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Capitalization of Current Account of Subsidiary

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Capitalization of Current Account of Subsidiary

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 13, 2017 at 6:14 am #422822
    ahmedtalal26
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Question:

    There is a parent company ABC, which has a 100% owned subsidiary XYZ.

    ABC maintains a current account of XYZ which include the financial loans and some other expenses paid to XYZ.

    Is is allowed to ABC to capitalize the current account of XYZ into equity. Kindly provide reasons as well.

    December 16, 2017 at 9:36 pm #423753
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    What do you mean by “capitalize the current account of XYZ into equity”? That doesn’t make any sense to me sorry.

    If there is a current account between the two companies then it is an intra-group balance that is eliminated on consolidation.

    Thanks

    December 18, 2017 at 8:26 am #423900
    ahmedtalal26
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Yes it is an intra-group balance, which is eliminated during consolidation but can we re-class the amount to investment account.

    The effect will show the increased investment of ABC to XYZ

    In, XYZ there equity will be increased to close the payable to ABC.

    December 21, 2017 at 8:33 am #424256
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    Why would you re-class it to an investment account?

    None of what you’re talking about makes particular sense in all honesty.

    Thanks

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