Readers' forum : Credits and debits

Some years ago two individuals – A and B – formed a company in which each owned half the shares. They were also appointed as directors. Director A borrowed money from a bank and this was loaned to the company which used it to buy equipment. The plan was that the company would make to A monthly repayments of capital and interest of the same amount that she was paying to the bank. B spent most of his time working in the business. While A made all the payments to the bank the company had cashflow problems and was unable to make all the payments to her.

When preparing the accounts I put the interest accrued through the profit and loss account crediting A’s account. In the corporation tax computation I disallowed this amount because it was interest to a connected person and not paid....