As the title says, I have a question about how to handle a collateral pledged for a restructering loan.
Let me give you a brief introduction to the case:
The annual statement shows an adverse BS, which causes a going concern. The BOD was able to rediscuss the the terms of repayment with the bank, so that a short-term bank loan amounting to $30.7 Millions was transferred in a long-term liability. Furthermore they granted a restructering loan of $ 25 Million, for which the shares of a subsidiary were pledged.
Most of the booking entries are quite clear to me:
Cr: Short-term Bank loan $ 30.7
Dr: Long-term Bank loan $ 30.7
Cr: Cash $ 25
Dr: Bank Loan $ 25
But how do I handle the collateralized shares?
Is it Cr: Long-term liabilities
Dr: Investment?
For me that doesn't make that much sence, as the restructering effect diverges to zero, even though a restructering loan is only a time buying measure.
Surely if this is a multi-million dollar business then you have a large finance department so can ask a colleague or have a team of professional advisers so can ask them? I for one do not deal with collateralised shares every day and would not want to hazard a guess and for you to rely on it.
I may have misunderstood part of your tatement but are you not transferring short term loan to a long term, not the other way around?
As such should that not be
Dr Current liabilities $30.7m
Cr Long term liabilities $30.7m
Similarly, for the restructuring the way that you describe it is not a reconstrcution but rather a loan secured on a subsidiary. As such should that not be :
Dr Cash (Bank) $25m
Cr Bank Loan $25m
From what you write the shares in the subsidiary have been pledged as collateral but they have not been sold so there is no physical movement on those unless the parent breaches the conditions of the loan. There must however be a note on the accounts detailing the provisional transaction.
Considering the amounts involved here you should bring on board a Chartered accountant who deals with reconstructions to ensure that everything is being processed correctly (including the wording of the note to the accounts if this arrangement goes over a period end).
Also, considering again considering the amounts that you are playing with here you should not be making assumptions about bookkeeping which concerns me.
Also, considering the amounts involved and the international nature of the question this question should really be posed on Accountingweb rather than on here (www.accountingweb.co.uk)
kind regards,
Shaun.
Just to emphasise here that Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
we crossed in the post. This one took me a lot longer than normal as the whole question just doesn't feel right (which is why I emphasised my disclaimer). I kept having to go back and read the question and think"is this person really asking that question on this site?".
I don't like to turn anyone away from the site but when we are talking about basic bookkeeping advice for $55.7m something seems wrong and as you say, anyone dealing with this sort of money is going to have a dedicated accounts department.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for your answers so far. I should have admitted, that this is a question I came across during exam preparation.
Probably I should have pointed this out a little bit more precisely. And you're all right, in practise a group of a hundred CAs and financial consultants should be involved.
But all in all your answers were useful. I guess in this case the declaration of the collateral in the notes would be the most useful way to handle the treatment of the collateral.
If questions like this are not according with the scope of this forum I will desist from posting further examination samples.
