Accounting

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Miss D

student

47 Points Posted on 17 March 2015

A sole proprietor is running a partnership business with his brother. The input of the firm is the output of the sole proprietor business. The firm never pays the sole proprietor because both the business is run by the same person and same family.

Now, the debtors of sole proprietor is very high and the creditors of firm is very high because of this reason. (Both of them fall under tax audit)

1. How to solve this issue?

2. Can the sole proprietor bring in goods as his capital contribution to the firm every year? Is it allowed? What are the tax implications?

3. Can I write off the payables and receivable amount? What will be the tax implications?

4. What is the solution for this problem?

Replies (3)

sesha

accounts executive

930 Points Posted on 17 March 2015

accounting policy should be assets should be more than liablities in ratio ( 2:1)

if they come fall under tax audit it mandatory every debtors and creditors should be balance confirmation from the suppliers and clients we cannot write off the their payable and receivables on the books of accounts. it is mandatory that every supplier and customers want to furniish their pan no and balance confirmation to the income tax dept then it should be carried out for the subsequent year otherwise it will problem on future

u cannot intoduce stock as capital or we can otherthings put u family members as supplier and get goods from them as credit and pay them after realisation of your stocks sold and amt reciveed from debtors.

CA Raj Doshi

Practising CA

5649 Points Posted on 18 March 2015

The receipts from debtors of the firm should be used to pay the proprietary dues. Flow of activity : Purchase - Proprietary - Sale to firm. Purchase from Proprietary - Firm - Sale to customer .... Now go reverse ... Receipts from customer - Firm - Pay to proprietary. Receipts from firm against the sale effected by proprietary.... Advise bill to bill adjustment.

CA Raj Doshi

Practising CA

5649 Points Posted on 18 March 2015

Another solution is directly purchase from the supplier in the books of firm and sell to customers. Close down operations of proprietorship because it is just a part and parcel of the chain with limited importance.