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Related Party - Interest-Free Loan Consequences

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Afternoon all, 

I havd a question and after researching on the matter, I would be grateful for some assistance.

2 directors (50:50) shareholding own a company - Company 'A'.

Company 'A' owns 100% shareholding of Company 'B'.

Company 'B' has loaned an interest-free loan of £20k for > 5 years, to a company based in Spain, which is owned by the shareholders outlined above - Company 'C'.

I have read FRS 102 Sections 11 & 12 but am unclear as to the correct treatment of this loan, in the books for Company 'B'.

1) Although the loan is interest-free, do we need to account for the present value of the loan using a market rate of interest?

2) FRS 102 section 11/12 state that as the loan is made between related parties, the loan needs to be disclosed as a distribution to in this case, company 'C'.

Therefore, would the double entry be:

Dr loan receivable                       £16,500 (estimated Present value)
Dr capital contribution                 £3,500
Cr bank                                         £20,000

Thoughts appreciated. Have a good weekend :)
 

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