Gift to partners: journal entry

Greetings Madhavi,

We can agree that stamp duty value will be relevant only at the time of tax computation. Consequently, the (CR) of the property at Book Value is correct.

Since the gift is made by the firm to the partners (or partners' capital so as to speak), the firm's obligations to the partners is reduced to the extent of the gift given, hence the DR of capital accounts is justified and not because the partners are contributing any consideration, which they are not anyway.

The accounting treatment appears to be correct in my opinion.

Kind Regards.

Mr. Bhadresh is right.

As the firm has made gift deed, the entry should be as mentioned by you.

Further as per simple accounting concept, firm and individual partners are different entity. And this is loss to firm as it has transferred the property as gift. And loss will be ultimately debited in partners capital account.

While computing the Income tax, if it would have been debited in p&l, the deduction of the same (Loss) could have not be claimed for income tax purposes. So, the effect would be the same in accounts though (Net P&L debit to capital A/c) 

While filing return of income, the same should be treated as capital gain in the return of firm.

The capital gain will be taxed in the hand of firm us 45(4) of the Act.