Share Revaluation

Share Revaluation

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We have a client who we have taken over this year. Previously their bookkeeper did their accounts (enough said) and we have uncovered more holes than in a Swiss cheese.

One issue I would like to run past you all is about the new shares they have issued.

They needed to increase their Share Capital from £2 (2 x £1 Shares) to £30,000, but instead of just issuing 29,998 new £1 Shares for some reason the Bookkeeper changed the nominal value to £7,500 per share and then added 2 new ones, leaving them now with 4 x £7,500 shares. But I wanted to get some second opinions on how to account for this in the annual report, as I've not come across something like this since college!

No cash has been paid in yet as the director didnt realise he would have to pay for these new shares. And how would I best treat the revaluation of the existing shares from £1 to £7,500?

Help please.

Replies (3)

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Euan's picture
By Euan MacLennan
16th Oct 2012 09:54

Nominal value

When you say "Bookkeeper changed the nominal value to £7,500 per share", was it just a book entry or was a Special Resolution passed to amend the Articles, with the resolution and amended Articles being filed at Companies House.  If the latter has not occurred, you can ignore any change to the nominal value, which remains at £1, per the original Articles (I assume).

Perhaps, you could have 4 £1 shares with 2 x £14,999 of share premium for the extra 2 shares.

Either way, if it is the director to whom the additional £29,998 of share capital is being issued, the book entry has to be CR Share Capital (or Share Premium) and DR Director's Loan Account.  If he isn't going to pay for the shares, you will have to consider s.455 tax on the loan to the participator.  He cannot expect the advantage of being able to show a share capital of £30,000 if he does not pay for it.

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By CWS
16th Oct 2012 14:11

Thanks for the reply Euan.

The Bookkeeper didnt file any changes with Companies House at the time, but since then their Annual Rturn has been filed, with the revised 4 x £7,500 shown in that. They could now change this back, but as their year-end has passed we need to disclose the share situation as at that date.

The bookkeeper put through CR Share Capital DR P&L Reserve, but I had already changed this to what you have confirmed which is DR Directors Loan instead. He wasn't particularly happy to hear that he now has to find £30k to buy these shares but there you go.

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Replying to Ruddles:
Euan's picture
By Euan MacLennan
16th Oct 2012 16:31

Further comments

CWS wrote:

The Bookkeeper didnt file any changes with Companies House at the time, but since then their Annual Rturn has been filed, with the revised 4 x £7,500 shown in that. They could now change this back, but as their year-end has passed we need to disclose the share situation as at that date.

Nobody pays much attention to the Annual Return - if Companies House did, they would have picked up the lack of amended Articles and form SH01 for the allotment of the two extra shares.  I would not make the accounts fit whatever may have been disclosed on the Annual Return.

 

CWS wrote:

The bookkeeper put through CR Share Capital DR P&L Reserve, but I had already changed this to what you have confirmed which is DR Directors Loan instead. He wasn't particularly happy to hear that he now has to find £30k to buy these shares but there you go.

Not sure exactly what you mean by P&L Reserve, but if there are retained profits of £30K, you could credit a dividend of £30K to his DLA, assuming that he is the sole shareholder.  It would cost him nothing apart, perhaps, from some higher rate tax.

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