Share premium account that wasn't
A very small (turnover about £30k) OMB Ltd company client that came to me in a bad state of repair (their words not mine) has a share premium account with a balance on it of about £20,000. This was money given to one of the directors by his parents as a "sort of" investment in the company but no paperwork was ever drawn up, no share certificates issued and nothing was ever filed at companies house. Reading between the lines the money was a gift to one of the directors to help them when they started the company and it was treated by the accountant many moons ago as a purchase of shares rather than simply capital injected into the company via the director's loan account. The parents never expected to hold shares and always treated the money as a gift.
The parents died about 6 years ago and nothing ever happened to the "non-existent" shares (the parents are not UK resident or domiciled). So now we have a situation where the Companies House record shows a modest £100 share holding but the filed accounts show (and have done for a number of years) ordinary share capital of £100 and a Share Premium account of £20k.
Help! I am tax qualified rather than ACA/ACCA etc so I am worried about walking into a procedural mine field. My gut feeling is to debit the share premium account and credit the director's loan account. If I do this what happens with last year's comparative figure? Do I need a special note to say what has happened? Some how I think a sentence in the notes to the accounts saying "the directors are well-meaning and lovely people but hopeless when it comes to numbers" probably does not convey the right message. The directors are a husband and wife team so there will be no argument between them and they have one "global" loan account between them.
To add a little bit of spice, the balance sheet that currently shows a small deficit would show a £20k deficit if the share premium account was reallocated. The directors are quite happy to make a going-concern note saying that they do not intend to call in the loan and no-one is intending to invest in the company in the immediate future who would rely on the figures. There is no bank lending.
My question is may I simply transfer the share premium to the loan account and if so do I need to make any special note in the accounts. Any assistance would be greatly appreciated.