Borrowing from the parent company

Question

If a subsidiary borrows money from the parent company at zero interest rates since the subsidiary is unable to raise money from outside due to its poor financial position, how do you determine the borrowing cost in such a situation?

Answer 1

For the subsidiary company, the loan is a financial liability and therefore it has to classify this loan either as a
1. financial liability thru profit and loss or
2.other financial liability
Either case you need to recognize the interest expense at the market rate.