Directors Loan Accounts

M

Mo Chara

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Hi

Drafting a set of accounts (audit exemption) for a family member. He has lent some money into the business for cashflow reasons, to be classified as a directors loans account.

Just to confirm my understanding of how to present on balance sheet. Should be presented as a current liability rather than as a long term liability in the capital and reserves section?

Is separate disclosure required in the notes to the accounts and if so what level of detail?

Thanks
 
Normally the balance on the directors account fluctuates year to year
Include in Creditors due within one year

In the note to the account include in breakdown as directors account
 
This is not necessarily the case. Directors loan balances can be included in long term liabilities if the directors are willing to state that they will not seek repayment of the loans within 1 year. What this does it provide the company with less going concern issues as they will not be obliged to pay back the directors in less than 12 months. A note to this effect needs to be placed on the accounts.
 
I have a small business that is part financed by a loan from me to the company.

Now I wish the company to repay the loan to me.

My question is; do I show the repay as an administration expense, so that it appears in the P&L?

I think I should, otherwise say I have Sales of €100K & admin expenses of €50K, then I have a trading profit of €50K and must pay corporation tax on €50K. But if the €50K came from a director's loan & the company repays the director's loan then there is zero money to pay the corporation tax.

So I think the repay of the director's loan should be shown in the P&L as an expense.

Am I correct?
 
johntheboard said:
I have a small business that is part financed by a loan from me to the company.

Now I wish the company to repay the loan to me.

My question is; do I show the repay as an administration expense, so that it appears in the P&L?

I think I should, otherwise say I have Sales of €100K & admin expenses of €50K, then I have a trading profit of €50K and must pay corporation tax on €50K. But if the €50K came from a director's loan & the company repays the director's loan then there is zero money to pay the corporation tax.

So I think the repay of the director's loan should be shown in the P&L as an expense.

Am I correct?
Click to expand...
No,
you repay the loan out of profit, any interest charged can go in the P&L
 
hhhhhhhhhh thanks for responding but I can't get my brain around this

example
Sales €100K
Admin expenses €50K
Trading profit €50K
Corporation tax on profit of €50K = €12.5K
Retained earnings €37.5K

So the company cannot repay the €50K out of retained earnings of €37.5K so how does this work?

Thanks...John
 
Think of it this way. When the loan was put intot he company in the first place, where did it go in the accounts ? It probably went into the current account and was used to buy goods or pay expenses which were themselves claimed in the P&L. The repayment of the loan does not go in again. You would be double counting it.
 
Obviously, the refund of loan to director must be done and deducted from net profit after tax
 
johntheboard said:
hhhhhhhhhh thanks for responding but I can't get my brain around this

example
Sales €100K
Admin expenses €50K
Trading profit €50K
Corporation tax on profit of €50K = €12.5K
Retained earnings €37.5K

So the company cannot repay the €50K out of retained earnings of €37.5K so how does this work?

Thanks...John
Click to expand...
Corporation tax on profit of €50K = €6.25K

You repay the loan when you have enough money to do it.
Loan is used to fund expenses that go in the P&L.

Not related but companies can have a negative cashflow due to the purchase of machinery, still make a profit and have to pay corp. tax.
 
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