Accounting for Share Capital Notes5

Study Material & Notes for the Chapter 8

COMPANY - ACCOUNTING FOR SHARE CAPITAL

V.  CALLS IN ARREARS AND CALLS IN ADVANCE

A.  Calls in Arrears
Meaning

Sometimes, the full amount called on allotment and/or call (calls) is not received from the allottees/shareholders. 

When any shareholder fails to pay the amount due on allotment or on any of the calls, such amount is known as ‘Calls in Arrears’/‘Unpaid Calls’.

Accounting treatment

There are two ways to treat Calls-in-Arrears.

Method-1

Amount not received towards allotment or calls is debited to a newly opened account ‘Calls-in-Arrear Account’

Subsequently, when the arrear/unpaid amount is received, Bank A/c is debited and the Calls-in-Arrear A/c is credited.

Method-2

Under this method, Calls-in-Arrears A/c is not opened.

Whatever amount is received from the shareholder is credited to the call account.   The call account will show a debit balance equal to the unpaid amount of the call

Subsequently, when the arear/unpaid amount is received, Bank A/c is debited and the relevant call A/c is credited.

Interest

Interest can be charged on unpaid calls for the period intervening between due date of the call and the time of actual payment at the rate specified in The Articles of Association of the company 

If the Articles of Association is silent, interest can be charged @ 10% p.a. as per Table F of Schedule I of the Companies Act, 2013

The Directors of the Company have the right to waive this interest payment either wholly or partially

Disclosure in the Balance Sheet

Calls in Arrears is an Assets and is clubbed under the sub-head ‘Shareholder Funds’ and disclosed as below

  1. Share Capital:

Shareholders Funds

Disclosure in the Notes to the Accounts
  1. Shareholders Funds:

Subscribed Capital

Subscribed but not Fully Paid up

…… Equity/Preference Shares of Rs. .…. each, Rs. ..… called up

Less: Call in Arrears

Accounting for Share Capital Topic-5_1
B. Calls in Advance
Meaning
  • Sometimes shareholders pay a part or the whole of the amount of the calls not yet called-up by the Company on the shares allotted to them.
  • Such amount paid by a shareholder in the excess of the amount due from him on allotment/calls is known as ‘Calls in Advance’
Accounting treatment
  • Amount received towards call in advance is credited to a separate account ‘Call in Advance Account.” 
  • The amount received towards Call in Advance is adjusted subsequently towards the payment of calls as and when they becomes due.
  • The amount of particular calls in advance is deducted from the particular calls by debiting the Calls in Advance A/c
Interest
  • Interest shall be paid on calls money received in advance for the period intervening between due date of the call and the time of actual payment at the rate specified in The Articles of Association of the company 
  • If the Articles of Association is silent, interest can be paid @ 12% p.a. maximum as per Table F of Schedule I of the Companies Act, 2013
Disclosure in the Balance Sheet

Calls in Advance is a liability of the Company, it is clubbed under the sub-head ‘Other Current Liabilities’ and disclosed in the Balance Sheet in the following manner

4. Current Liabilities:

(C)Other Current Liabilities

Distinction between Calls in Arrears and Calls in Advance