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 :)