Transferring sole-trader loan to limited company

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helpme
helpme Registered Posts: 2 New contributor 🐸
in General accounting discussion
I have a client who was trading as a sole-trader then incorporated in 2010.

I am doing the year end accounts and note there is a loan taken out in 2009 by the sole-trader which was transferred to the limited company on incorporation. The value of the loan on the date of incorporation is £11800 but an estimated Market Value of the van purchased with it is only £11000. Does anyone see any problems with this scenario as I think the double entry will be:

Credit Director's Loan 11,000
Debit Vehicles 11,000
Debit Director's Loan 11,800
Credit Loan 11,800

Thanks in advance for your help.

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  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Unless they refinanced I would be very surprised if the loan is in the company's name at all.
  • helpme
    helpme Registered Posts: 2 New contributor 🐸
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    The loan was transferred to the company.
  • groundy
    groundy Registered Posts: 495 Dedicated contributor 🦉
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    Don't forget the sale of goodwill from Sole Trader to Limited Company
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    deanshepherd wrote: »
    Unless they refinanced I would be very surprised if the loan is in the company's name at all.
    But if it has been novated, are those accounting entries correct?

    I think they are, but it seems odd to debit a DLA on incorporation. The Dr is either to DLA or Goodwill, I would have thought. For some reason I can't get my head round this one.

    Goodwill is only relevant (imo) if it's free goodwill. Though, if it's not free goodwill, I guess a debit to GW is better than to DLA, even though it's not allowable for tax. Gah. Monday. Noodle baked.

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