USA Investments to Sub- company


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The parent company invested $350,000 to Mexico Sub-company in 2014 and recorded $350,000 as investment. Because Mexico sub company will be closed very soon, on their yearend financials, they took out this amount and rebooked as " due to parent company". do I need to take the same amount from our investment account and rebook it to " due from sub- company " account ? what exchange rate should I use? it is just a transition between two asset accounts, i am not sure if there any other impacts.
 
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kirby

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Moving the amount from your investment account to a due from account helps to show that the $350,000 is now a current asset versus a non current asset. This current asset only shows on the Parent's financials as it is eliminated on your consolidated statements anyway.

You do not need to apply an exchange rate on Parent books. You may want to find out if the $350,000 in Mexico is held in USD or in MXP. If in MXP then the sub's books will show an exchange rate difference if and when they convert to USD to send to you. This can get more complicated depending on if the subs books are kept in USD or local currency, but this is enough to start with.
 
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Moving the amount from your investment account to a due from account helps to show that the $350,000 is now a current asset versus a non current asset. This current asset only shows on the Parent's financials as it is eliminated on your consolidated statements anyway.

You do not need to apply an exchange rate on Parent books. You may want to find out if the $350,000 in Mexico is held in USD or in MXP. If in MXP then the sub's books will show an exchange rate difference if and when they convert to USD to send to you. This can get more complicated depending on if the subs books are kept in USD or local currency, but this is enough to start with.
Kirby,

Yes, Mexico Financials is held in MXP local currency. Because of fluctuation in exchange rate, converted USD value will be much less than $350,000, I guess I just go ahead converted MXP amount to USD value, then book exchange rate difference as a loss? Mexico has no capability to pay back any intercompany balance though.
 

kirby

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Mexico sub will never be able to pay back the $350,000 ? Then you have to write off the parent investment amount as a loss.
 
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kirby

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One more thing. Sub will “write off” the interco debt and credit gain. So gain and loss will eliminate in consolidation.
 
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