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Accounting treatment for purchasing debt uk gaap

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If a company were to purchase another companies debt, how would this be recorded in the financial statements? For example purchasing a companies debt of £100k for £50k cash. 

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By johngroganjga
15th Dec 2019 10:27

Initially at cost, with subsequent reviews for impairment and adjustments as necessary. What other accounting policy did you have in mind?

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By Accountant A
15th Dec 2019 11:59

Do we know the full story? Why is the debt being acquired? Is the purchaser a trader in corporate debt? Is this a speculative "investment"? Is the debt purchase associated with any other transaction, eg share purchase?

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By Abbie87
15th Dec 2019 13:35

The debt would be acquired instead of the purchaser charging the seller a monthly fee to recover monies owed to them (purchaser is an intermediary, not a trader in corporate debt) and no share purchase agreement would be in place the debt would be bought for an agreed value and if the purchased recovers any more than this it’s simply profit to them

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By WhichTyler
15th Dec 2019 16:28

Whose financial statements; buyer or seller?

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Replying to WhichTyler:
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By Abbie87
15th Dec 2019 16:31

Buyer

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By WhichTyler
15th Dec 2019 17:18

Cr Bank
Dr Current assets

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By paul.benny
15th Dec 2019 18:09

Agree.

As long as you're not reporting under IFRS. It's potentially much more complex under IFRS9.

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Replying to WhichTyler:
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By Abbie87
16th Dec 2019 12:42

Thanks, and as the money is recovered you would dr bank and cr current assets, however once the £50k has been recovered anything after that is profit so it could then be recorded as dr bank cr income - is this the correct way to approach it?

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By WhichTyler
16th Dec 2019 12:55

See John's comment above (or this https://www.accountingweb.co.uk/business/financial-reporting/frs-102-bas...) about periodic fair value revaluations

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