Question

In: Accounting

Which of the following is a good strategy to prevent the piercing of the corporate veil...

Which of the following is a good strategy to prevent the piercing of the corporate veil between a parent company and its subsidiary?

  • Transactions between them should happen at fair value.

  • Records of transactions should be maintained only by the parent company.

  • Assets should be bought only in the name of the subsidiary.

Solutions

Expert Solution

Intercompany transactions should be fair is the good strategy among all of the following.

Explanation:-

1.Intercompany transactions should be fair:-It means that if a subsidiary co. Uses the server arrangement of yhe parent co. It should be documented in intercompany service arrangement and subsidiary co. Should pay reasonalble compensation to that. Intercompany transations should be fair because courts have considered the intercompany transactions are fair or not.

2.Record of transactions should be maintained only by parent co.:-it is wrong to record all transactions by parent co. Subsidiary co. record its own transactions and prepare financial statements while parent co. record its own transactions and prepare its financial statements it also prepare consolidated financial statements.

3.Assets should be bought only in the name of the subsidiary:-It is also wrong to buy asset only in the name of subsidiary because it shows that the assets used by holding co. are on the name of subsidiary then both co. are same so the assets of subsidiary co. bought on the name of subsidiary and the assets of parent co. should buy on the name of parent co.

ekkarill92 answered 2 years ago
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