Going concern

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Jmann
Jmann Registered Posts: 68 Regular contributor ⭐
in General accounting discussion
I am preparing the accounts for a limited company and it has negative balance sheet value. There are two creditors; (1) A director has given personal guarantee to one of the creditors, (2) And director disputing the whole amount due to the other creditor.

The director thinks, they they do not need to pay the second creditor, they have some on order on book and planning to carry on trading. They do not have much in bank balance.

I just want to make sure I follow the rules and cover my back. So just wondering what I need to do in this situation. Prepare the accounts on going basis and get the undertakings from the director that it is going concern?

Regards
JM

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  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    Jmann wrote: »
    I am preparing the accounts for a limited company and it has negative balance sheet value. There are two creditors; (1) A director has given personal guarantee to one of the creditors, (2) And director disputing the whole amount due to the other creditor.

    The director thinks, they they do not need to pay the second creditor, they have some on order on book and planning to carry on trading. They do not have much in bank balance.

    I just want to make sure I follow the rules and cover my back. So just wondering what I need to do in this situation. Prepare the accounts on going basis and get the undertakings from the director that it is going concern?

    Regards
    JM

    Sounds sensible.

    You should probably add a "basis of preparation" note in the accounting policies section, saying something to the effect of the accounts have been prepared on a going concern basis as in the opinion of the director the creditors will continue to support the company. Or something like that.
  • wildgoose1uk
    wildgoose1uk Registered Posts: 200 Dedicated contributor 🦉
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    You need to get a written undertaking from the director guaranteeing that he will provide funds to cover the debt. I am unclear how this could be enforced though and it would be better if the Directors injected sufficient funds to cover the debt. Not sure the written undertaking is actually enough.

    To be honest it sounds a bit dodgy to me. One director saying he will cover the amount and the other director saying the other creditor is not sure any money......

    Are you just preparing the accounts or are you putting your firm's name to them?..... Not sure I would put mine.
  • stevo5678
    stevo5678 Registered Posts: 325
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    The basis of preparation disclosure is perfectly fine. I have seen a negative balance sheet tick over in the tune of nearly £1m for several years!

    It helps when the loan account creditor is greater then the balance sheet deficit but a disclosure in these instances is normally adequate. It is not an audit so you don't need to start delving deeper.

    Thanks

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