Question

let's say there is 2 entities A and B.

in case 1 the entity A has full control of entity B and 100% of its shares, so it's the parent company.

in case 2, entity A owns 30% of the shares of entity B and has significant influence, but no control.

what happens if entity A gives a loan of $1million to entity B in both cases , in the individual books and the consolidated one, what's the difference? A full explanation please

Answer 1

Case 1

In this case as entity A has full control over B so entity A is parent company of entity B and entity B is subsidiary company of entity A,in this case if the loan is given by parent company to subsidiary company then it will be come in consolidated financial statements of parent company but interest earned from it will not be shown in consolidated financial statements,and in individual statements bothe the entrues will be made in books if accounts of both the entities.

Case 2

In this case as entity A owns only 30% of shares in entity B so it does not have control over entity B as for control it requires to atleast to hold more than 50% of shares,so there is no parent company and subsidiary company,so there is no need to make consolidated financial statements and so both the entries will be made only in individual books of accounts of bkth the entities