Loan termination
March 27, 2011 | 50,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
A sole trader in the real estate sector balances assets, including undeveloped land (inventory) €498,000, and liabilities, a bank loan of €600,000.
Due to a health emergency, the land was placed under forced administration and subsequently forcibly auctioned. The land was dissolved in the balance sheet after the forced auction protocol was presented, and the difference from the balance sheet was corrected as an expense.
After two years, there is still no settlement from the bank regarding the settlement of the loans and what outstanding claims remain.
How can the remaining loan liabilities of €600,000 in the balance sheet be resolved without impacting profits?
Thank you very much.
Dear inquirer,
Thank you for your inquiry, which I would like to answer based on your information and in the context of your situation as follows:
Without knowledge of the entire process, your question cannot be conclusively answered. You must definitely request a statement from the bank, as the bank will have applied for forced administration followed by forced auction. It must first be determined how much the loan balance is AFTER the forced auction.
Regarding the booking, since detailed numbers are not available, I would like to clarify with an example:
The properties were sold for 350,000 euros (my assumption), and the 350,000 euros were used to pay off the loan. The booking would be as follows:
1. Booking:
Loan 350,000 in debit to Properties 350,000 in credit.
The loan then has a remaining balance of 250,000 euros and the properties have a balance of 148,000 (498,000 minus 350,000).
2. Booking:
Disposal of assets Book loss 148,000 in debit to Properties 148,000 in credit.
Through the second booking, the property account has a zero balance, and the book loss of the property has resulted in a decrease in profit or an increase in loss of 148,000 euros.
If your sole proprietorship continues, the remaining loan of 250,000 euros will still be shown in the balance sheet as a loan.
If the remaining loan is to be treated as a personal loan, then you must book it as follows:
Loan 250,000 in debit to Capital Account in credit 250,000. Then the loan would be booked as profit neutral.
As mentioned, a conclusive statement can only be made after reviewing the documents.
I hope I could be of assistance.
Best regards,
Ulrich Stiller
Tax consultant/Diplom Business Administrator
