Waiver of loan to subsidiary

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Aady001
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Waiver of loan to subsidiary

Post by Aady001 »

Hi All,
Need your views on the below query

Company A (Holdco) granted an interest-bearing loan to its subsidiary Company S for 5 years.
At the end of 5 year A has waived the loan amount along with interest outstanding.

I would like to know how this transaction needs to be accounted for in the books of A and S

I believe S will pass the below accounting entry:

Intercompany loan............................Dr
Interest accrued...............................Dr
Other equity....................................Cr

Accounting by A:
Loan to subsidiary written off (P&L)..............Dr
Loan....................................................Cr

Please let me know your views and any guidance to refer if specifically address this.

Thanks
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Marek Muc
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Re: Waiver of loan to subsidiary

Post by Marek Muc »

this is a common control transaction and it is generally accepted to debit investment in subsidiary by parent when it gives something 'for free'
what is the reason of this waiver? i.e. whether the subsidiary cannot repay it due to liquidity issues or other reason?
Aady001
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Re: Waiver of loan to subsidiary

Post by Aady001 »

Ya, the primary reason is liquidity only.
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Marek Muc
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Re: Waiver of loan to subsidiary

Post by Marek Muc »

ok so your suggested entries make sense
Aady001
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Re: Waiver of loan to subsidiary

Post by Aady001 »

Also just to reconfirm that both principle and interest will be accounted under equity on write back by S
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Marek Muc
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Re: Waiver of loan to subsidiary

Post by Marek Muc »

yep, the whole carrying amount of the liability
Jonny
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Re: Waiver of loan to subsidiary

Post by Jonny »

Regarding the posting of A I would post the amount waived on investment of S and then do a impairment test.
What are your thoughts?
Thanks
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Marek Muc
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Re: Waiver of loan to subsidiary

Post by Marek Muc »

This is also acceptable in my opinion
Ketan Marwah
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Re: Waiver of loan to subsidiary

Post by Ketan Marwah »

Hi Marek & members,

Sorry to bring this old thread to life again but we face a similar scenario in our company hence arrived at this thread. I am struggling to follow the logic behind direct transfer of subsidiaries loan into other equity upon write back? Your help will be greatly appreciated.
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JakobLavrod
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Re: Waiver of loan to subsidiary

Post by JakobLavrod »

Hi!
Is not the point that since repayment is waved, one could see the transaction as if the subsidiary paid back the loan and then Company A invested this amount into Company S?
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Ketan Marwah
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Re: Waiver of loan to subsidiary

Post by Ketan Marwah »

Hi Jakob,

Thanks and interesting. Are the investments not missing then in A’s books? Following the analogy you described, I would then make a reclass between Investment account and loan receivable from B. Do you agree?
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JakobLavrod
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Re: Waiver of loan to subsidiary

Post by JakobLavrod »

Hi!

You are moving from a loan receivable that A has on S to an investment A has in S yes. I do not work with equity positions, so a little bit unsure about the appropriate accounting treatment there in detail.
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Marek Muc
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Re: Waiver of loan to subsidiary

Post by Marek Muc »

Hi Ketan Marwah, please start a new topic and describe the scenario you're dealing with.
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