Where partnership is converted into a limited liability company, current account balances of partners are transferred to a
Answer Details
When a partnership is converted into a limited liability company, the partnership is dissolved, and a new company is created. The partners become shareholders of the new company, and their current account balances are transferred to the capital accounts of the new company.
A current account is a record of transactions between the partners and the partnership. It represents the amount of money that a partner has contributed to or withdrawn from the partnership during the course of the partnership.
In a partnership, the capital account represents the partner's ownership interest in the partnership, and the current account represents the partner's share of the profits and losses of the partnership.
When a partnership is converted into a limited liability company, the current account balances of the partners are converted into share capital in the new company. This means that the partners become shareholders in the new company, and their current account balances are reflected as part of their ownership interest in the company.
Therefore, the answer to the question is that current account balances of partners are transferred to the capital account of the new company, which represents the ownership interest of the shareholders. It is important to note that this transfer is typically done through a realization account, which is a temporary account used to transfer assets and liabilities from the partnership to the new company.