November 28, 2012 at 5:25 pm #55870
I have a question relating to consolidation. If a parent has invested in subsidiary’s loan stock of $600000 @10% & has not accounted for the interest recievable what would the adjustment??? the subsidiary’s balance sheet shows the accrued interest of $25000 the total loan stock issued by the sub is $1000000 MIKE help!!!!November 29, 2012 at 11:29 am #109106
I’m confused! Why would the subsidiary be showing $25,000 accrued loan interest if the loan is a 10% loan with a value of $1,000,000? Where / what is the $600,000? Is that the value of the subsidiary’s loan stock held by the parent?
In general terms ( because the information you have given doesn’t make sense without further explanation ) the $600,000 investment held by the parent will be cancelled against £600,000 of the $1,000,000 issued by the subsidiary and the remeining uncancelled value of $400,000 will be shown in the consolidation as a long term liability ( unless it’s repayable within the next twelve months )
As for the interest unrecorded by the parent – whatever the figure IS which is unrecorded – should be recorded in the parent’s records as Dr Receivable loan interest and Cr Parent’s Retained Earnings.
Then cancel the loan interest receivable in the parent against the loan interest expense in the subsidiary and leave just the loan interest payable to the outside lenders. But DO NOT cancel the loan interest receivable adjustment as now included within the parent’s retained earnings – it’s the receivable which is being cancelled against the payableNovember 29, 2012 at 7:01 pm #109107
The parent has invested in 600000 out of 1000000 of the 10% loan stock.. the total interest payable by the sub on the loan is 100000 (10% of 1 million) but the accrued interest in the current liabilities of the sub is 25000 the parent is entitled to interest of 600000 which it has not accounted forNovember 30, 2012 at 9:43 am #109108
I can only think that we acquired the subsidiary 9 months into the current year and that the 100,000 has therefore been time apportioned to reflect only the post acquisition loan interest payable. In the parent’s records ( if my assumption is correct ) will be to increase parent’s retained earnings by our share of that 25,000 ie 15,000 and increase receivables. Then cancel the receivable of 15,000 against 15,000 of the 25,0000 payable in the subsidiary’s balance sheet leaving just 10,000 as a current liability in the subsidiary representing the time apportioned interest payable to outside lendersNovember 30, 2012 at 10:07 am #109109
u mean to say that the parents reserves should be credited by 15000? & debit recievables by 15000 & than cancel out???November 30, 2012 at 10:21 am #109110
yes, cancel the 15,000 parent receivable against 15,000 of the 25,000 subsidiary payable
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