Investment in pvt ltd at 5 % profit,how to treat in books

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Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2014 Mr.Y invested Rs.20 Lakhs in x Pvt ltd(A Movie making comapny) at 5 % share of overall profit of a single movie venture but whole 20lakhs has been turned into loss ,He is not a partner,He is not a stake holder in the company.He is only entitled for above said 5 % profit for his investment in the said single venture.so how to treat this in books of Accounts..??

CA UMESH DULAL

CA UMESH DULAL (Expert)
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17 June 2014 A private company is separate legal entity and profit/loss of the company is not your profit /loss. If there is profit, the company will retain the profit. If company distribute its profit, then shareholder will get dividend as per their share holding.

plz clearly state what types of investment is it.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2014 Here the company has taken Rs.20lakhs from Mr.Y for a single particular venture(a movie making) with a promise to part 5 % of profit/loss in that venture ,He has not issued any kind of Equity.

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CA UMESH DULAL

CA UMESH DULAL (Expert)
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17 June 2014 It should be treated as unsecured loan and interest should be paid on that loan

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2014 But there is a agreement for 5 % profit then how we can treat it as unsecured loan..??

CA UMESH DULAL

CA UMESH DULAL (Expert)
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17 June 2014 company can not share profit with third party. plz go to consult professional by carrying agreement as each point should be read out carefully to decide what type of agreement it is.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 June 2014 it is sort of JV. the problem is that you have not maintained separate books and PAN.

if the 5% was not a guaranteed amount, then just repay the principal. and close the transaction for good.

CA UMESH DULAL

CA UMESH DULAL (Expert)
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17 June 2014 @Nikhil, from his question it is not clear that it is JV. Sort of JV ? there is no such legal term like SORT OR JV. If it is JV, JV should have been formed.

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 June 2014 I am saying that he should have formed a JV. under his current position, with companies act 2013, it would reflect as a deposit from unrelated parties and consequences shall follow

CA UMESH DULAL

CA UMESH DULAL (Expert)
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17 June 2014 Yes you are right but there is no legal term like SORT OF JV

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 June 2014 it is an friend...like you are sort of a friend!! it means that while there is no legally formed JV, the arrangement is similar to one...