I think I am going mad... may I run this by you? I do bookkeeping for a guy and his father in law does the accounts.. he is an accountant in a chartered firm
So every year he makes adjustments, and doesnt tell me what they are. So I have been looking at the accounts to work it out.
P&L note says:
Bal bfwd (10,222)
Profit for year 6,659
Dividends 9,725
Bal c/fwd (13,288)
Does anybody else think that's a little bit strange?? A £10,222 loss followed by a £6,659 profit, means there are negative reserves of £3,563, and so dividends cant be taken at all??
Having looked into this a bit more, I am assuming the dividend is deemed to have been voted in a period where the opening negative balance plus profits, up to a certain month, gave a positive reserve... but the accountant hasn't asked me for anything to see that!
I've seen it before where people have taken dividends throughout the period on the basis of an eventual profit that never materialised.
As you say, there apears to be neither the profits or reserves to justify that current period dividend.
Maybe worth talking to the father in law as perhaps there's a compeletely legitimate explanation... I can't think of one but I'm in a generous mood today so not going stright to it being an illegal dividend (#1).
On the bright side the accounts and tax return are in their ball court but its still not nice to have an elephant like that sitting in the books.
kindest regards,
Shaun.
#1 in the case of PA Holdings vs HMRC (2012) the illegal dividend was reclassified as salary so it may be wise to advise risking carrying over a DLA to be cleared by a current period dividend (assuming that there are profits this year?)... As I say, have a chat with the chartered as really the problem is theirs not yours (you have done everything that you can in bringing the issue to their attention).
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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.
I know someone has won the argument that at X date the reserves were positive, and so a dividend was voted in accordance with that... but then "this, this and this" happened later in the year, so reserves went negative again, by the year end. That wasn't considered illegal. Just a bit bizarre that he hadn't asked for a monthly PL report to confirm he could do that! And I doubt he would have done a manual check of the GL!! Like you say, not my problem!
They also reduced creditors by £1100 last year, and wouldn't tell the client why, despite asking a few times - all creditors were paid up after the year end... and they haven't adjusted for it this year either. Maybe I am being picky, but thats just annoying!
Interestingly, the dividend note narrative says "dividends proposed" - I didnt think you could have them any more? Only paid? (which of course, we just say they are, as they hit the DLA?)
