loss of partnership firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 November 2010 A parntership firm constitued on 03.05.2009. Partnership firm could not start business up to 31.03.2010. But expenditure incurred during this period Rs. 4,20,212/-as a staff salary, office rent.It means firm incurred loss of Rs. 4,20,212 . What will be the treatment of this loss during the f.y. 2009-10. whether this loss will be distributed between partners in profit sharing ratio or whether loss will be capitalized as a pre-operative expenses and will be defferred in next 5 financial year if firm start the business in next financial year.

Harpreet singh

Harpreet singh (Expert)
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17 November 2010 It's depend on size of partnership firm or according to their partnership deed.

If deed is silent then capitalised or loss suffer by each partner is based on mutual consent.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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17 November 2010 It is advisable to debit the partners capital account by the amount of loss , because -
1. The expenditure incurred by the firm, as mentioned, are not covered under Section 35D, i.e. Amortization of Preliminary Expenses.
2. For claiming such expenditure as a business loss, the due date of Return Filing has gone.
3. The firm will automatically get closed if it is still not certain to start the
business.
4. It will be better to dissolve the firm right now and let the partners decide how and when to start the business.

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CA.Madhusudan B.P.

CA.Madhusudan B.P. (Expert)
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17 November 2010 As of now, the loss incurred to the extent of Rs.420212/- could have been shown as loss in the business & carried forward to setoff in the future profits, As the time limit has elapsed, you cannot get this C/F of loss.
Whether partnership shall continue or closed etc., shall be in accordance with the partnership deed.
I agree point 1,2 & 4 of Paras ji, But differ to point no 3, as the firm may not automatically closed if it is not started the business, as that shall be mentioned in deed. (At will or be closed)