LLP losses
I am preparing accounts for an LLP which has made losses before members remuneration. The remuneration then
paid is in the form of 'first charge amounts' i.e. fixed share before the balance is paid according to a agreed ratio.
However the LLP has not been able to pay all of the first charge amounts. Can anyone assist with the following:
1. Do we have to make provision in the accounts for the first charge amounts not paid?
2. Obviously the P&L shows a 'loss for the financial period before members' remuneration and profit shares'.
In completing the members interests table do I complete as usual, but obviously with negative figures?
I presume on this basis I will show the amounts paid as 'members remuneration charged as an expense,
including employment and retirement benefit costs'.
3. In addition to the first charge amounts not paid, there is then a further first charge amount which
was agreed in the members agreement to be held back as an interest free loan. I presume this should
also be provided?
Many thanks
I would respond to your
I would respond to your points as follows:
1. Although 'first charge' if there's no entitlement unless a profit has been made there's nothing to provide for. This will depend on the members' agreement. If there is an automatic entitlement irrespective of whether a profit has been made there will be a need for a provision:
Dr Members' remuneration charged as an expense
Cr Loans due to members
3. As above. And the same double entry as above. But again is this amount held back (a) only if a profit has been made or (b) irrespective of whether a profit has been made? The members' agreement should provide the answer.
2. The answer to 2 depends on the answer to 1 and 3. If there is an automatic entitlement irrespective of profits being made, then there will be an entry against members' remuneration charged as an expense in the members' interests table. If not there won't.
The loss at the bottom of the P&L a/c will be allocated to other reserves in the members' interests table and will indeed be a negative figure.
Thank you for help. The
Thank you for help.
The members agreement does not seem to provide any further guidance - it states the first charge amounts and the policy re the balance of income profits and any capital profits, and states that prior to profitability, members withdrawing in excess of their first charge shall not be required to pay the excess, and that all income losses are to be borne by the LLP. But no further guidance is given re when first charge amounts have not been paid in full or when a loss is made.
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