Impairment loss or doubtful debt?

Joined
Jul 21, 2014
Messages
7
Reaction score
1
For example. My Company have been giving loans to another company (which is a related-party - common director and shareholder). However, for 3 years, no repayment was made by that related-company. Reason for the loans is because the management foresees the related-company to grow, however they do not want to classify it as an investment as no shares were being acquired by my current Company.

Therefore, based on IFRS, should I provide impairment loss for the loans or should I provide doubtful for the loans?
 

bklynboy

VIP Member
Joined
Oct 12, 2011
Messages
595
Reaction score
112
Country
United States
Under US GAAP when intercompany receivables are foregiven they are considered capital contributions as APIC without having new shares issued.

Take at IAS 39 for IFRS guidance where it states if there is a repayment date and the subsidiary has defaulted then its an impairment. If there was no due date then its a capital contribution. Since you state that the parent has not required repayment and is essentially fueling future growth to me its a capital contribution. Note that shares do not need to be issued for capital treatment since it would be required as APIC.

See link for a summary since IFRS is not my expertise but something I compare GAAP with.

http://www.grantthornton.com.au/files/ta_alert_2009-11_inter_company_loans.pdf
 

Fidget

VIP Member
Joined
Jan 6, 2013
Messages
753
Reaction score
139
Country
United Kingdom
IAS 39 operates under an incurred loss model (for the moment anyway), so you don't account for a loss until it actually happens, which rules out creating a provision for doubtful debts in respect of loans. In other words, they're subject to impairment testing. Impairment under IAS 39 is the same as per IAS 36 in recognition/reversal.

Something to be aware of though, IFRS 9 has gradually been replacing IAS 39. Part of the new standard is to replace the current incurred loss model with an expected loss model which is more along the lines of a provision for doubtful debts in that an amount is recognised even though it might not happen. It was recently announced that mandatory adoption of it is 1 Jan 2018.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top