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 £30,000. Ulla (North) lent it £60,000. Ulla plc lent £100,000 and wrote this down by £50,000. This was a bad debt debit under Para 5 (authorised arrangements for bad debts).
The relevant net debit was £50,000.
Year 2
Ulla (South) Ltd wrote down £20,000 of its loan. Ulla (North) Ltd wrote down £40,000, while Ulla plc reduced its provision for bad debts by £15,000.
The relevant net debit for the Ulla group in Year 2 was
| Written off (Para 5 debits) | £60,000 |
|---|---|
| Bad debt reduction credit | £15,000 |
| Relevant net debit | £45,000 |
Rewdon Manufacturing Ltd was a member of the Rewdon group.
Year 1
In this year, Rewdon Manufacturing Ltd made a loan of £100,000 to Porwin Ltd. It had written it down to £40,000, charging a debit of £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 £60,000.
Year 2
There were no bad debt debits or reductions in bad debt provisions.