top up capital via debt due

top up capital via debt due by company, will it can affected the retained earning?

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 my boss wanted to top up the capital via amount due to directors , is it possible ? could it affect the retained earning? what is the double entry ?

 DR Amount due to directors 

CR Share capital

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By WhichTyler
24th Dec 2019 07:24

I suggest your boss speaks to their accountant

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By johngroganjga
24th Dec 2019 10:57

Your entry is basically right, but there are formalities to go through to issue the new shares first. The accounting entry reflects the issue of shares. It does not of itself effect the new issue.

Why do you think it might affect retained profits?

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Accountants & Business Advisers
By Gladstone
24th Dec 2019 12:45

To add to what others have suggested, if no additional shares issued for the top-up, the entry will be a credit to Share Premium Account (instead of Share Capital). A simple contribution agreement and a board resolution authorising this will suffice.

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Replying to Gladstone:
By johngroganjga
24th Dec 2019 16:39

Do you mean the capital contribution can be treated as further consideration for shares issued in the past, which was not foreseen at the time of that issue? I have never seen such a transaction.

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Replying to johngroganjga:
Accountants & Business Advisers
By Gladstone
24th Dec 2019 16:59

What I understood from the query is that an owner or shareholder (term used as "boss") want to top-up capital ie capitalise further using a DLA which in this case is a negative balance on the balance sheet (payable to director [***] shareholder) of the entity in question. If this is the case, yes further capital contribution can be done without issuing any shares. It will be a non-statutory form of capital which increases the equity and improves gearing.

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Replying to Gladstone:
By johngroganjga
24th Dec 2019 17:07

If it’s non-statutory capital, it’s presumably outside the scope of the Companies Act (which will be why I have never heard of it). So we are into free-for-all, make-it-up-as-you-go-along territory? The creditor presumably just self-declares it to be new capital without relinquishing his right to claim repayment on demand?

I think the DLA is a credit balance by the way. I don’t know what “negative” means in this context.

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Replying to johngroganjga:
Accountants & Business Advisers
By Gladstone
24th Dec 2019 17:59

Yes, it is outside the scope of Companies Act, however, in practice it is still part of equity and sits under equity on balance sheet. Correct, creditor relinquishing his right to claim the amount.
As regards DLA, I meant credit balance only (ie negative balance based on conventional signage).

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By Montrose
27th Dec 2019 15:07

Reading the discussion so far, this looks like a "capital contribution", much loved by US companies.

Look at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg43500

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