Recognition of related-party recharges
Keywords: Mazars, Thailand, Accounting, Related Party Transactions Financial Statements
03 March 2020
Scenario
Company A is a Thai registered company, which also has a subsidiary in Thailand. During 2019, Company A shared resources to assist its subsidiary with factory construction.
As a result, Company A has calculated and issued an invoice at the end of 2019 to the subsidiary for THB 1.5 million (excluding VAT) for staff expenses related to this assistance.
Question
How should these transactions be reported in the financial statements of both Company A and the subsidiary?
Response
As noted in the scenario, Company A shared resources with a subsidiary to build a factory. The staff members worked on behalf of Company A. Afterwards, Company A issued an invoice to the subsidiary to recharge its expenses. Therefore, it appears that Company A has provided a service to the subsidiary. Thus, Company A should recognize this transaction as service income in its statement of income.
Thus, Company A should record these transactions as follows:
Class of transaction | Debit (THB) | Credit (THB) | |
When issuing the invoice to recharge expenses to the subsidiary | |||
Other receivables – subsidiary | Asset | 1,605,000 | |
Service income | Income | 1,500,000 | |
Output VAT (THB 1.5 million x 7% VAT) | Liability | 105,000 | |
When receiving a payment from the subsidiary | |||
Cash at bank | Asset | 1,605,000 | |
Other receivables – subsidiary | Income | 1,605,000 | |
The subsidiary should record the transactions as follows:
Class of transaction | Debit (THB) | Credit (THB) | |
When receiving the invoice recharging expenses from Company A | |||
Cost of building | Asset | 1,500,000 | |
Input VAT | Asset | 105,000 | |
Other payables – subsidiary | Liability | 1,605,000 | |
When making a payment to Company A | |||
Other payables – subsidiary | Liability | 1,605,000 | |
Cash at bank | Asset | 1,605,000 |
However, the subsidiary can capitalize the cost of wages as building costs if the conditions for doing so are met (wages incurred and work performed are directly attributable to the construction of the assets). Otherwise, the costs would need to be expensed.
For more information, please visit the FAP website.
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