Question 4

The Statement of Account and Solvency of an LLP

18.75 marks

Time to write
About 38 minutes

From an older CBCS paper

Question

Question 4 · 18.75 marks

Q.4. “Of the disclosures a Limited Liability Partnership makes annually, the statement of account and solvency is among the most important.” Comment on the statement.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

38 minfor 18.8 marks

Read from the question

  • CommentA statement to judge: take a stand on it in your first line, and come back to it at the end.

What the paper leaves open

The paper prints no mark per question (any four of six, equal marks, 75 in all); each question is reckoned here at 18.75 marks. This older-course question examines the taxation, accounts and audit of an LLP, which the current UGCF Business Laws syllabus does not name; it is answered as printed.

Write it in this order

  1. Read; underline the asks; jot your points 2 min
  2. 1 Comment: why the disclosure matters 3 marks 6 min
  3. 2 Books of account (section 34(1)) 3 marks 5 min
  4. 3 The statement: preparation and signing (section 34(2)) 4 marks 7 min
  5. 4 Filing, annual return and inspection (sections 34(3), 35, 36) 4.8 marks 9 min
  6. 5 Audit and penalties (section 34(4), (5)) 4 marks 7 min
  7. Check: every ask answered, key terms underlined 2 min

Short on time? Trim steps 1–5 evenly rather than skip one: each is capped at its own marks.

Try it first. About 38 minutes for 18.75 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Comment. The statement is correct. An LLP's partners' liability is limited, so creditors and others dealing with it depend on knowing its financial position. The Limited Liability Partnership Act, 2008 meets this need by requiring every LLP to prepare, sign and file every year a Statement of Account and Solvency, which anyone may inspect at the Registry.

Books of account (section 34(1)). The LLP “shall maintain such proper books of account as may be prescribed relating to its affairs for each year of its existence, on cash basis or accrual basis and according to” the double entry system of accounting, and keep them at its registered office for the prescribed period.

Statement of Account and Solvency (section 34(2)). Every LLP shall, within “six months from the end of each financial year, prepare a Statement of Account and Solvency for” that financial year as at its last day, in the prescribed form, and the statement shall be signed by the designated partners. It shows both the LLP's accounts and whether it is solvent, that is, able to meet its liabilities.

Filing and inspection.

  • The LLP shall file the Statement of Account and Solvency with the Registrar every year within the prescribed time, in the prescribed form and manner and with the prescribed fee (section 34(3)).
  • It must also file an annual return within sixty days of the close of its financial year (section 35).
  • The Statement of Account and Solvency and the annual return filed with the Registrar are available for inspection by any person on payment of the prescribed fee (section 36).

Audit and penalty.

  • The LLP's accounts shall be audited in accordance with the prescribed rules, though the Central Government may exempt any class of LLPs (section 34(4)).
  • An LLP that fails to comply with section 34 is punishable with fine of not less than twenty-five thousand rupees, extending to five lakh rupees, and every designated partner with fine of not less than ten thousand rupees, extending to one lakh rupees (section 34(5)).
  • Persistent default has a further consequence: failing, for any five financial years in a row, to file the Statement of Account and Solvency or the annual return is one of the grounds on which the Tribunal may order the LLP to be wound up.

Conclusion. The Statement of Account and Solvency, signed by the designated partners, filed every year and open to public inspection, is the LLP's principal disclosure of its financial health, and the Act enforces it with fines.

Where the 18.75 marks sit

#ComponentMarks
1Comment: why the disclosure matters3
2Books of account (section 34(1))3
3The statement: preparation and signing (section 34(2))4
4Filing, annual return and inspection (sections 34(3), 35, 36)4.75
5Audit and penalties (section 34(4), (5))4
Total18.75
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