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