How to account for CVA?

stefanboro

I have all the fun it seems.

I am responsible for the bookkeeping and statutory returns for quite a decent size contruction company that is going into a CVA - it has been approved by all major creditors.

For those who don't know what a CVA is : You essentially arrange a 4/5 year payment plan with your creditors where not only do you pay the debt off over time but you infact pay them less overall. Ours is about 82p per £.

Lovely.

So, now I am tasked with accounting for this.

On our software (sage) I inclined to do the following:

Dr all relevant liability accounts to be included in the CVA by their full amounts
Cr the same figures to retained earnings

This has stripped out the creditor liabilities and corresponding expenses which have reduced retained earnings but which were incurred in prior periods

Dr retained earnings for the total CVA liability
Cr a CVA liability account

This has accounted for the CVA liability whilst also taking into account the reduction in net assets the CVA has brought about

Then, every time a payment is made for the CVA:

Dr CVA liability
Cr Bank

Sound right to anyone else?

Monsoon

I think so.

Clear down the creditors so they no longer show, and clear them down to the CVA liability (and yes, then just Cr bank Cr CVA when they pay).

I'm not sure where the written off debts should be - presumably as credits to the P&L but no tax adjustments?