Intercompany Loan No Agreement
If this does not help, the management of a subsidiary should share its best estimates and assessments of the repayment of the credit in order to determine the fair value of the loan and present it correctly. Previously, prior to the introduction of IFRS, these zero-interest loans were common in our jurisdiction and fully compliant with local GAAP. In other words, no EIR method was followed and the amount was recognised as a liability in the total value of the subsidiary`s accounts. If the loan is granted in the opposite direction (from one subsidiary to another), the “under the market” component is by analogy accounted for as a distribution of subsidiaries. Hello Zack, it depends on the specific numbers/data, but in general – parent accounts account for the interest on the intercompany loan in the form of debit loan receivable / Credit P / L interest income (according to the market rate). Whether, in the future, this investment will be cancelled by the profit or loss account after the repayment of the loan or if there will always remain an investment in the financial statements of the parent company. Will this investment give an equity stake? Will this also increase voting rights? Please clarify this point, whether this investment is in form or content, it will or will not increase the share of the parent company. I tried to help a little in this article, but I know very well that every credit is different, provided under different circumstances and in fact, you should evaluate each aspect carefully. Dear Silvia – This was an excellent article and extremely useful in trying to understand a dilemma we face due to an ongoing ifrs convergence exercise.
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