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Can someone share the journal entries on a parents books when a wholly-owned subsidiary is disposed of?

The parent company is turning the subsidiary's operations over to the subsidiary's management for no consideration. There is an investment in sub recorded on the parents books, and the subsidiary has a nominal net asset value. The intercompany receivable from the subsidiary will be written off by the parent.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Suggestion: While we can provide you with the entries, why not ask your cpa firm/auditor what they want to see.... It can eliminate headaches and cost (and becomes part of your working papers should it come back to haunt you...)

Ron Rubel
Title: Controller
Company: Technical Innovation
(Controller, Technical Innovation) |

I agree with Wayne. There are also tax considerations in the transaction and how to account / record them will be critical for the tax returns for both parties. Certain tax documents have to be agreed to with the "Acquiring" company for tax purposes.

Some items will be addressed in the "sale" agreement.

Another consideration is the assumption of liabilities and by whom for items such as Capital Leases, Leases from any landlords along with any deposits the Landlord is holding.

To come up with a comprehensive JE, the need to factor in these items plus others must be considered.

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

I agree with both of the above responses. You must determine what are all of the items on the parent company's books that relate to the subsidiary, such as leases, perhaps deferred taxes, etc. When you determine all of the parent company's write-offs and adjustments, the balancing entry is more than likely going to be a loss on disposal.

Also, remember to adjust or reverse your consolidating elimination entries and make sure that the subsidiary no longer rolls up in consolidation after the disposal date.

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