In a situation where your company is facing some potential financial difficulties or is going to face a possible liability that\u2019s so big if paying it, it would mean bankruptcy, there\u2019s an option to receive a promise from the owners or similar to get full financial support if a situation arises. Essentially what\u2019s done, is an agreement between two parties where one side promises to support and the other is agreeing and acknowledging the receipt of such support. <\/p>\n
Depending on the reason the support was given – either as something to assure your creditors or some particular financial institution, the first thing you should do, is make sure that the appropriate party is informed of such a support. It\u2019s needless to say I presume that you won\u2019t go about and advertise it publicly, but if asked and if questioned, you\u2019d say that to the other party. It could be that financial institutions or auditors who have suggest for such a support letter, may ask for a copy.
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\nThe second bit is obviously the accounting treatment. A simple answer in this case is that there is none. Such support is not recognized in the accounts on its own. If the support says that your company will not bare any expenses relating to a specific matter, the expenses and liability are not recognized in the accounts either. Should that however not be the case and the support only states that should your company need financial support, they would come and help, there isn\u2019t anything special about it. It\u2019s just an agreement that will come into force should a situation arise. Other than that you carry on business as usual. If it\u2019s for specific expenses, those expenses should not be recognized. <\/p>\n
Disclosure in the annual report is something that\u2019s mostly up to the decision of the management. If the support is given because the financial results question the company\u2019s ability to continue as a going concern, it\u2019s useful to disclose that such support was received. If it\u2019s for a specific expense or situation it may be more reasonable to not disclose the support, however. <\/p>\n","protected":false},"excerpt":{"rendered":"
In a situation where your company is facing some potential financial difficulties or is going to face a possible liability that\u2019s so big if paying it, it would mean bankruptcy, there\u2019s an option to receive a promise from the owners or similar to get full financial support if a situation arises. Essentially what\u2019s done, is […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,38],"tags":[],"class_list":["post-2829","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-10-accruals"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2829","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=2829"}],"version-history":[{"count":2,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2829\/revisions"}],"predecessor-version":[{"id":2857,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2829\/revisions\/2857"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=2829"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=2829"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=2829"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}