INTERCOMPANY LOAN
khawarbutt
Registered Posts: 9 New contributor 🐸
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.
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.
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Comments
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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?
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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.0 -
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!
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You are welcome!0
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