Director and company liabilitiy

This query is : Resolved

Goutam Jain (Querist)
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24 January 2012 Home loan of Rs ………… sanction by bank

Three companies and three individual directors are borrowers for the above home loan which was utilize towards the purchase of flat. The relative house property (flat) stands in the name of two directors.
Bank ’s sanction letter is addressed to all the six borrowers namely three companies and three individual directors.

Q .1 How the liability is to be reflected in the balance – sheet?
In what proportion?
And whom to debit?

Q.2 Since underlying property is owned by individual directors and EMI is also paid by them, will it be in accordance with Accounting Standards and Principals, just to show contingent liability by way of note in CARO report as well as in Notes to Accounts without showing liabilities in balance sheet ?

CA Salman Mansoori

CA Salman Mansoori (Expert)
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24 January 2012 1)LOAN TO DIRECTORS WOULD BE REFLECTED WITH THE PROPORTION OF THE THREE COMPANIES HOLDING IN THE LOAN AMOUNT. THIS IS BECOZ THA LOAN AHS BEEN SANCTION TO SIX HOLDERS AND THE THREE COMPANIES ARE SURELY LIABLE FOR THERE SAHRE IN CASE OF DEFAULT. THEY ARE NOT SIGNING AS A GUARANTEE IN THIS TRANSACTION THUS THERE WOULD NOT BE ANY CONTINGENT LIABILITY BUT A BANK LOAN WOULD BE SHOWN

ENTRY MUST BE

LOAN TO DIRECTOR(PROP RECD) DR....
TO BANK LOAN......

2)THE UNDERLYING PROPERTY IS OWNED AND CONTROL BY INDIVIDUAL DIRECTOR BUT THE LOAN IS WITH SIX HOLDERS. THUS THE MOMENT THE DIRECTOR PAY OF THE AMOUNT THERE WOULD BE A REVERSE ENTRY IN RESPECT OF THE INDIVIDUAL COMPANY'S SHARE..

BANK LOAN DR....
TO LOAN TO DIRECTOR (PROPORTIONATELY PAID)