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Dividends and negative balance sheet

Dividends paid during the year and balance sheet neagtive at the year end

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I have aquired a new client who has a negative balance sheet but has paid dividends during the year.  The only liabilities of the company are the corporation tax liability and an accrual for my fees, both of which will be paid from the current revenue, the same situation had occured in the previous accounts prepared by the former accountant.  Can the dividends remain as when they were drawn neither of the liabilities existed and so the balance sheet would not have been neagtive?  To transfer dividends to the DLA would make that a debtor.  The figures are only a couple of thousand.

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RLI
By lionofludesch
18th Oct 2017 17:30

Dividends are still dividends even if they're unlawful.

Don't be re-writing history. Are these dividends properly declared ? Or are they, in reality, loans to the director ?

Assuming they are dividends, the consequences of paying these unlawful dividends could be that the shareholder is "invited" to repay them. The reality is that, provided everybody gets paid, nobody will take up the cudgel.

Nevertheless - negative assets ought to be a bit of a warning shot across the bows. Hope he's not looking for credit ......

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By Matrix
18th Oct 2017 22:03

When the dividends were drawn then the distributable profits should have been calculated including any accruals and corporation tax so I don't really see what has changed. Just because you hadn't made the journals doesn't mean the distributable profits were higher.

However I wouldn't adjust if they were actually dividends. Get the company onto monthly fees to you and use FreeAgent, then the distributable profits should be correct before you make year end journals.

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