long standing Account Receivable

Dear Yun san,

How are you?
You looked very fine in San Diego in US conference.

My client is facing a trouble in Korean subsidiary,

 

Korean subsidiary has an account receivable to the Hong Kong associate company.
And some amount of this account receivable was recorded more than 3
years, so the president complains that this long retained account
receivable make the Korean company to pay a penalty to the government.

So if you know this matter, please inform me as soon as possible, or
please introduce me a reliable lawyer to my client.
My client will pay the advise fee for you and lawyer.

I look forward to hearing your opinion.

With my best regards,

 


 

Dear Client
 

Nice to hear from you again.
I am doing O.K.
Hope all is well to you and your folks.

Regarding your queries,

1) Normal and legal transaction ?

First of all, it is important to study the reason for accruing this A/R years ago.

If this A/R was generated from the normal and legal international transaction and the Korea company keeps the related evidence in custody, there would be no worry according to the Foreign Currency Transaction Act.
 
2) In the case where the A/R is scheduled to be collected soon from HK company

There is no penalty on the long-standing A/R just because it is long-standing.

Tax office and/or other regulatory body may ask the reason why it stands so long, but in this instance, if the company has a sound ground for recording A/R and making official effort to collect it, there shall be no penalty on this A/R.

When the A/R is collected, Korea company simply may record the following J/E.
Dr) cash  ***                Cr) A/R             ***

3) In the case where Korea company wants to record the bad debt expense

This is deductible when the company meets the conditions and requirements prescribed in the tax law.

For your quick glance, we wrote briefly as above.

Should you need detailed letter from us, we will prepare it upon your request.

Before we start full-scale study on this matter, it would be helpful if you provide following information.

1) the reason for recording this A.R.  Is this from the sales of goods or services ?    Is this transaction real and not a false one ?    Company is keeping the right evidence to prove the legitimacy of this transaction ?

2) the year of recording the A/R

3) the reason for not collecting the A/R.  

4) Is HK company sound ?   HK company is willing to pay ?

5) If the answer for 4) is no, then the Korea company is willing to record the bad debt expense ?

 

Regards,
Simon