Inter-company loans

Dealing with the interest element first:

if neither company has yet recorded the interest on the loan, then we need to record that interest in the records of both entities prior to cancellation

The entry to record the interest in the parent’s records is:

Dr Current asset, interest receivable
Cr Retained earnings

and in the subsidiary’s records, the entry will be:

Dr Retained earnings
Cr Current liabilities

If one company has recorded and the other hasn’t yet, then we need to record either the receivable or payable as the case may be in the errant entity’s records so both entities are now comparable

Where we’re preparing a consolidated statement of financial position, we can now cancel the receivable against the payable as a consolidation adjustment … because how can we show ourselves receiving money (the asset) from ourselves (the liability)

If preparing the consolidated statement of profit or loss, we can ignore from Interest payable any interest payable by the subsidiary to the parent ie deduct that amount when adding across the finance charges of the two entities

And similarly we can ignore the interest receivable by the parent from the subsidiary when adding across the investment income line

Does that do it for you?