CALLS-IN-ADVANCE AND INTEREST ON CALLS-IN-ADVANCE

CALLS-IN-ADVANCE AND INTEREST ON CALLS-IN-ADVANCE :

If authorised by the articles, a company may receive from a shareholder the amount remaining unpaid on shares, even though the amount has not been called up. This is known as calls-in-advance. It is a debt of a company until the calls are made and the amount already paid is adjusted. Calls-in-advance may also arise when the number of shares allotted to a person is much smaller than the number applied for and the terms of issue permit the company to retain the amount received in excess of application and allotment money. Of course, the company can retain only so much as is required to make the allotted shares fully paid ultimately. The calls-in-advance account is ultimately closed by transfer to the relevant call accounts. It is noted that the money received on calls-in-advance does not become part of share capital. It is shown under a separate heading, namely ‘calls-in-advance’ on the liabilities side. No dividend is paid on calls-in-advance.

Accounting Treatment

The amount received as calls-in-advance is a debt of the company, the company is liable to pay interest on the amount of Calls-in-Advance from the date of receipt of the amount till the date when the call is due for payment. Generally the Articles of the company specify the rate at which interest is payable. If the articles do not contain such rate, Table A will be applicable which leaves the matter to the Board of directors subject to a maximum rate of 12% p.a.

It is to be noted that the interest payable on Calls-in- Advance is a charge against the profits of the company. As such, Interest on Calls-in-Advance must be paid even when no profit is earned by the company.

Accounting Treatment

Note: The liability to sundry shareholders is to be treated as outstanding liability and should be shown under the head “Current Liabilities” in the balance sheet.

Illustration:

Newlook Ltd. issued, 1,00,000 Equity Shares of Rs.10 each payable as follows:

On Application (On 1st March, 2012) Rs.4
On Allotment (On 1st April, 2012) Rs. 1
On First Call (On 1st August, 2012) Rs. 3
On Final Call (On 1st October, 2012) Rs. 2

Application were received for 2,60,000 shares. Of these 10,000 shares were in disorder; 40,000 shares in lots of 100 shares; 1,20,000 shares in lots of exceeding 100 but less than 500 shares; 60,000 shares in lots of exceeding 500 but less than 1,000 shares and the balance in lots of exceeding 1,000 shares.

Allotment was made as follows:
Application for the 10,000 shares in disorder were rejected.
Application for 100 shares in full, i.e. 100% 40,000
Application over 100 shares but not exceeding 500 shares – 40% 48,000
Application over 500 shares but not exceeding 1,000 shares – 15% 9,000
Applications over 1,000 shares – 10% 3,000

Money received in excess on shares partially allotted was retained to the extent possible. Show the cash book and journal entries assuming that all the installments were duly received and interest was paid by the directors on calls-in-advance @ 6.1% per annum on 1st October, 2012.

Solution:

Dr. Cash Book (Bank Columns) Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
1.3.2012	To Equity Share Application A/c (application money @ Rs.4 per share)	10,40,000	1.4.2012	By Equity Share Application A/c (refund of application money)	2,80,000

1.4.2012	To Equity share Allotment A/c (balance of allotment money)	40,000	1.10.2012	By Interest on Call in Advance A/c (interest @ 6% onRs.1,80,000 for 4 months = 3,600 and on Rs.1,20,000 for 6 months – Rs. 3,600)	7,200

1.8.2012	To Equity Share 1st Call A/c (balance of share 1st call money)	1,20,000	1.10.2012	By Balance c/d	9,92,800

1.10.2012	To Equity Share Final A/c	80,000			___________
		12,80,000			12,80,000

Journal Entries

*Date*	*Particulars*	*Dr. (Rs.)*	*Cr. (Rs.)*
1.4.2012	Equity Share Application A/c Dr.	4,00,000
	To Equity Share Capital A/c		4,00,000
	(Being the application money on 1,00,000 shares transferred to share capital account)
1.4.2012	Equity Share Allotment A/c Dr.	1,00,000
	To Equity Share Capital A/c		1,00,000
	(Being the allotment money due in respect of 1,00,000 equity shares @ Re. 1 per share)
1.4.2012	Share Application A/c Dr.	3,60,000
	To Share Allotment A/c		60,000
	To Calls in Advance A/c		3,00,000
	(Being the transfer of surplus application money received on
	60,000 shares)
1.8.2012	Equity Share 1st Call A/c Dr.	3,00,000
	To Equity Share Capital A/c		3,00,000
	(Being the 1st call money due on 1,00,000 equity shares @
	Z 3 per share)
1.8.2012	Calls-in-Advance A/c Dr.	1,80,000
	To Equity Share 1st Call A/c		1,80,000
	(Being the amount transferred from calls in advance account)

Date	Particulars	Dr. (Rs.)	Cr. (Rs.)
1.10.2012	Equity Share Final Call A/c Dr.	2,00,000
	To Equity Share Capital A/c		2,00,000
	(Being the final call money due on 1,00,000 equity share @ Z 2 per share)
1.10.2012	Calls-in-Advance A/c Dr.	1,20,000
	To Equity Share Final Call A/c		1,20,000
	(Being the amount transferred from calls-in-advance account)

Working Note

Statement showing the adjustment of Application Money and
Calls in Advance Money

Shares applied	Shares alllotted	Amount received on appli- cations	Amount due on appli- cations	Balance of appli-cation money	Amount due on allotment	Amount received on allotment	Surplus to be trans-ferred to calls-inadvance
1	2	3	4	5	6	7	8
		Rs.	Rs.	Rs.	Rs.	Rs.	Rs.
10,000	Nil	40,000	Nil	Nil	Nil	Nil	Nil
40,000	40,000	1,60,000	1,60,000	Nil	40,000	40,000	Nil
1,20,000	48,000	4,80,000	1,92,000	2,88,000	48,000	Nil	2,40,000
60,000	9,000	2,40,000	36,000	2,04,000	9,000	Nil	45,000
30,000	3,000	1,20,000	12,000	1,08,000	3,000	Nil	15,000
2,60,000	1,00,000	10,40,000	4,00,000	6,00,000	1,00,000	40,000	3,00,000

Amount to be refunded	Amount _{due to 1}st *call*	Calls-in- Advance to be adjusted against 1^st call	Amount payable on 1^st call	**Surplus remaining in calls in advance**	Amount due on final call	*Calls-in- advance to be adjusted against final call*	Amount payable on final call
9	10	11	12	13	14	15	16
Rs.	Rs.	Rs.	Rs.	Rs.	Rs.	Rs.	Rs.
40,000	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Nil	1,20,000	Nil	1,20,000	Nil	80,000	Nil	80,000
Nil	1,44,000	1,44,000	Nil	96,000	96,000	96,000	Nil
1,50,000	27,000	27,000	Nil	18,000	18,000	18,000	Nil
90,000	9,000	9,000	Nil	6,000	6,000	6,000	Nil
2,80,000	3,00,000	1,80,000	1,20,000	1,20,000	2,00,000	1,20,000	80,000

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