Contribution by parent company to sub

[Keibri]

Hi all

I would like some guidance on the journal entries to pass for the below transactions.

Details are as follows:
Topco owns 100% of Holdco which in turn owns 100% of Tradeco. Consolidation is done at Topco level.

Topco directly contributed (in cash) €100,000 to Tradeco. This €100,000 was capitilised by Tradeco.

The entry to pass in Tradeco should eventually be

Dr Bank
Cr Share Capital

However not sure what journal entries to pass in the books of the Holdco and the Topco?

My understanding is that for Topco:
DR ?
CR Bank

Not sure whether the debit DR Investment -should be at Topco or Holdco level?

If not, in the books of the Topco should the Dr be Intercompany Holdco?

What entries should the Holdco show?

Appreciate a lot your help

Keibri

[Marek Muc]

There are a few ways to look at this. First, what was the legal structure of the investment? If there's no paperwork, I'd consider that the investment was made as a capital contribution from Topco to Holdco, then from Holdco to Tradeco.

Refer also to https://ifrscommunity.com/knowledge-bas ... tatements/

[Keibri]

Hi Marek,

Thanks for getting back. This is very well appreciated. In this case, the underlying reason for this cash transfer was to constitute the share capital of the tradeco. Eventually to be used for tradeco's operations.

For now the only transaction booked was

Tradeco:
Dr: Cash
Cr: Share Capital

If I can ask,

1) Should it be correct to record:

Topco

Dr: Investment
Cr: Cash


2) How can tne Holdco record this?Would the Holdco show this as:
Dr: ?
Cr: Contribution Reserve

Once again thanks for your help

Keibri

[Marek Muc]

Holdco effectively increases the value of investment in Tradeco, so DR Investment in Tradeco (funds transferred via ultimate parent) / Cr Equity (contribution from parent)

What was the legal structure of the investment?

[Keibri]

Thanks for the explanation!

If I am understanding the ask, in terms of legal structure this was done through shares/equity (issue of new shares at tradeco level)

So, there is a 3 tier structure: Topco (1st) holds 100%equity shares in Holdco (2nd); and Holdco owns 100% shares in Tradeco (3rd)

Tradeco wanted to increase its share capital by €100,000.

However the money flow came directly from the Topco (1st tier) instead of from the Holdco (2nd tier).

As soon as the money arrived at Tradeco, this was transformed into Tradeco's as increase in share capital and recorded as such with company house/registrar as share capital. All formalities for the increase in share capital are now complete. P.s The increase of €100,000 shares is in the name of Holdco (even though Topco transferred the money)

The entries at Tradeco are thus Dr Bank; Cr Share capital

Currently was looking into how to record this in the books of the Holdco and the Topco, as was not sure whether it should be the Topco or Holdco to show Dr as Investment in subsidiary

Hope this gives a bit of more detail.

Once again thanks for all your help