BUSINESS LOAN WHERE TO PUT TRANSACTION IN ACCOUNTS

Company loaned money for buyout of shares but accountant has put this in Directors loan account ?

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A director retired and to fund the buyout the company took out a business loan, in the business' name.

Accounts have been done for the year but the accountant has put the loan repayments from the business account into the remaining Directors loan account, can anyone advise whether this is the correct / incorrect proceedure, as it was the business that took out the loan and not the director / shareholders.

At the buyout we were advised that the retiring directors loan account ( £10,000) would be written off, this has not been the case and the accountant has since moved the retired directors loan account into the remaining directors loan account, i.e. The £10,000 has been added to the remaining directors loan account. Is this the correct / incorrect procedure  as the liability was the retiring directors and not the directors who remained.

Can anyone clarify these points and the correct proceedures please.

Thanks.

Replies (9)

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By johngroganjga
02nd Aug 2017 13:21

What does the accountant say?

But if the loan is in the company's name, the repayments of it should obviously go to the same place. Is the loan itself elsewhere in the balance sheet un-reduced by the repayments?

The continuing director should be very happy with what has been done with the former director's loan. Is it he who is questioning it?

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Replying to johngroganjga:
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By shaunbilly
02nd Aug 2017 13:39

The current accountant is visiting me to go through these points, I was looking to get some heads up so I can discuss with him.
I am unsure if the loan is elsewhere in the balance sheet and is un-reduced.
Could you explain why the continuing director should be happy with being liable for an extra £10,000 which he was told by the accountant would be written off?
thanks

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Replying to shaunbilly:
By johngroganjga
02nd Aug 2017 14:09

You mean the loan account was overdrawn and the company waived it? I thought you meant that the loan account was in credit and the outgoing director waived it.

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Replying to johngroganjga:
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By shaunbilly
02nd Aug 2017 14:19

Correct, the outgoing directors loan account was £10,000 overdrawn and that has subsequently been added onto the overdrawn loan account for the remaining director, is that correct ?

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Replying to shaunbilly:
By johngroganjga
02nd Aug 2017 14:26

It depends what the sale agreement says.

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Stepurhan
By stepurhan
02nd Aug 2017 13:27

Did the company buy back the retiring director's shares? If it was the other director/shareholder buying the shares instead, why did the company take out the loan to allow them to do so?

Who advised you at the buyout? The same accountant who is now apparently going against their own advice? If so, have you asked them why?

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Replying to stepurhan:
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By shaunbilly
02nd Aug 2017 13:42

Correct, the company bought back the shares and took out a loan to finance this.
The current accountant and solicitor gave advice on how to do the buyout.
I have a meeting with the accountant and just wanted some advice so I can question them.
Is the transfer of the retired directors loan account correct or not in your opinion.
thanks.

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Replying to shaunbilly:
By Ruddles
02nd Aug 2017 14:46

As John says above, whether or not it is correct will depend on what all parties involved agreed to.

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Replying to shaunbilly:
Stepurhan
By stepurhan
02nd Aug 2017 15:45

You would normally expect a loan taken out by a company to appear in creditors. It should be split between the amount due within 1 year (current creditors) and the amount due over 1 year. Based on the facts given, I cannot see any reason for putting the loan repayments through a director's loan account.

The transfer of the retired directors' loan account is an entirely separate transaction. Don't let the fact that they happened at the same time make you think otherwise. As others have said, that is a matter for agreement between the two individuals.

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