Calls in Arrears and Calls in Advance

Calls in Arrears

Calls in Arrears refers to the amount called by the company which is not paid by the shareholders before the due date fixed for the payment. Such amount is transferred to an account calls in arrears account from the call account.

In other words, calls in arrears are the situation when the shareholder fails to pay the called money in the allocated time by the company. If a shareholder fails to pay the due amount of share allotment or calls, the unpaid amount of share is called ‘calls in arrears’. There are two alternative methods of accounting treatment for calls in arrears. These methods are as follows:

1. Showing calls-in –arrears account: Under this method, the amount of unpaid share amount is shown in calls in arrears account.
2. Without showing calls-in-arrears account: Under this method, the amount of unpaid share amount is not shown in calls in arrears account. The debit balance remaining in share allotment and calls account represents the amount of calls in arrears.

Illustrations 1:

Archana Co. Ltd. issued 5,000 shares of Rs.100 each for public subscription. The share money payable was on application Rs.30, on allotment Rs.40 and on first and final call Rs.30 per share. All the shares were applied for allotted and the money was duly received except from Mr. Bhattarai, a shareholder, who failed to pay first and final call money on 200 shares.

Required:Journal entries

Solution:

Illustration 2:

Snowland Co. Ltd. Registered with an authorized capital of Rs.10,00,000 divided into 10,000 equity shares of Rs.100 each. The company issued 5,000 equity shares. The shares money payable was Rs.25 on application, Rs.50 on allotment and Rs.25 on first and final call.

Snowland Co. Ltd. Registered with an authorized capital of Rs.10,00,000 divided into 10,000 equity shares of Rs.100 each. The company issued 5,000 equity shares. The shares money payable was Rs.25 on application, Rs.50 on allotment and Rs.25 on first and final call.

All the shares applied for were allotted. All the money was duly received except from Mr. Arjun a shareholder, to whom 300 shares were allotted failed to pay the first and final call money. Another shareholder, Mr. Pradeep, to whom 300 shares were allotted failed to pay first and final call money. The expenses on issue were Rs.3000.

Required: Journal entries

Solution:

Calls in Advance

A company calls for money when needed with a certain date. Some shareholders pay the money ahead of the allocated time with their first installments. So, this payment is known as calls in advance. So, the payment of the future call money is known as calls in advance by the shareholders of the company.

The company receives the amount of shares in different installments. Sometimes, the company may receive the uncalled amount of installments in advance as well. The amount of installments which have not been called up but received is known as calls-in-advance. The uncalled share amount received in advance is credited to calls in the advance account. The credit balance of calls-in-advance account is shown on the liability side of the balance sheet till it is fully transferred to subsequent installment for which it was received.

The uninvited first call money may be received along with the amount of allotment and the uninvited second and final call money may be received along with the amount of first call. The amount of calls-in-advance may also result due to the excess application money retained for adjusting in allotment and subsequent calls.

Illustrations 1:

Kantipur Finance Co. Ltd. Has an authorized share capital of Rs.2,00,000 divided into 20,000 equity shares of Rs.10 each. The company issued all the shares at 10% premium. The amount payable on application was Rs.4, on allotment Rs.3 (including premium) and balance on first and final call.

All the shares were subscribed and allotted. Mrs. Anita, a shareholder, to whom 200 shares were allotted paid the entire balance with the amount of allotment.

Required: Journal entries

Solution:

Illustrations 2:

Silver Nepal Ltd. offered 10,000 shares for public subscription at Rs.110 per shares. The payable amount was as follows:

On application: Rs.30

On allotment: Rs.40

On first call: Rs.20

On Second and final call: Rs.20

All the shares were subscribed and allotted. Mr.Nilam, a shareholder, who held 400 shares paid the entire money with the amount of allotment. Another shareholder, Mr.Ashutosh, who held 200 shares paid the amount of second and final call along with the amount of final call.

Required: Journal entries

Solution:

Note: The journal entry for the second and final call advance deposit made by Mr. Ashutosh @Rs.20 each for 200 shares prepared separately since calls in advance amount is debited for drawing the first call amount of 400 shares deposited by Mr. Nilam along with allotment money.

Illustration 3:

Oxford Co. Ltd. Invited application for 40,000 shares @ Rs.10 each. The amount payable per share was as follows:

On application: Rs.2

On allotment: Rs.3

On First call: Rs.3

On second and final call: Rs.2

All the shares were subscribed and allotted. Mr. Shankar, a shareholder, to whom 5,000 shares were allotted, paid the entire balance with the amount of allotment.

Required: Journal entries

References:

Koirala, Madhav et.al., Principles of Accounting -XII, Buddha Prakashan, Kathmandu

Shrestha, Dasharatha et.al., Accountancy -XII, M.K. Prakashan, Kathmandu

Bajracharya, Puskar, Principle of Accounting-XII, Asia Publication Pvt. Ltd., Kathmandu