I have a client who owns Company A (EU Company) and Company B (UK Company). Company A loaned B an amount (c.£100,000) between February 2018 and June 2018 to purchase stock but it was never going to be repaid. The company who loaned the money was then closed shortly thereafter before the 31st Jan 2018 accounts of Company B were completed; therefore the previous accountant wrote off the loan balance in Company B to increase ''profit'' in the Jan 18 accounts before the loan was even received. At this point the client started to use Xero and so I only have the conversion balances in Xero at 31st January 18 and no working papers from the previous accountant on how they treated/recorded the loan write off.
At present the loan write off in 31st Jan 2018 has increased profit by c.£100k, but with the payments being received in Feb it creates a new liability and so if written off will create another c£100k of profit. I have no idea what the double entry was of the original write off; Cr P&L but Dr ?? No payments were received by this point and so no liability from what I can tell
Feb 18 Payments received are Dr Bank and Cr Liability; write off would be Dr Liability Cr P&L
Any advice on what I am missing to sort this ? I have been looking at it but without knowledge on the original workings I cannot sort the double entry without duplicating the ''profit''. Is there something I am missing or perhaps something the client isn't making me aware of?