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Intercompany loan of asset

My husband and I own a company with depreciable equipment. My husband partnered with another man and formed another company (keeping our own as well). We lent the new company our equipment for many months to get started. Our CPA recorded a lease expense on new company P&L at 10,000 per month. She then recorded owner draw on our first company of 10,000 a month. We never received any lease moneys and all the while our equipment was depreciating by new company’s use. What would be the proper treatment of this transaction? HELP PLEASE*** ANY discussion will help, thank you!

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Best answer March 10, 2020

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Community Champion

Intercompany loan of asset

Back with some added insight of how we handle intercompany transactions.

 

In your case company 1 should issue a monthly lease invoice to company 2.  Or Sales Recept. Record as paid (receive payment) and the payment (other) will be in Undeposited Funds. Deposit to a CLearing bank type account and then credit that account (write a check) to owner draw. That much is correct as long as the income half is recorded.

 

Company 2 enters the bill(s) and then "pays" them from its own Clearing account, which then in return has funds deposited FROM owner equity (member contributions)

 

Equity movement is not a taxable event. Company 2 gets a lease deduction as expense and Company 1 gets lease income and depreciation expense

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Community Champion

Intercompany loan of asset

Expense in one company almost demands income in another. If your first company loaned the equipment with no money exchanged how can company 2 claim an expense? Meanwhile company 1 takes depreciation expense regardless of where equipment is or by whom it is used.

 

In company 2 the expense has to be offset by credit of a liability or reduction of equity.

In company 1 the lease income would be offset by increased equity, not decreased which is what the owner draw represents.

 

If all went as probably planned, income in company 1 would match depreciation taken dollar for dollar and that is how one would come up with an appropriate lease payment.  The providing of equipment on loan to new company should be increasing your husband's equity in company 2

 

I am getting lost, myself and need to give this some more thought. You might have to consider barter rules when no money exchanges hands

Highlighted
Community Champion

Intercompany loan of asset

Back with some added insight of how we handle intercompany transactions.

 

In your case company 1 should issue a monthly lease invoice to company 2.  Or Sales Recept. Record as paid (receive payment) and the payment (other) will be in Undeposited Funds. Deposit to a CLearing bank type account and then credit that account (write a check) to owner draw. That much is correct as long as the income half is recorded.

 

Company 2 enters the bill(s) and then "pays" them from its own Clearing account, which then in return has funds deposited FROM owner equity (member contributions)

 

Equity movement is not a taxable event. Company 2 gets a lease deduction as expense and Company 1 gets lease income and depreciation expense

View solution in original post

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