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Accounting for partnership loss in limited company

How to reflect the loss in accounts?

I received some very helpful advice on this forum a year or so ago when my client (director of a small limited company providing consultancy services) had decided to go into business with a friend. The route they decided upon was for the limited company to become a partner of the partnership, with the friend being the other partner.

The accounts for the most recent year end of the limited company show the various pre-trading costs that the limited company has paid for (its 50% share of the costs) as a debtor under "investment in partnership".

It now turns out that the partnership was never set up (my client sent all of the forms off to HMRC but they didn't respond). The other partner now no longer wishes to go ahead with the partnership. My client does not wish to take it any further on her own as she does not have the expertise.

My query is how to reflect this state of affairs in the company accounts. Should I debit the profit and loss account (share of partnership losses?) by the amount of the initial investment, and credit the investment in partnership?

I do of course plan to check with HMRC that the partnership has not actually been set up and my client is just unaware of this, to ensure that there are no reporting obligations for the partnership.



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21st Nov 2017 15:01

Surely the existence or otherwise of the partnership is a question of fact and not contingent upon what HMRC has upon their records?

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21st Nov 2017 15:26

I agree with the above. HMRC not responding to forms sent to them is nothing to do with whether a partnership was set up or not.

I am not sure why the expenditure you describe was capitalised in the first place. The entry that should have been made was to account for the company’s share of all the expenditure, not just its own. Perhaps the other partner didn’t incur any, and is now no longer to be found to stump up for their share of what the company spent. Is that the problem?

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21st Nov 2017 18:05

Charge it to P+L and add back in the tax comps. Simples.

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