Provide for older trade creditors

Extended supplier terms by parent company

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Subsidiary company is charged rent/other head office costs (all on a commercial basis) by its parent company. Sub is loss making and therefore parent offers extended credit terms which is funding the loss of sub.

Based on the current positiion of the sub, it is very unlikely that they will be able to pay the trade balances owed to parent in the foreseeable future (or possibly ever). In terms of FRS 102 and tax, what is the best approach here. Is an impairment review required even on trade creditors? We dont act for the parent but assume they have provided for these as bad debts. I understand if we do credit the P & L for the amount provided for that this will not be taxable. What is the term for the provision, i.e the opposite of a provision for bad debt?

Parent confirms they will continue to suppport sub for a period of 12 months so no GC issues.

Replies (4)

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paddle steamer
By DJKL
26th Oct 2017 12:45

Unless parent issues credit notes to the sub or formally forgives the debt cannot see how sub can justify any write off or impairment re sums it is due to parent, irrespective of what parent may or may not have provided in its own books.

If it turns out it can (I am out of touch with modern accouning-quite possible) I will pop outside and burn an old copy of SSAP2 (if I can find one), Prudence will have been murdered.

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By johngroganjga
26th Oct 2017 16:55

There is no such thing as impairing a liability, or doing the opposite of making a bad debt provision. How the holding company has accounted for the debts in its books is completely irrelevant to how the subsidiary should accounts for the liabilities in its books.

As DJKL says, unless and until the holding company waives the indebtedness, and evidences the same by issuing credit notes, there is nothing for the subsidiary to do.

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By paulwakefield1
26th Oct 2017 18:05

Under FRS102, the extended credit period may cause the debt to be treated as a financing transaction and might require discounting.

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By WhichTyler
26th Oct 2017 18:17

I would have thought they belong in Intercompany loan account rather than trade creditors?

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