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. When calls are made, 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 (i) On receipt of call money in advance: Bank                                                                     Dr. (with the amount of call money received in advance) To Call-in-Advance A/c (Being the calls received in advance) (ii) As and when calls are made:  Calls-in-Advance A/c                                           Dr. (with the amount adjusted on relevant call becoming due To Relevant Call A/c

 

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 F of the Companies Act, 2013 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.

(i) If Interest on Calls-in-Advance is paid in cash –   Interest on Calls-in-Advance A/c                                                              Dr. (with the amount of interest paid) To Bank

 

(Interest on Calls-in-Advance paid @ …..% p.a. on Rs……….. for………… months)

 

(ii) If interest on Calls-in-Advance is not paid in cash –

 

Interest on Calls-in-Advance A/c                                                               Dr. (with the amount of interest payable)

To Sundry Shareholders A/c

 

(iii) At the end of the year, when interest on Calls-in-Advance is transferred to Profit and Loss A/c –

 

Profit and Loss A/c                                                                                    Dr. with the amount of interest

 

To Interest on Calls-in-Advance A/c

 

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.