in firm & made 1 Asset which is registered in the name of Mr.B.Now Asset earn a hire charges which received by M/s B & co.(Mr.B's proprietor concern), Now Mr.B paid share of hire charges to Mr.A. from M/s B & co. So My Query is...
1) How we treat that Payment made by Mr.B to Mr.A?
2)Whether M/s AB & co. require to come to the picture or not?
Please give me feedback as early as possible.
15 June 2013
why mr B pay amount to Mr. A ?
pls tell
pls tell
15 June 2013
Mr.A is partner of M/s AB & Co. & he is also contributing for making that asset. so Mr.A will definitely ask for his share of profit.but as that asset registered in Mr. B's name, that's why hire charges received by him.
09 August 2024
To address your query regarding the treatment of payments and the involvement of the partnership firm in the scenario you've described, let’s break down the situation and provide a detailed explanation:
### **1. Treatment of Payment Made by Mr. B to Mr. A**
**Scenario:**
- M/s AB & Co. is a partnership firm with Mr. A and Mr. B as partners.
- An asset, created by both partners, is registered in Mr. B's name.
- The asset earns hire charges, which are received by Mr. B's proprietary concern (M/s B & Co.).
- Mr. B pays a share of the hire charges to Mr. A from M/s B & Co.
**Accounting Treatment:**
- **Payment by Mr. B to Mr. A:** The payment made by Mr. B to Mr. A can be seen as Mr. B’s personal arrangement to compensate Mr. A for his contribution, since Mr. A has not received any direct share from M/s B & Co. for the hire charges.
**How to Record This Payment:**
1. **In Mr. B’s Books (M/s B & Co.):**
- Record the payment to Mr. A as an expense, as it is a payment made from the proprietary concern’s funds to another individual.
- Example Entry:
```
Dr. Mr. A (Expense Account) [Amount]
Cr. Bank/Cash (Payment Account) [Amount]
```
2. **In Mr. A’s Books:**
- Mr. A should record the amount received as income or as a personal receipt, depending on how he wants to categorize it.
- Example Entry:
```
Dr. Bank/Cash (Receipt Account) [Amount]
Cr. Income/Personal Receipt [Amount]
```
### **2. Role of M/s AB & Co.**
**Involvement of the Partnership Firm:**
- **Asset and Hire Charges:** Since the asset was created for the partnership firm and was contributed to by both partners, the partnership firm should technically be involved in the income generated from the asset.
**Why M/s AB & Co. Needs to Be Involved:**
1. **Profit Sharing:** As Mr. A and Mr. B are partners in M/s AB & Co., they share profits and losses according to their profit-sharing ratio. Since the asset is a part of their joint business venture, any income generated from it should ideally be considered for the firm's financial statements and profit-sharing arrangement.
2. **Accounting for Hire Charges:**
- The hire charges received by M/s B & Co. (Mr. B's proprietary concern) should be recorded in M/s AB & Co. as well. This is to ensure that all income generated from the partnership assets is accounted for in the partnership's books.
3. **Adjustments:**
- The payment Mr. B made to Mr. A from M/s B & Co. should be reviewed and adjusted in the books of M/s AB & Co. If Mr. A's share of the hire charges is not appropriately recorded in the partnership firm's books, it may lead to discrepancies in profit sharing and financial reporting.
**Recommended Steps:**
1. **Record Hire Charges:**
- Ensure that the income from hire charges is recorded in the books of M/s AB & Co. as part of its revenue.
- Example Entry:
```
Dr. Bank/Cash (Hire Charges Received) [Amount]
Cr. Income from Hire Charges (Revenue) [Amount]
```
2. **Profit Sharing Adjustments:**
- Adjust the profit-sharing accounts to ensure that both Mr. A and Mr. B receive their appropriate shares of the income from the asset.
3. **Consult with a Professional:**
- Since there may be complex issues involving personal and partnership finances, consulting with an accountant or legal advisor is recommended to ensure compliance with accounting standards and legal requirements.
### **Summary:**
- **Payment from Mr. B to Mr. A:** Treat this payment as an expense in Mr. B’s proprietary concern and as income or personal receipt for Mr. A.
- **Involvement of M/s AB & Co.:** The partnership firm should be involved in accounting for the hire charges and any related adjustments to ensure proper profit-sharing and financial reporting.
If you need further assistance, feel free to ask!
### **1. Treatment of Payment Made by Mr. B to Mr. A**
**Scenario:**
- M/s AB & Co. is a partnership firm with Mr. A and Mr. B as partners.
- An asset, created by both partners, is registered in Mr. B's name.
- The asset earns hire charges, which are received by Mr. B's proprietary concern (M/s B & Co.).
- Mr. B pays a share of the hire charges to Mr. A from M/s B & Co.
**Accounting Treatment:**
- **Payment by Mr. B to Mr. A:** The payment made by Mr. B to Mr. A can be seen as Mr. B’s personal arrangement to compensate Mr. A for his contribution, since Mr. A has not received any direct share from M/s B & Co. for the hire charges.
**How to Record This Payment:**
1. **In Mr. B’s Books (M/s B & Co.):**
- Record the payment to Mr. A as an expense, as it is a payment made from the proprietary concern’s funds to another individual.
- Example Entry:
```
Dr. Mr. A (Expense Account) [Amount]
Cr. Bank/Cash (Payment Account) [Amount]
```
2. **In Mr. A’s Books:**
- Mr. A should record the amount received as income or as a personal receipt, depending on how he wants to categorize it.
- Example Entry:
```
Dr. Bank/Cash (Receipt Account) [Amount]
Cr. Income/Personal Receipt [Amount]
```
### **2. Role of M/s AB & Co.**
**Involvement of the Partnership Firm:**
- **Asset and Hire Charges:** Since the asset was created for the partnership firm and was contributed to by both partners, the partnership firm should technically be involved in the income generated from the asset.
**Why M/s AB & Co. Needs to Be Involved:**
1. **Profit Sharing:** As Mr. A and Mr. B are partners in M/s AB & Co., they share profits and losses according to their profit-sharing ratio. Since the asset is a part of their joint business venture, any income generated from it should ideally be considered for the firm's financial statements and profit-sharing arrangement.
2. **Accounting for Hire Charges:**
- The hire charges received by M/s B & Co. (Mr. B's proprietary concern) should be recorded in M/s AB & Co. as well. This is to ensure that all income generated from the partnership assets is accounted for in the partnership's books.
3. **Adjustments:**
- The payment Mr. B made to Mr. A from M/s B & Co. should be reviewed and adjusted in the books of M/s AB & Co. If Mr. A's share of the hire charges is not appropriately recorded in the partnership firm's books, it may lead to discrepancies in profit sharing and financial reporting.
**Recommended Steps:**
1. **Record Hire Charges:**
- Ensure that the income from hire charges is recorded in the books of M/s AB & Co. as part of its revenue.
- Example Entry:
```
Dr. Bank/Cash (Hire Charges Received) [Amount]
Cr. Income from Hire Charges (Revenue) [Amount]
```
2. **Profit Sharing Adjustments:**
- Adjust the profit-sharing accounts to ensure that both Mr. A and Mr. B receive their appropriate shares of the income from the asset.
3. **Consult with a Professional:**
- Since there may be complex issues involving personal and partnership finances, consulting with an accountant or legal advisor is recommended to ensure compliance with accounting standards and legal requirements.
### **Summary:**
- **Payment from Mr. B to Mr. A:** Treat this payment as an expense in Mr. B’s proprietary concern and as income or personal receipt for Mr. A.
- **Involvement of M/s AB & Co.:** The partnership firm should be involved in accounting for the hire charges and any related adjustments to ensure proper profit-sharing and financial reporting.
If you need further assistance, feel free to ask!
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