Question

let's say we have 2 companies, one of them owns 30% of the shares of the other company. let's say there's significant influence from the one that owns 30%, we usually use the equity method for transactions in that case right? my question is, let's say one entity (ex: the one that owns 30%) gives a loan to the other entity? what do we debit and credit for the individual accounts and the group one?

Answer 1

In the books(accounts) of the entity who gives the loan(the one that one's 30%),the journal entry would be :-

Investment/Loan recievable a/c... Dr

To Bank a/c

(Being loan receivable a/c debited for giving a loan ,and bank account credited )

In the books(accounts) of the entity recieving the loan :-

Bank a/c ...... Dr

To Loan Payable a/c

(Being bank account debited for the receipt of loan money, and Loan account credited)

In the Consolidated financial statements(accounts of the group), the journal entry would be :-

Loan Payable a/c .... Dr

To Loan Recievable a/c

(Being the loan entries reversed, because for the group,it is neither a liability, nor an investment)