Accounting for CVA writeoff
We have a client in a CVA, substantial creditors and a likelihood of paying them around 40p in the £. How do we account for the amount that gets written off at the end of the CVA? Is it just an exceptional credit to P & L? I assume it must be taxable, as it represents a writeback of costs charged in previous years.
While this all makes sense, it is going to create a nasty problem for the company. They have liquidity problems - hence the CVA - and as a reward they are going to be hit with a big CT bill on a huge paper profit that won't be reflected in cash income. Unless they start planning for this now, I fear they may survive the CVA and then be pushed into liquidation when they come out of it!! Unfortunately they can't start saving towards it as surplus profits have to be paid into the CVA.