For example sake: there were 4 companies (A,B,C,D) as year ended 31/12/14, with inter company transactions between them
as at 31/12/15, Only A exists and B,C,D will become dormant
I've been told that all assets and liabilities should be journalled across as at 01/01/15 via intercompany (intercompany A,B,C,D liability accounts) , e.g. from company B (Cr positive Bank balance, Dr intercompany) then in A (Dr Bank, Cr intercompany)
I'm wondering what should remain in the dormant accounts? (share cap? retained earnings?)
what should remain in the intercompany balances of A?
what should should the end picture be like? ( should the intercompany balances show the balances TO be transferred or should they just all be 0 and cancel out?
There are two definitions of what a dormant company is.
Companies house definition states that there should be no significant transactions where HMRC's idea of a dormant company is one that is not trading. I feel that your company is looking only at the HMRC definition.
The money in the bank accounts of companies B, C and D belongs to companies B, C and D. It can be transferred between entities but such transactions would be unwound in preparing consolidated accounts as the money does not belong to company A unless such is the result of an inter company dividend or other payment effectively transferring ownership of the money.
Looking at the transactions you describe it would seem that the client simply wishes the money to all appear in one place possibly due to the issue that dormant accounts are not concatenated in the group accounts so the face comparrison would be somewhat adverse.
It would seem to me that the transfer is in fact a loan where companies B, C and D become creditors to company A that matches the increased bank balance with a current liability for the sum of the loan and the three other group members recognise company A as a debtor.
As mentioned above, in the group accounts dormant companies are not usually included which is perhaps why the directors want to show the transfer of funds so that there is no significant fall in cash position. However, as the intercompany transactions would need to be backed out in producing the group accounts that would annul that effort.
Conversely the seperate accounts of A alone would not need to show the reversed transactions but would rather show an increased bank balance but that would be matched by increased creditors.
The accounts of B, C and D would continue to show their current position with the exception that the bank balance becomes a debtor figure. If there is any need for a P&L (rather than simply the production of an empty document) then a company is not truly dormant. However, we have only been talking about balance sheet movements above.
Now whilst the above satifies HMRC's definition of a dormant company I personally am not convinced that it satisfies the companies house definition.
This is not a merger as the client is keeping the dormant companies (possibly for brought forward losses?).
Hope that this inspires a debate as dormant companies and group accounts are something that hasn't been covered very much on here.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
