Hello Everyone,
If parent company A has given a loan of $10 million to its subsidiary B at a interest rate of 4% for 5 years. What would would be the entry for current year and next year in both entites books.
11 Replies
prasad Nilugal
( GST Practitioner & Accounts )
(14801 Points)
Replied 30 August 2020
In the Books of parent company A
1) Loan to subsidiary B A/c Dr $100,00,000
To Bank A/c Cr $100,00,000
( Being Loan given to Subsidiary B company )
Note - Loan to subsidiary B A/c will be under Loans and advances - Asset Side of balance sheet
In the Books of Subsidiary Company B
2 ) Bank A/c Dr $ 100,00,000
To Loan From A company Cr $100 00 000
( Being loan taken form parent company A)
Note - Loan form A company will be under secured loan - Liability Side of balance sheet
dhiraj kabra
(article)
(217 Points)
Replied 30 August 2020
Agree with above loan entries but one more entry of interest expenses paid to parent co will be done for next 5 years in both companies books
prasad Nilugal
( GST Practitioner & Accounts )
(14801 Points)
Replied 30 August 2020
Yes , next year Interest on loan will be paid to parent company , so entry as follows
1) In the books of subsidiary company
Interest on Loan A/c Dr $ 400,000
To Bank Cr $40,0000
( being interest paid to parent company @ 4% )
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
Thanks Prasad sir,
This being intercompany loan transaction. How this will be settled while consolidating the financial statements. Can you please cover that part also
prasad Nilugal
(3914 Points)
Replied 30 August 2020
When you preparing consolidated financial statements of company A , Loan to subsidiary will be already exists on the asset of parent company A .
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
Hello Prasad I have heard that while preparing the consolidated financial statements intercompany transactions are eliminated. They are not reported. Then how it will be shown as asset on company A’s books. Please suggest whether my understanding is correct or wrong.
Sagar Patel
(Tax and Business Consultant)
(11611 Points)
Replied 30 August 2020
Mr. Pankaj
Above entry is for separate Book of Account of Holding Company and Subsidiary company.
When you consolidate balance sheet of both the Company as Single Consolidated balance sheet, than both side inter company balance is eliminated.
Above entry is for separate Book of Account of Holding Company and Subsidiary company.
When you consolidate balance sheet of both the Company as Single Consolidated balance sheet, than both side inter company balance is eliminated.
prasad Nilugal
( GST Practitioner & Accounts )
(14801 Points)
Replied 30 August 2020
Check out
schedule III of the Companies act 2013 , preparation of Consolidated Financial Statements
sourav dutta
(2 Points)
Replied 02 August 2023
Sir, If A is a holding company and B is a subsidiary company, B taken a loan from bank and A is the guarantor, B default to pay the loan and now A will pay the remaining loan to bank, what should be the book entries for Company A??
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