I am quoting this problem from another website, changed the currency to dollars as I am curious of a solution if the whole thing happened in the US. Any suggestions welcome.
Party X did a management buyout of Company Y two years ago. Company Y owned Party Z $80,000 at the time of the buyout, but no payments were being made. The loan had been on the books for a couple of years. After Party X completed the buyout and the Company was renamed Company O, the loan was moved onto the books of Company O. After three years, Party Z decides that they never wanted the money back. Now, Company O is expanding, but the loan of $80,000, which has gone on all the tax returns, and has been on the books for years, is hampering Company Os plans for growth, because when investors and lenders look at that loan, it’s a big flag of the company’s existing liability, which really doesn’t exist. You are the Finance Director, and the MD tells you to get rid of this problem. Now, how do you do it? This is not a simple matter of making a journal entry and writing it off. The government will be involved (come tax time), as are financial institutions (come loan time). How do you deal with it?
Thank you
Marta
Party X did a management buyout of Company Y two years ago. Company Y owned Party Z $80,000 at the time of the buyout, but no payments were being made. The loan had been on the books for a couple of years. After Party X completed the buyout and the Company was renamed Company O, the loan was moved onto the books of Company O. After three years, Party Z decides that they never wanted the money back. Now, Company O is expanding, but the loan of $80,000, which has gone on all the tax returns, and has been on the books for years, is hampering Company Os plans for growth, because when investors and lenders look at that loan, it’s a big flag of the company’s existing liability, which really doesn’t exist. You are the Finance Director, and the MD tells you to get rid of this problem. Now, how do you do it? This is not a simple matter of making a journal entry and writing it off. The government will be involved (come tax time), as are financial institutions (come loan time). How do you deal with it?
Thank you
Marta