P owns a piece of land.

This piece of land will be developed into a mixed-building, comprises a few of storeys of an office space and a few of storeys of apartment units, i.e. both  tower and apartments will be nestled within the one same building.

Office will be owned by Tower Sub. while apartments by the Apartment Sub. Both subs develop their properties for sale.

Active development on the land has just commenced. Since the land was acquired, four years ago, P has been legal economic and rightful owner of the land.

The piece of land cost $200m. 

P has a paid up capital of $350m. The two subsidiaries have a paid up capital of $10m each.

The project will be financed by bank loan and advances by P to both subs. 

Since both subs. will be the eventual owners of these development properties, a matching land cost need to be reflected in their books. A proposed solution is to do a prior year adjustment (PYA). The nature of the PYA is that of correction of a material error.

In the PYA:-

a) 1) Both subs will debit Development Cost (land), credit Due to P and 2) P will debit Due from Subs, credit PPE-land. 

b) These PYA transactions are not to be considered a disposal/purchases within the Group but a mere transfer at cost.

c) The resulting owings by subs will bear no interest but repayable on demand.

d) P will not relinquish its land title deed to the subs. P remains the registered owner of the land. It will be transferred directly to the apartment/office buyers  when the project is completed.

Questions

1) Is the above PYA sound in accounting sense?

2) In term of substance over form. The substance is both the subs now record the land cost in their books. P the legal owner, records no value in its book. Anything amiss?

3) The advances/loans made to the subs are not at arms-length, bear no interest however repayable on demand. Unless until the subs start deriving income, i.e. upon recognising the incoming progress billings, these two subs will not be able to repay P. Therefore, is the term "repayable on demand" contradicting?. Is there a need for P to impair the advances, FRS Financial Instrument - Recognition and Measurement? Will the reliability, prudence, etc. of the framework for preparation and presentation of financial statements questionable?