During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 and ii) 30 June 2015.
During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 and ii) 30 June 2015.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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b) During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 and ii) 30 June 2015.
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