Information for Accountants

Related entity loans

  • The Accepted Independent Accountant is to view the balance sheet (at a minimum) of the related entity, to determine collectability of the related entity asset loan owing to a licensee.
  • Evidence of collectability is by way of balance sheet or statement of financial position for related entity (not loan agreements).
  • If the loans are listed as current assets, the related entity needs to have sufficient net current assets to be able to repay the loan in full.  Otherwise the loan should be correctly categorised as non-current, and this may affect the licensee’s current ratio.
  • If the related entity has a negative net asset position, the related entity asset loans owing to the company cannot be included in calculations for either current ratio or NTA
  • If the related entity is also reliant on other related entity asset loans owing to it, collectability of those loans also need to be determined.
  • In calculating the related entities net current asset and net tangible asset position, assets disallowed under section 2 must be excluded from the related entity's financial position.
  • If directors owe money to the company as an asset, collectability of those loans also need to be determined.  The director would need a positive net asset position, and if the loans are current assets for the company, the director needs sufficient current assets  to repay the loan amount in full.
  • Repayment of a loan through the payment of future dividends from the Licensee is not evidence of collectability, as the payment of the dividend reduces the Licensees NTA position by an equivalent amount.
  • Related entity liability loans cannot be deducted from the calculations of Net Tangible Assets or Current Ratio under any circumstances.