Directors loan transactions

Directors loan transactions

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When considering FRSSE 2008 and CA 2006 where the directors use their loan account for an array of personal transactions that are generally cleared by dividends, I would generally do the following in Transactions with Directors Note:

1) State each named person show balance brought forward, total debits to account, total credits to account and show balance carried forward.

2)If there were any large and material debits in this summary then I would give detail in a text paragraph.

3) Would also state if any interest terms are relevant to the overall loan.

4) Same note on both Full and Abbreviated accounts.

Credits would often be the dividends paid and I WOULD NOT usually give any further mention. (I think FRS8 may require this in the Related Party Note !!)

Would welcome any comments as to whether this seems to cover the accounting requirement and any other approaches that other members might have.

Thanks for any comments

Regards

Phil

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By DMGbus
30th Mar 2011 12:45

Full accounts vs Abbreviated Accounts

This matter has been debated on this forum more than once in the past two years.  I think the technical answer was nothing to declare in FRSSE based Abbreviated Accounts (however I sometimes still see cases of the credit balance on the Directors Loan Account ("DLA") wrongly declared on Abbreviated Accounts - a recent example being by a "won't be told" partner earlier this week.

As for the full accounts the only declaration of credit balance DLAs and dividends that I normally use (as I believe this is no less than the law requires) is as follows:-

State directors loan account balance in creditors as a separate figure for current year and comparativeIn the directors report include a statement something like "all dividends paid are to the directors who are the sole shareholders"

I don't think that I've ever seen a full itemisation of DLA transactions in a set of accounts either full or Abbreviated.

If the DLA was at anytime overdrawn in the accounting period then the maximum amount of overdawing would be stated plus an appropriate note about interest on this OD DLA (ie. charged at what rate or interest-free).

I have seen additional information for both credit balance DLAs stated in some full accounts along the lines of:

"the directors loan accounts are intererst free and repayable on demand".  Personally I don't include a such informatiion when the directors and shareholders are one and the same, maybe I should.

Regarding dividends I've seen opinion sometimes stated that as these are allegedly a "related party" transaction and so a special note has to be included in the accounts - that's why I include a note in the directors report as already referred to.  I have heard an opinion expressed that as an allegedly "related party" transaction a note is needed in the Abbreviated accounts, but I don't see this as a legal obligation for FRSSE based accounts and I would love to see companies / directors sue accountants who provide too much information in Abbreviated Accounts - disclosing directors personal income to the world has to be serious breach of confidentiality in my book!

Here's one expert (ie. can quote the legislation chapter and verse) opinion:-

https://www.accountingweb.co.uk/anyanswers/abbreviated-accounts-and-directors-transactions-and-balances

see also:-

https://www.accountingweb.co.uk/anyanswers/disclosure-2

PS. Any expansionist accountancy practice could do company searches of Abbreviated Accounts of prospective clients and then approach the companies concerned pointing out that too much information has been disclosed and would they therefore like to consider what else their "professional" accountants have got wrong / over-done (*) and charged for!   One of these days I might just do this!  

(*) There are still some firms who produce 10 or more page sets of full non-audit accounts for really small limited companies when the law can be complied with using perhaps half this number of pages.   Such firms are probably the same ones who expect between 20 and 50 schedules to be completed over and above adequate working papers.  All this nonesense has to be paid for somewhere and many directors are oblivious to this idiocy that they're paying for.

 

 

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