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+--- Thread: related party long outstanding balance (/thread-related-party-long-outstanding-balance)
related party long outstanding balance - hshamsi - 09-29-2009
plz comment wat wud be the risk involved in long outstanding balance of related party as payable to it, except for the arm's length transaction.. ( which needs write off now as being long outstanding..)
- Star - 09-30-2009
Dear,
I dont think that any risk lies in this matter. First the amount is payable by you to related party, if long outstanding, would be written back instead of write off with the approval of Board. It will become your income and taxed as per normal taxation Rules.
Regards,
*
- kamranACA - 09-30-2009
Dear
Risk is of disputes and litigation which may render you to suffer dis-repute for not making payments, even to the reated parties. If you are some how dependent upon such related party for any reason, say for supplies, technical assitance, common facilities sharing etc. this will endanger the continuety of your arrangement as well.
Otherwise, there is no issue. Tax department will add such liability back and levy income tax considering such payable as income. However, if in any subsequent year you will pay such payable to your related party, you will be entitled to claim such payment as admissible expense for adjustment against taxable income in the period in which it will be paid.
Regards,
KAMRAN.
- hshamsi - 10-01-2009
@ above
thnx alot for the replies, this was actually our ML point, we suggested write back and recognized the amount in income, as far as taxation is concerned, its a society exempt form tax so bearing no tax consequences. can we mention the risk as a risk of dis-repute in the above mentioned case?
thnx once again.
regards.
- Star - 10-01-2009
Dear,
If it is society as certified as NPO then it would be exempt from income tax. If the society has not been certified as NPO then disputes would surely arise with tax authorities.
NO accounting standard require to write back the old liabilities and off course the IFRS (i think in your case) would be applicable to the society because apparently society would fall in the framework of medium sized entities or small sized entities.
Socities are not required to show their performance to their members in term of net profit or EPS as the primary purpose of society is the welfare.
In this situation, it is recemmended not to write back the old liabilies without getting confirmation from the concerned creditors (also if creditors are related party). Write back of liabilites will understate the liabilities of the society which should not be.
It is my understanding, you are the auditors and may do as you people think best.
Regards,
*
- hshamsi - 10-01-2009
the related party of this NPO is of common directorship.. so they dnt 've any objection for this write back as the director of related party has to decide this write back who is also the ED of the society..
also it was outstanding since past 3 year, one more thing there was no progress observed in their related party, well i guess it may windup formally or amalgamate with the society,
thnx for ur comments..