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Mercantile Cash ?

Pushkraj Sathe (Chartered Accountant) (203 Points)

15 September 2010

A firm of three partners starts coaching classes on 1 April 2010 and receives entire fees of Rs 70 lacs in April for a session of 12 months.On 30 June 2010 two partners retire due to disputes and decide that they do not want any profit or loss for the business, and the remaining partner is running the business as a proprietor.

How should the fees be reflected in the accounts of the firm for the three months ending 30 June 2010.The expenses to run the classes per month are Rs.2.75 lacs.Whether the firm will show a net profit of Rs.61.75 lacs and pay tax on it.Whether the Proprietory firm will show a loss of Rs.24.75 lacs for the nine months ended 31 March 2011. Basis of Accounting is CASH.

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4 Replies

Rajesh (Student) (113 Points)
Replied 16 September 2010

Discussed with my colleagues. Presented below is our view:

1. Since the basis of accounting is cash, your view on the above circumstance is correct. The income that you get, Rs. 70 Lacs shall be taxed as firms income. Against it shall be deducted, the expenses you incur @ 2.75 Lacs p.m. For the period ending June 2010, your total income shall stand at 61.75 and you shall have to pay tax on such amount. For the period July-March, the accounts shall show a loss of 24.75 Lacs and therefore, liability shall be nil. In effect, the losses (cumulative), shall be allowed to be carried forward as per relevant provisions of the Act.

2. Had the basis of accounting been mercantile, the amount of 70 Lacs shall be bifurcated and spread over equally each month. This shall be beneficial in the present case as firms attract a tax slab of 30% succeeded by Cess.

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dales (programmer) (22 Points)
Replied 18 September 2010

Empathise with your plight and do not resort to any extreme measures .Things will be allright.First do not get dejected ,things will turn around if and only you manage your attitude towards positivity.Involve all those who are expecting to recv their dues from you.Sit down calmly and formulate a plan of action in a structred way keeping your emotions out of it. As you have mentioned from your write up, they have made some fundamental flaws by not registering the organisation and N.P.A if Iam not mistaked does not hold good

Dinesh Kumar Agarwal (Article clerk) (117 Points)
Replied 18 September 2010

Firm is separate entity from partner in IT laws.

u r free to choose mecantile or cash basis.

In firm as per cash basis u file a loss for rs. 24.75 lacs for PY 2009-10 this is c/f to 2010-11 and ur firm ends on 30th june for the year ur firm has profit is RS. 61.75 lacs and after adjusting c/f loss income stood at rs. 37 lacs and firm has to pay tax on this amount.

loss of 24.75 lacs cannot be claimed by proprietorship concern because as per iT act loss can be claimed by same assessee except some cases.