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Value change of subsidiary as depreciation? Please help.

Hello everyone. If company A owns company B and thus the value of company B is included in Company's A balance sheet as other asset, how should be treat the change in value of company B for tax purposes. For example, if at the end of the year company B is worth 100K less than at the start of the year, do we treat the 100K change in value as a depreciation and charge it against the depreciation expense account? What do I debit and credit when entering the value change? We have the asset set up as if it was a fixed asset with 2 subaccounts, the original value account and a "depreciation/value change" account. Any help would be greatly appreciated. Cheers, XP.

Reply to
explorart
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On Fri, 20 Jan 2006 20:40:27 GMT, in alt.accounting "explorart" wrote in :

How much of B does A own?

No.

If the change is in market value, there is no entry. If the change is in net value of the operating unit, it will be handled during the consolidation.

I have no idea why it would have been set up that way. Please see your tax accountant or tax attorney soon.

Reply to
David Jensen

Thanks David, company A owns 100% of company B. The change of value is not a market change but a net value change. Both companies are LLCs. In 2005 the ownership of B was transferred from its owners to company A as a capital investment. The net value change is from the time the company A became owner of B to dec 31. This is all within 05. Any ideas as to how we should treat the value change. I'm sending all the paperwork to our accountant but want to have a basic idea of the options. We can easily change the type of asset account we should use. Thanks.

Reply to
explorart

On Fri, 20 Jan 2006 21:21:25 GMT, in alt.accounting "explorart" wrote in :

I see. Whether the LLCs are taxed at full passthrough or had elected to be taxed as corporations, my understanding is that a wholely owned subsidiary of this sort would have to be consolidated, not treated as an investment.

It is not a depreciable asset. The value will change as the book value of the two LLCs change. You will most likely be consolidating the two companies for tax purposes. I haven't lectured on consolidations for a few years, and that didn't touch the tax aspects, so I'm unwilling to start guessing exactly how you will be expected to handle it these days.

Reply to
David Jensen

Thanks David. I remember our accountant stating that we could not consolidate because we (Comp A) was not treated as a corp but instead as a partnership.

Would this make more sense:

Setting up the B company as Other Asset and entering the new net value as a a new entry and offsetting it against each owner's unrealized /accumulated gain/losses account for the right proportion?

I think I will set it up this way and they have our accountant change it. Thanks.

Reply to
explorart

"David Jensen" wrote

Agreed. That seems to be how things should be.

And that is for sure.

Don't know the reasoning behind booking it that way.

Reply to
Paul Thomas, CPA

On Fri, 20 Jan 2006 21:56:33 GMT, in alt.accounting "explorart" wrote in :

If your tax treatment is partnership, then the income or loss from Company B will pass through to the partners. It will be consolidated for the tax purposes of the partnership, since the partners (owners of the LLC) do not have any direct interest in Company B.

Did the company have an operating loss?

Reply to
David Jensen

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