INTERCOMPANY LOAN

khawarbutt

Hi
I have come across a situation where intercompany loan is included in investment in subsidiary in parent's statement of financial position but subsidiary has classified it as non-current liability. Generally speaking both intercompany receivables and payables should be cancelled out against each other but upon consolidation amount included in non-current liabilities is eliminated but amount included in investment is not eliminated.(liability(payables) is cancelled out but asset(receivables) is not cancelled out).This does not make sense to me. Can somebody please help me out.

LearningAcademy

Hi @khawarbutt

Inter-company loan has to be eliminated from both the sides (which ever way it is classified).

Are you able to post the whole question through Google drive/any cloud based drive and share a link here?

thanks

khawarbutt

Hi @LearningAcademy

You are quite right, it has to be eliminated from both sides which has not been done. It is question no 8.11 in Osborne book's Financial Statements.

LearningAcademy

Hi @khawarbutt

We checked the task 8.11 and the inter-company loan has been cancelled from both the sides (assets and liab).

If you check the workings for calculating goodwill (in the answers provided at the back), price consideration has been taken as £2600, i.e. £2680 as total investment minus £80 for the loan. Therefore, loan of £80 has been cancelled against the cancellation from the liabilities side.

Hope, this makes sense!

Thanks

khawarbutt

@LearningAcademy
Yeah it does.
Thanks a lot!

LearningAcademy

You are welcome!