Advance against Supply of Goods and Services

[Shyam Naik]

Dear Experts,

A newly incorporated Pvt Ltd Company had taken interest free advances for from its holding company during 2012-13. the advance was taken for meeting its expenses. The Pvt Ltd Company was engaged in sourcing long term coal supply for upcoming power plant of fellow subsidiary. The plant is yet to be operational.

Whether the amount shall be treated as deposit under the Companies Act 2013.

Kindly opine.

Shyam

[Ganeshan Kalyani]

In my view it should fall under Loans and Advances Account in Balance Sheet.

[KASTURI SETHI]

I agree with the views of Sh.Ganeshan Kalyani Sir. Otherwise also the terms 'Advance' and 'Deposit' are contradictory.

[DR.MARIAPPAN GOVINDARAJAN]

It will be termed only as loan and not as deposits.

AI Summary

Advance classification: interest free funds from a holding company are characterized as loans rather than deposits under company law. Whether interest free amounts advanced by a holding company to a newly incorporated private company for meeting expenses and sourcing long term supplies should be classified as deposits under the Companies Act 2013 is the central question. Expert commentary consistently treats the transfers as loans and advances rather than deposits, emphasizing the distinct legal character of an 'advance' vis a vis a 'deposit' and advising classification under loans/advances accounting heads.