Write short note on Calls-in-Arrears and Calls-in-Advances.
Calls-in-Arrears : If any amount has been called by the company either as allotment or call money and a shareholder has not paid the money, such amount not received is known as calls-in- arrears.
Rate of Interest : The company is authorised to charge interest on the Calls-in-Arrears at a rate specified in the Articles of Association from the last date fixed for payment to the date of payment. But if the Articles of Association are silent, Table A shall apply, which empowers the Board of Directors to charge interest at a rate not exceeding 5% per annum.
Disclosure in Balance Sheet : The amount of the Calls-in-Arrears is shown by way of deduction from the called-up capital in the Balance Sheet. Accounting Treatment of Calls-in-Arrears
There are two methods of dealing with the Calls-in-Arrears :
Without Opening the Calls-in-Arrears Account : Under this method, there is no need to pass any Journal entry for the Calls-in-Arrears because the difference between the entry of the call money due and call money received will clearly indicate the amount of the Calls-in-Arrears.
By Opening the Calls-in-Arrears Account : The alternative method to treat the Calls-in-Arrears is by opening a ‘Calls-in Arrears Account’. If the amount of calls has not been paid by some shareholders, the Calls-in-Arrears Account is debited. In this case, allotment and other call accounts will not show any balance but the Calls-in-Arrears Account will show a debit balance equal to the total unpaid on various instalments. If later on any amount is received, it is credited to the Calls-in-Arrears Account.
The Accounting Entries will be : The following accounting entries are passed regarding Calls-in-Arrears.
- On non-receipt of call till the day fixed:Calls-in-Arrears A/c Dr. [With the amount not paid] To Relevant Call A/c (Being the amount not received in class transferred)
- On receipt of Calls-in-Arrears at a subsequent date:Bank A/c Dr. [With the Calls-in-Arrears received] To Calls-in-Arrears A/c (Being the amount received on Calls-in-Arrears)
Calls-in-Advance : Calls-in-Advance means the amount received by the company towards Call Money where it has not yet called to be paid by the shareholders.
Calls-in-Advance generally arises when there is an over subscription of shares. Here, the excess application money received is adjusted against the amount due on allotment or calls. The excess application money after adjust¬ment for allotment is transferred to an account named as Calls-in-Advance Account, if the articles so provides. Sometimes, few shareholders may prefer to pay the entire amount at the time of allotment. In such a situation, the advance money in respect of future call(s) is also transferred to Calls-in-Advance Account.
The Journal entry passed to record this is:
Bank A/c To Calls-in-Advance A/c Dr. [With the amount of calls money received in advance]
It is adjusted as and when the respective call is due and made. The entry is:
To ,(Say) Share First Call A/c
It should be noted that Calls-in-Advance does not form a part of the company’s share capital and no dividend is payable’on such amount. In the Balance Sheet, it should shown on the liabilities side under the head current liabilities as ‘Calls-in-Advance’.
Interest on Calls-in-Advance : Interest may be paid on Calls-in-Advance if Articles of Association so provide. If the company has adopted Table A, then it is required to pay interest @ 6% p.a. from the date of receipt of the due date.