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How would you handle this?

Company X is making a deal with Company Y X will provide essential purchase services including 3PL and use their credit facilities to finance inventory, which will be sold to Y as it is sold to Y's customers. There is no actual dollar investment in Y. Variation 1: Company X gets 50% of business and 50% of Board seats. They, while having 50% ownership and Board seats will probably not be in control. Variation 2: Company X gets less than 50% on both accounts, but more than 20% and at least a seat or two on the Board. The question is this: Are there any GL transactions showing the investment and would you do a consolidation for variation 1 at what %?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Why complicate things (creating a new company?) and not just give Company Y a straight out commission or a certain amount (whatever you want to call it) + commission ?

There are so many questions that crop up like.....What is the rationale for creating a new company? How is Company XY going to record COGS ?

That being said, my initial reading is that a nominal value investment can be recorded on Company X and value of Company XY recognized at the end of year.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Ok...I completely misread the first part.....

but I think my first initial reading is still valid.... a nominal value at that start and recognize value of 50% at end of the year.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Wayne
Do the companies share common owners?
Do you know the period for which inventory is likely to be financed?
Does Y tend to buy for stock or buy only against customer order?
Does Y need to make a deposit with order when it buys from its vendors-e.g. esp. if they have to commit to minimum quantities well ahead of shipment date?

Will it be simple extended credit terms, or is there a likelihood that some part of the receivable/payable is really long term financing and will that attract interest or not? If there is a long term nature to the deal, maybe that drives the way in which you account for this.

Cheers
Len

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

No commonality in ownership.
Current and future financing.
Y currently is in a drop-ship mode and doesn't buy stock, but that needs to change or do this type of deal.
TBK (to the best of my knowledge) No.

The financing for inventory is not an exclusive buy, in other words, X will by apples which Y can sell or X can sell themselves; different market-space.

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