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Conversion/Sale of Partnership Firm into a Limited Company: Methods and Considerations

This detailed content discusses the conversion or sale of a partnership firm into a limited company, highlighting the meaning, advantages, and various purchase consideration methods such as lump sum, payment method, and net asset method. It also provides insight into the accounting aspects and general instructions for preparing the balance sheet in such conversions.

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Conversion/Sale of Partnership Firm into a Limited Company: Methods and Considerations

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  1. Chapter-Conversion /Sale of A Partnership Firm into A Limited Company

  2. Conversion /Sale of A Partnership Firm into A Limited Company Meaning of Conversion & Advantages- • A Company is not affected by death or retirement of a partner. • There is no limit on the maximum number of shareholders. • A limited company can raise large capital from public and carry on the business on a much larger scale.

  3. Conversion /Sale of A Partnership Firm into A Limited Company Purchase Consideration-  Meaning Method of PC 1. Lump Sum Method 2. Payment Method 3. Net Asset Method

  4. Conversion /Sale of A Partnership Firm into A Limited Company Lump Sum Method- Sometime the purchase consideration is given a lump sum amount. EX- ABC Firm is acquired by XYZ limited for Rs/ 1,20,000. In such case it is not necessary to actually calculate PC.

  5. Conversion /Sale of A Partnership Firm into A Limited Company Payment Method- In this method, the PC is equal to the total of all the payments made by the company to the partners. The Payment may be in the form of Cash, Shares or Debentures etc. I.e. a. Equity Shares in Purchasing Company b. Preference Shares in Purchasing Company c. Debentures in Purchasing Company d. Cash

  6. Conversion /Sale of A Partnership Firm into A Limited Company Net Asset Method- In this Method PC is equal to Agreed value of Assets taken Over Less the Agreed Value of Liabilities taken Over.

  7. Conversion /Sale of A Partnership Firm into A Limited Company • Accounts to be opened in books of Firm-  Realization Account  Partner Capital Account (Columnar Form)  Cash or Bank Account (If it is not taken over by Company)  Account of the Limited Company  Account for each item received from Company e.g. Equity Shares A/C, Preference Shares A/c, Debentures A/c etc….

  8. Conversion /Sale of A Partnership Firm into A Limited Company  General Instruction for preparing B/S- • EQUITY & LIABILITY- 1. Shareholders Fund 2. Share Application Money pending Allotment 3. Non Current Liabilities 4. Current Liabilities • ASSETS- 1. Non-Current Assets  Fixed assets( Tangible, Intangible, WIP etc)  Non Current Investment  Deferred Tax Asset(Net)  LT Loan and Advances  Other Non- Current Assets 2. Current Assets  Current Investment  Stock  Trade receivables  Cash and Cash Equivalents  ST Loan & Advances  Other CA

  9. THANK YOU!! • Assistant Prof. Pradeep H. Tawade • DEPARTMENT OF ACCOUNTANCY, NSS College of Commerce & Eco. Tardeo, Mumbai-34 • Email ID pradeeptawade26@yahoo.com • Mobile No. 9619491859

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