CMA Intermediate · Financial Accounting

Accounting of Limited Liability Partnership: formula sheet

Full chapter guide

Key formulas

Legal status (Section 3): LLP = body corporate + separate legal entity + perpetual succession; Change in partners does not affect the existence, rights or liabilities of the LLP.
Liability rule: LLP: liable to the full extent of its assets. Partner: limited to agreed contribution (plus personal liability for own wrongful acts).; A partner is not personally liable for the independent acts of other partners.
Meaning of LLP: LLP = partnership formed and registered under the LLP Act, 2008; Registration is compulsory. An unregistered business cannot call itself an LLP.
Name rule and penalty (Section 20): Fine: not less than ₹50,000, may extend to ₹5,00,000; Applies to persons who carry on business with LLP as the last word of the name without being incorporated as an LLP.
Small LLP (Section 2(1)(ta)): Contribution ≤ ₹25,00,000 AND turnover ≤ ₹40,00,000; Higher limits may be prescribed, up to ₹5 crore for contribution and ₹50 crore for turnover. Turnover is taken from the Statement of Accounts and Solvency for the preceding financial year. Other prescribed requirements and conditions must also be met.
Name rectification (Section 17): Change of name within 3 months of the direction; notice to Registrar within 15 days of the change; Trade mark proprietor's application is maintainable within 3 years of incorporation, registration or change of name. After the change, the LLP agreement must be updated within 30 days of the change in the certificate.
Conversion (Sections 55-58): Firm / private company / unlisted public company → LLP; Property and liabilities vest in the LLP without further assurance. The old firm or company is deemed dissolved. The LLP must inform the Registrar of Firms or Registrar of Companies within 15 days of registration.
Number of designated partners: At least 2 designated partners, all individuals; at least 1 resident in India; Section 7(1). If all partners are bodies corporate, or partners are both individuals and bodies corporate, at least two individuals (partners or nominees) must act as designated partners.
Resident in India: Stay in India ≥ 120 days during the financial year; Explanation to section 7(1), as amended with effect from 1-4-2022. The older figure was 182 days in the preceding year (the text says 'eighty-two days', which was the earlier wording) and is no longer the test.
Consent and filing of particulars: Prior consent of the individual; particulars filed with Registrar within 30 days of appointment; Section 7(3) and 7(4). Form and manner are as prescribed.
DPIN: Every designated partner must obtain a Designated Partner Identification Number; Section 7(6). Sections 153 to 159 of the Companies Act, 2013 apply mutatis mutandis.
Liability of designated partner: Responsible for LLP compliance + liable to penalties imposed on the LLP for contravention; Section 8, unless the Act expressly provides otherwise.
Agreement and its filing: Rights and duties = LLP agreement; if silent = First Schedule; agreement and changes filed with Registrar; Section 23(1), (2) and (4). Form, manner and fees are as prescribed.
Pre-incorporation agreement: Binds the LLP only if ratified by all partners after incorporation; Section 23(3). Agreement must be in writing between persons who subscribe their names to the incorporation document.
Books of account (Section 34(1)): Proper books + double entry + cash or accrual basis + kept at registered office; The form of books and the period of keeping them are as prescribed.
Statement of Account and Solvency (Section 34(2)): Prepare within 6 months from end of financial year; signed by designated partners; It is prepared as at the last day of the financial year.
Filing (Section 34(3)): File with Registrar within the prescribed time, in the prescribed form, manner and fee; Filing is done every year. Form number and due date come from the rules, not the Act.
Audit (Section 34(4)): Accounts audited as per prescribed rules; Central Government may exempt classes of LLPs; Do not quote a turnover or contribution limit as being in the Act. The Act gives none.
Penalty for late filing (Section 34(5)): ₹100 per day of default; maximum ₹1,00,000 for the LLP and ₹50,000 for each designated partner; Applies to failure to file the statement under Section 34(3).
Fine for default under Section 34(1), (2), (4): LLP: ₹25,000 to ₹5,00,000; each designated partner: ₹10,000 to ₹1,00,000; Applies to failure to keep books, prepare the statement or get audit done.
Winding up for default (Section 64(e)): Default in filing Statement of Account and Solvency or annual return for any 5 consecutive financial years; The Tribunal may then wind up the LLP.
Partner's current account: Closing balance = Opening + Share of profit + Remuneration + Interest on capital − Drawings − Interest on drawings (if charged) − Share of loss; Items depend on the LLP agreement. Show a debit balance as a deduction.
Governing rule: Agreement first; if silent, First Schedule applies (Section 23(1) and 23(4)); Always read the agreement clauses in the question before you apply any default rule.
Default profit sharing (silent agreement): Profits and losses shared equally among partners; This is the First Schedule default as commonly taught. It does not depend on capital contributed. The text supplied here does not reproduce the Schedule.
Default remuneration and interest on capital: No remuneration; no interest on capital if agreement is silent; This is the First Schedule default as commonly taught. The text supplied here does not reproduce the Schedule, so confirm it in your study material. Charge these items only when the question or agreement allows them.
Interest on capital: Interest = Capital × Rate ÷ 100 × Period (in years); Use the capital as stated in the question, usually the opening balance, and adjust for any additions during the year.
Interest on drawings: Interest = Drawings × Rate ÷ 100 × Months ÷ 12; For equal amounts drawn at the start of each month, average period is 6.5 months. At the end of each month, 5.5 months. Mid-month, 6 months.
Divisible profit: Net profit − Interest on capital − Remuneration + Interest on drawings; This is the amount shared in the profit ratio. If it is negative, the loss is shared in the same ratio.
Partner's loan or advance (default): Interest at 6% per annum on advance beyond capital, if agreement silent; This is the First Schedule default as commonly taught. Check your study material.
Who can convert: Firm → s.55 + Second Schedule; Private company → s.56 + Third Schedule; Unlisted public company → s.57 + Fourth Schedule; Match the entity to the Schedule. Listed companies are not covered.
Intimation after conversion: Inform Registrar of Firms / Registrar of Companies within 15 days of date of registration; Proviso to section 58(1). The LLP gives this intimation.
Effect of conversion (section 58(4)): LLP exists by new name; all property, assets, liabilities vest in LLP; old firm/company deemed dissolved; Vesting is without further assurance, act or deed.
Opening entry in LLP books (at book values): Dr Assets (each) ; Cr Liabilities (each) ; Cr Partners' Contribution (each partner) ; Contribution = Assets − Liabilities; Use book values unless the question gives revalued figures. Balance of net assets equals total contributions.
Annual return due date: Within 60 days of closure of financial year; For a year ending 31 March, the due date is 30 May. Section 35(1).
Annual return penalty: ₹100 per day of default; maximum ₹1,00,000 for the LLP and ₹50,000 for designated partners; Section 35(2). It applies to the LLP and its designated partners.
Modes of closure: Winding up (voluntary or by Tribunal) → dissolution (s.63); Registrar strike off after hearing (s.75); Rules for winding up are made by the Central Government (s.65).
Misuse of LLP name: Fine of ₹50,000 to ₹5,00,000; Section 20: carrying on business with 'LLP' or 'Limited Liability Partnership' as last words without being incorporated as an LLP.

Quick revision

An LLP must have at least two designated partners who are individuals, and at least one must be resident in India.
Resident in India means stayed in India for not less than 120 days during the financial year.
A designated partner must give prior consent, and particulars are filed with the registrar within 30 days of appointment.
Every designated partner must obtain a DPIN.
Designated partners are responsible for compliance and liable to penalties imposed on the LLP for contravention.
Using LLP in a name without incorporation attracts a fine of ₹50,000 to ₹5,00,000.
A partner's share of profits and distributions is transferable, but the transferee gets no right to manage or to access information.
Without agreement, a partner can resign by giving at least 30 days' written notice.
A former partner is treated as still a partner for outsiders unless they have notice or notice is delivered to the Registrar.
Unless the agreement says otherwise, a former partner gets actual capital contribution plus share of accumulated profits after accumulated losses.
Conversion is allowed from a firm, a private company or an unlisted public company.
A Tribunal may wind up an LLP if partners stay below two for more than six months.

Common mistakes

Saying an LLP is just a partnership with a different name Fix: Remember that an LLP is a body corporate with its own legal identity under Section 3. A partnership firm has no separate identity.
Writing that partners have no personal liability at all Fix: Write that liability is limited to the agreed contribution, but a partner is still liable for his own wrongful acts.
Saying every partner is a designated partner. Fix: Only partners named as such in the incorporation document, or appointed under the agreement, are designated partners. The incorporation document may state that every partner is one.
Using 182 days as the test for resident in India. Fix: For section 7, use not less than 120 days during the financial year.
Writing that the LLP Act fixes a turnover or contribution limit for audit. Fix: Say the audit is under the prescribed rules and the Central Government may exempt classes of LLPs. Quote a limit only if the question gives it.
Saying the Statement of Account and Solvency is due within the year-end plus any time. Fix: Preparation is within six months of year-end. Filing is within the prescribed time.
Sharing profit in capital ratio when the agreement is silent. Fix: If the agreement is silent, apply the First Schedule default of equal sharing. Use the capital ratio only if the agreement says so.
Allowing interest on capital or salary when none is provided. Fix: Charge them only if the agreement or the question provides them. Write a note when you ignore them.
Treating conversion as a sale with purchase consideration and goodwill Fix: Under section 58(4) the assets and liabilities vest in the LLP by law. Record them at the values given and credit partners with their contributions. Do not create purchase consideration unless the question asks for revaluation.
Choosing the wrong Schedule or section Fix: Remember the order: 55 firm, 56 private company, 57 unlisted public company, with Second, Third and Fourth Schedules.

Exam tips

Open every written answer with the Section 3 status line: body corporate, separate legal entity, perpetual succession. It earns the first marks.
In comparison answers, use two clear columns on the same bases for both sides. A mismatched basis loses marks.
Be exact in MCQs: 'limited liability' still leaves a partner liable for his own wrongful acts.
Remember the conversion rule: firm, private company or unlisted public company only.
Learn the Section 20 fine range (₹50,000 to ₹5 lakh) and the small LLP limits (₹25 lakh contribution, ₹40 lakh turnover); these are favourite number-based MCQs.
Write the section number beside each rule: 7 for designated partners, 8 for their liability, 23 for the agreement. Examiners reward the link.
In MCQs, watch for traps: 120 days versus older figures, and 'at least two' versus 'two'.
In scenario questions, state the order of rules: agreement first, then the First Schedule.