How do you account for an intercompany loan?
A core Group Accounting interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The loan is eliminated in debt consolidation. IC interest income and expense are also eliminated in P&L. If the loan is in a foreign currency, translation differences may need to be reclassified from P&L to OCI if deemed part of the net investment (IAS 21.32).
WHAT INTERVIEWERS LISTEN FOR
- ✓Eliminate intercompany loan
- ✓Eliminate interest income/expense
- ✓Foreign currency translation differences
- ✓Reclassify to OCI if net investment
COMMON MISTAKES
- ✗Forgetting to eliminate loan
- ✗Ignoring foreign currency effects
- ✗Misclassifying translation differences
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