A really stupid question

This is as per the title.

Can a company spend its share capital?

I understand that the share capital transaction can not be a straight Dr Share cap. Cr Bank.

Together with share capital can not be distributed via a dividend.

But if a company has £100 share capital in the bank, and the account goes overdrawn the company has spent the cash.

The answer is most likely a yes of course, it's an investment in the company so the company can do as it sees fit

Thank you
TaxManager

Comments

  • wills135wills135 Registered Posts: 26
    Anybody?
  • MickdundeeMickdundee LondonRegistered Posts: 74
    edited April 19
    Those in the MIP section frequently ask stupid questions. I emphasise, frequently!
    When you are a student, no question is stupid. Continue asking away.

    You need to look at the balance sheet and how the profit & loss interacts with it. And vice versa.

    Think about the transactions and what has happened. For example, if the accounts is overdrawn, why is it overdrawn?

    Day 1
    Dr bank £100
    Cr share capital £100

    Day 2
    Spend £1100 on a new computer using £1000 overdraft facility.

    Dr Asset £1100
    Cr bank £100 (reduces the bank balance to £0)
    Cr bank £1000 (changing the bank from an asset to a liability.

    The share capital is unaffected by the transaction.


    The balance sheet would look like:

    Dr Asset £1100

    Cr Liability £1000

    Cr Share capital £100 (unchanged)

    Does this help?
    wills135Zoynal98
  • wills135wills135 Registered Posts: 26
    Lovely thank you.

    I'm not sure why but I thought that maybe the share capital was sort of ring fenced and it written somewhere that the initial £100 could never be spent.

    But then if a company ever goes overdrawn then clearly the amount has been spent.

    You've helped greatly.

    Thank you
  • wills135wills135 Registered Posts: 26
    I pay Kaplan for my distance learning course and I ask questions of them yet I'm told that they will only answer questions based around the study text.

    That's all good and well, I suppose, but without the privilege of being in a classroom, and having a tutor to bounce questions off it does leave many questions unanswered.

    I appreciate people like yourself Mick who offer your knowledge on forums such as this.

    Mickdundee