In this article we will discuss about the accounting entries for call-in-arrears and calls-in-advance, explained with the help of an illustration.
If any amount, called in respect of a share, is not paid before or on the date fixed for payment thereof, such amount which is not paid, is called “CALLS-IN-ARREARS”. Amount may be called up by the Company either as Allotment Money or Call Money. Thus, in case, any default on account of not sending the call money, is known as “CALLS-IN-ARREARS” and separate account i.e.
Calls-in-Arrears Account to be opened. The company can charge interest on all such calls in arrears for the period the amount remain unpaid at the rate of 5% p.a. The total of Calls- in-Arrears is shown in the Balance Sheet as a deduction from the Called up Capital.
Calls In Advance:
The Money received by the company in excess of what has been called up is known as “CALLS IN ADVANCE”. A Company may, if authorised by its Articles, accept calls in advance from its shareholders. If such an amount, which has not been called, is received, such amount to be credited to a separate account known as CALLS-IN-ADVANCE ACCOUNT.
But this amount which is not called should not be credited to Capital Account. A company may pay interest on such amount received in advance at the rate of 6% p.a. No dividend is payable on this amount. The amount so received will be adjusted towards the payment of calls as and when they become due.
Illustration (Calls-in-Advance and Calls-in-Arrears):
Bharat Limited was registered with a Nominal Capital of Rs. 5,00,000 in shares of Rs. 100 each 3 000 of which were issued for subscription, payable as to Rs. 12.50 on application Rs. 12.50 on allotment and Rs. 25 three months after the allotment and the balance to be called up as and when required.
All moneys up to allotment were duly received, but as regards the call of Rs 25, a shareholder holding 100 shares did not pay the amount due. Another shareholder who was allotted 150 shares paid the entire amount of the shares.
Show the necessary journal entries to record the above transactions (including cash) and show how these appear in Balance Sheet.
Interest on Calls-In-Advance:
Advance money received in respect of future calls should be transferred to calls-in-advance account and it is adjusted when actually calls are made. Interest on calls-in-advance is paid at a specified rate, as provided in the Articles of association. Table ‘A’ of Companies Act provides payment of interest on calls-in-advance @ 6% p. a.
Interest on Calls-In-Arrears:
Articles of association may empower the directors to charge interest if the calls are not paid on due date. Table ‘A’ of companies act provides, interest to be charged on such calls @ 5% p.a. from the date when installment became due to the date of actual payment.