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Querist : Anonymous

Querist : Anonymous (Querist)

07 December 2016 A proprietorship firm purchased land from a public limited company in which the father of proprietor is director and issued cheque in the name of company. The firm has to show capital in its books of accounts by taking money from that company. What is the procedure to invest the amount in proprietorship firm? What entries will be passed so that the amount is shown as capital invested by proprietor?

Pratik Shah

Pratik Shah (Expert)
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08 December 2016 What do you mean by "the firm has to show capital in its books of account...."? Your query is bit confusing. Can you please elaborate?

Querist : Anonymous

Querist : Anonymous (Querist)

08 December 2016 Sir actually the firm is taking loan from bank. It has to show capital in its books of accounts of approx 2 crores. So my question is how the amount will be invested in the firm?

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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19 July 2024 To show capital invested in a proprietorship firm, where the funds are transferred from another entity (in this case, the public limited company), you would typically follow these steps:

### Procedure to Invest the Amount in Proprietorship Firm:

1. **Documentation:**
- Obtain proper documentation for the transaction, such as a sale deed or agreement for the purchase of land from the public limited company.
- Ensure there is a clear understanding that part of the consideration will be used as capital investment in the proprietorship firm.

2. **Transfer of Funds:**
- The public limited company (where the father of the proprietor is a director) should transfer the agreed amount to the proprietorship firm.
- This transfer can be made through banking channels, typically by a bank transfer or cheque issued in the name of the proprietorship firm.

3. **Entries in Books of Proprietorship Firm:**
- Upon receipt of funds, the proprietorship firm will record the transaction in its books of accounts.
- Create an entry to reflect the capital introduced:
```
Dr. Bank Account (Asset) 2,00,00,000
Cr. Capital Account (Equity) 2,00,00,000
```
- Here, 2 crores (or the exact amount received) is credited to the Capital Account to show the increase in capital.
- The Bank Account is debited to reflect the receipt of funds.

4. **Additional Considerations:**
- Ensure that the transaction complies with tax regulations and other legal requirements.
- Keep proper documentation of the transaction, including any agreements or correspondence related to the investment.

### Investment in the Proprietorship Firm:

- The amount received from the public limited company will be treated as capital invested by the proprietor in the firm.
- This capital will be reflected in the balance sheet under the proprietor's equity as contributed capital.

### Loan from Bank:

- If the firm is also taking a loan from a bank, ensure that the accounting for the loan and the capital investment are separately recorded.
- The loan proceeds should be credited to the Bank Account, and liability accounts (like Loan Account) should be debited accordingly.

### Conclusion:

By following these procedures, the proprietorship firm can appropriately document and reflect the capital invested by the proprietor, ensuring compliance with accounting standards and regulations. It is advisable to consult with a professional accountant or financial advisor to ensure all legal and regulatory requirements are met.