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LOAN TAKEN FROM INDIVIDUAL

26 March 2024

A individual has taken a loan from bank and send money to partnership firm. He repay the emi.
my question is
Can a firm debit the interest part as expenses in profit & loss account?

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12 Replies

NARENDRA (ACCOUNTS MANAGER) (1994 Points)
Replied 26 March 2024

No, but if that individual wants to reimburse his interest from the firm, he can.............

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RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 26 March 2024

I agreed with Mr Narendra...

and

No...
Firm can't claim that interest...

Also question will be arise "Why You give money to partnership firm...??"

SOURAV SAMANTA (106 Points)
Replied 26 March 2024

Actually firm has already been taken loan from bank. But, after that firm is required by more fund to purchase raw material. So, the firm has taken loan by individuals from bank. Money credited to individual account but then transfer that money to firm's account.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 26 March 2024

Who is that individual...??

Is that interest loan or interest free loan...??

Have more questions. So, ask Your query with details

SOURAV SAMANTA (106 Points)
Replied 26 March 2024

Individual means any person either he or she.
The interest is charged by bank against personal loan

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RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 27 March 2024

Well...
Thanks for the definition of individual...

The Individual of any person either he or she is relationship of the firm or not...???

Is that individual give the money as interest loan or interest free loan...??

SOURAV SAMANTA (106 Points)
Replied 27 March 2024

What happens If individual is outsider ? What happens if individual has relationship with firm like he or she partner?

Also what happens if interest individual give money with interest or interest free ?

There is not mentioned anything about loan in partnership deed.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 27 March 2024

Originally posted by : SOURAV SAMANTA

IN GENERAL VIEW, "NO ISSUES".

What happens If individual is outsider ?

Then Interest can be pay for the loan received from outsider.

What happens if individual has relationship with firm like he or she partner?

Then It's as per Deed.

Also what happens if interest individual give money with interest or interest free ?

If Interest free the no questions. If it's Interest loan then it will be pay as per agreement if loan taken interest basis.

There is not mentioned anything about loan in partnership deed.

The interest is charged by bank against personal loan...

It's that individual's liability, not for Firm.

SOURAV SAMANTA (106 Points)
Replied 27 March 2024

Thank you sir

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 27 March 2024

Originally posted by : SOURAV SAMANTA
	Thank you sir

You are welcome...

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Vishrut Darji (Accountant ) (35 Points)
Replied 29 March 2024

No, the firm cannot debit the interest part of the loan as an expense in the profit and loss account in this scenario.

Here's why:

The interest expense is incurred by the individual who took the loan from the bank. It's a cost of financing their investment in the partnership firm.
The funds borrowed by the individual and invested in the firm become part of the firm's capital. The firm itself isn't incurring any debt or interest charges on this investment.

The firm will only record the interest expense as a cost if they themselves take out a loan and use the funds for business purposes. In that case, the interest becomes a financing cost for the firm's operations and is appropriately reflected in the profit and loss statement.

Here's a breakdown of the accounting treatment:

Individual's books:
- The loan principal will be shown as a liability.
- The interest payments will be recorded as an expense.
Partnership firm's books:
- The investment from the individual will be recorded as a capital contribution.
- There won't be any entry for the loan or its interest since the firm isn't directly involved.

I hope this clarifies!