Limited Liability Partnership is prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made there under. It is a separate legal entity under the Limited Liability Partnership Act 2008.In LLPs purchases movable / immovable property has to do in the name of LLP. Liability of a partner is limited to the extent of his capital contributed or agreed to be contributed as per LLP agreement.
Partnership prevails by the Indian Partnership Act 1932 and various rules made there under. It is not a separate entity. Partnership firm cannot purchase property in its name only purchase is permitted in the name of partners. Liability of partners is unlimited.
Books of Accounts to be maintained
- Partnership Firms and LLPs are required to maintain books of accounts as per Tax laws. Both can maintain books of accounts on Cash or Mercantile basis.
- Fundamental Accounting Assumptions -1) Going Concern, 2) consistency, 3)Accrual has to follow.
- LLPs have to keep books on the basis of double entry system of Accounting at its registered office. The LLPs has to maintain proper books of accounts as follows prescribed (Rule 24 (1)) relating to its affairs for each year of its existence.
- Statement of Receipt & Expenditure.
- A record of the assets and liabilities of the limited Liability Partnership.
- Statement of recognized gains & Losses.
- Statement of cost of goods purchased, inventories, work –in-progress, finished goods and cost of goods sold; and
- Any other particulars, which the partners may decide.
- Both LLPs & Partnership Firms have to follow the complete accounting cycle from Journals, Ledgers, Cash Book, Bank book, Trial balance, Profit & Loss account and finally, a Balance Sheet which gives the financial position of the business at the end of the period. Few more records need to maintained are specifically mentioned below:
- Partners Capital Account: Fluctuating Capital Method and Fixed Capital Method (Partners Capital Account & Partners Current Account)
- Profit & Loss Appropriation Account: The net profit as shown by the profit and loss account of partnership firm needs certain adjustments with regard to interest on capitals, interest on drawings, salary, commission to the partners, if provided, under the agreement. For this purpose, ‘Profit and Loss Appropriation Account’ maybe prepared.
- Calculation of Interest on Capital: Interest @12 % pa is deductible as per Income Tax Act.
- Calculation of Interest on Drawings
- Past Adjustments: Past Adjustments relate to the interest on capital, interest on drawings, salary to partners, etc that have been omitted by mistake or have been wrongly treated. In such a situation, necessary adjustments have to be made in the partners’ capital account through an account called Profit and Loss Adjustment Account.
- Goodwill (Intangible Assets) Valuations: Following methods can be used for Goodwill Valuation:
- Average Profits Method:
- Weighted Average Profit method
- Super profit Method,
- Capitalization Method,
- Present value of Super Profits
- Average Profits Method: