Limited Accounting treatment - LLP Corporate Member
I am questioning myself on the treatment of LLP profits within a limited company where there is a corporate member.
I have taken over a set of accounts, where the limited company is also a corporate member. The share of LLp profits has been included in the corporation tax computation each year, but no entries within the accounts. The limited company trades in its own right and the LLP is in effect a subsidiary of the Limited company.
No capital was introduced by the Ltd company into the LLP, so no investment / current asset shown as with "normal" subsidiaries
However should there be an entry each year, Credit Other Operating Income and Debit LLP Debtor Account, with the share of the profits. The LLP Debtor account would then mirror the current account within the LLP?
Not a debtor
The company interest in the LLP is by nature of an investment, not a debtor. If the company is not drawing on its profit share then it has effectively invested the amount due to it in the ongoing business of the LLP body corporate. These (and other "normal" subsidiaries) should only be shown as current assets if there is an intention to sell them in the near future. Otherwise they are fixed asset investments and should be shown in the accounts as such.
Incidentally, are you sure that the LLP is a subsidiary? Who are the other members and what voting rights are in place? Even if the other members of the LLP are the owners of the limited company, this does not make it a subsidiary. It is only a subsidiary if the company itself exerts overall control.
I am curious as to how you have introduced the LLP profit share into the tax computation and return without having any entries in the accounts. Also, have you been sure to adjust between taxable and accounting profits in the CT calculation? The accounts should reflect the accounting profit share (so the investment in the company matches the current account in the LLP) but the corporation tax should be calculated on the profit after adjusting for such items as depreciation and capital allowances.
Use the SORP
A good starting point here is the LLP SORP, particularly paragraphs 32-50. If you're going to recognise the share of profits as a liability in the LLP, then there should be a corresponding debtor in the company accounts. If any profit represents an increase in equity in the LLP, then that should only be reflected in any consolidated accounts the parent company produces.
I can't see any reason for increasing the amount recognised as an investment in the parent company's own accounts unless further capital is contributed.
With respect to losses, I'd have thought these should be recognised by first reducing the profits debtor to nil, and then by recognising any impairment of the investment in the LLP.
Recognise the profit share
The profit share should be recognised in the limited company as you suggest. I am not sure but believe there may be S455 issues if the loan to the LLP is not repaid within 9 months of the company's year end.