CFM81350 - Old rules: loan relationships: consortia and bad debts: relevant net debit
Amount of restriction: relevant net debit
This guidance applies to periods of account beginning before 1 January 2005
An updated version of this example under the current rules appears at CFM35650.
Porwin Ltd was a consortium company owned
- 50% by Ulla (South) Ltd
- 50% by Rewdon Manufacturing Ltd.
Porwin began to trade in Year 1.
Ulla (South) Ltd and Ulla (North) Ltd were members of the Ulla group of companies.
Year 1
Ulla (South) Ltd lent Porwin Ltd 拢30,000. Ulla (North) lent it 拢60,000. Ulla plc lent 拢100,000 and wrote this down by 拢50,000. This was a bad debt debit under Para 5 (authorised arrangements for bad debts).
The relevant net debit was 拢50,000.
Year 2
Ulla (South) Ltd wrote down 拢20,000 of its loan. Ulla (North) Ltd wrote down 拢40,000, while Ulla plc reduced its provision for bad debts by 拢15,000.
The relevant net debit for the Ulla group in Year 2 was
| Written off (Para 5 debits) | 拢60,000 |
|---|---|
| Bad debt reduction credit | 拢15,000 |
| Relevant net debit | 拢45,000 |
Rewdon Manufacturing Ltd was a member of the Rewdon group.
Year 1
In this year, Rewdon Manufacturing Ltd made a loan of 拢100,000 to Porwin Ltd. It had written it down to 拢40,000, charging a debit of 拢60,000 under the Para 5 authorised arrangements for bad debts. No other member of the Rewdon group had made a loan to Porwin Ltd.
The relevant net debit for the group for this year was 拢60,000.
Year 2
There were no bad debt debits or reductions in bad debt provisions.