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Negative capital

CS Alok Mishra (Income Tax Practitioner)   (781 Points)

11 December 2011  

I have a client (Proprietor) whose Company balance sheet has negative capital. I want to know that where this negative amount will go in his personal balance sheet and under which head. In my opinion it will not be treated as Investment as its in minus figure. Plz assist me.  Thanks...

 8 Replies

Dont show negative captial...introduce additional capital inthe form of cash

vishnupriya (CA Final) (1418 Points)
Replied 11 December 2011

Yes Alok! That is no more an Investment. 

As per AS-13, AS-23 and ASI - 18 (Accounting Standard Interpretation), the entire item itself is to be removed from B/S

CS Alok Mishra (Income Tax Practitioner)   (781 Points)
Replied 12 December 2011

Accountant is not ready to change his accounts due to low cash balance. Also amount of Neg Capital is more than Rs. 2 lakhs so its not good to show additional cash capital

CS Alok Mishra (Income Tax Practitioner)   (781 Points)
Replied 14 December 2011

In Prop.sp Firm, The company and member is same person under Income Tax Act hence no separate legal entity of them. Loss of company is same as of Prop but traditionally we make two b/s for co. and Prop each and capital balance of co.'s b/s goes to Prop's personal b/s as Investment and also no AS shall be applicable in this regard. As u can understand that its a small firm hence no question arises of Free Reserve.( Co. doesnt has reserve). Now u said correct that Capital of co. will be shown in Prop.'s personal b/s and this is what i m asking that if its in negative then would i still right as negative investment?? or somewhere else in b/s. And if there will be no treatment of it then why??

Not to show the drawings in capital a/c

CS Alok Mishra (Income Tax Practitioner)   (781 Points)
Replied 16 December 2011

Thanks to all of you. Also to all of them who send me Private messages in this regard and Specially Ms. Sweta and Celiena. Have a great future ahead.

Shashvat (President) (21 Points)
Replied 20 January 2012


In case of Proprietor, the proprietor keeps on drawing the profit earned in the form of self-drawings. When self-drawings for the FY becomes more than capital invested, capital becomes negative. So you need to transfer the profit to the capital account. If capital is negative after transferring profit/loss, then it is a situation of bankruptcy, and loss has to be displayed in the personal return.

Kartik (CMA) (129 Points)
Replied 11 August 2016

Hi Alok,

I also have same query. will you advice me what treatment you gave for the same.


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