IFRScommunity.com

Correct treatment for transactions involving the ultimate parent company(owner) taking money from subsidiary.

1. Book it as inter company receivable in subsidiary; or
2. Book as withdrawal by owners in RE of subsidiary.

You're right, both answers are correct depending on circumstances

Is this a specific real-life arrangement?

Thank you for accepting me in this helpful community.

Yes, these are actual transactions. But I also noticed that both Inter company receivable and retained earnings accounts are becoming huge(est. 200mil), that when you look at the FS its awkward to see. I'm thinking to advice the management that the RE account be used instead of Receivable that way both accounts will not ballooned. But what to do with the beginning balance of both accounts, reverse to each other. Any thoughts. Thanks.

Hi,

I'd say that if parent will never reimburse the money, it should be treated as a dividend distribution, then, RE make sense.

If parent will reimburse it, it may be a intercompany receivable.

Are there any written terms of these money withdrawals?

None. Only letter of instruction stating the requested amount and use of fund.

In audited conso fs, it says the amount are of trading and financing nature, bear no interest or securities and are receivable on demand. ( The account used "due from related parties")

It should be treated as an intercomoany loan then ?

it also seams like a loan to me, but it's also an analysis specific to the legal framework of your country

you said the letter states 'use of fund'. what is that?

@JRSB use of fund- i mean they(ultimate parent-a holding company) asked for the money to be transferred( e.g. to pay goods purchased by their other company, which is affiliated to our company.

@Marec Muk the document used to release the fund is only a letter with exact amount to pay for the purchase of goods purchased for their other company or personal use

In that case, I'd treat it as a loan. But all depends on how you interpret it.

Agree, I'd treat as a loan and b) tell management to document it better