Calls-in-Advance

Excess Money received by the company which has been called up is known as calls in advance. If authorized by its Articles, A Company may accept call in advance from its shareholders. When a company receives such an amount, it needs to credit it to the calls-in-advance account.

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Calls in Advance

The company treats calls-in-advance as a debt of until it makes the calls. 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 by him for and the terms of issue allow the company to retain the amount received in excess of application and allotment money.

The company can retain only such amount as is required to make the allotted shares fully paid. After transferring the amount to the relevant call accounts, the company closes the calls-in-advance account. It shows this amount under a separate heading, namely ‘calls-in-advance’ on the liabilities side.

Browse more Topics under Introduction To Company Accounts

• Basic Concepts of Company Accounts
• Issue of Shares for Cash
• Issue of Shares for Consideration
• Under and Over Subscription
• Calls-in-Arrears
• Issue of Shares to Promoters
• Forfeiture of Shares
• Reissue of Shares
• Issue of Debentures
• Issue of Debentures as Security
• Issue of Preference Shares
• Capital Redemption Reserve Account

A company may pay interest on such amount received in advance at the rate of 12% p.a. No dividend is payable on this amount. It adjusts the amount of calls-in-advance for the payment of calls when they become due.

Interest payable on Calls-in- Advance is a liability against the profits of the company. A company has to pay Interest on Calls-in-Advance even when there is no profit.

 

Journal Entries

Date	Particulars		Amount(Dr.)	Amount(Cr.)
(i) On receipt of call money	Bank	Dr.
	To Call-in-Advance A/c
	(Being receipt of calls in advance)
(ii) On making calls	Calls-in-Advance A/c	Dr.
	To Relevant Call A/c
	(Being transfer of the calls-in-advance)
(iii) When Interest on Calls-in-Advance is paid in cash	Interest on Calls-in-Advance A/c	Dr.
	To Bank
	(Being payment of Interest on Calls-in-Advance)
(iv) When interest on Calls-in-Advance is not paid in cash	Interest on Calls-in-Advance A/c	Dr.
	To Sundry Shareholders A/c
	(Being Interest on Calls-in-Advance due)
(v) For payment to shareholders	Sundry Shareholders A/c	Dr.
	To Bank
	(being interest paid)
(vi) On transfer of interest on Calls-in-Advance to P & L A/c	Profit and Loss A/c	Dr.
	To Interest on Calls-in-Advance A/c
	(Being the transfer of interest expenses to profit and loss A/c)

Solved Example For You

ABC Ltd. issues 50,000 Equity Shares of 10 each payable as follows:

Application (On 1st March 2018)                  4

Allotment (On 1st April 2018)                        1

First Call (On 1st August 2018)                      3

Final Call (On 1st October 2018)                  2

It receives applications for 1,30,000 shares. Of these 5,000 shares were in disorder; 20,000 shares in lots of 100 shares; 60,000 shares in lots of exceeding 100 but less than 500 shares; 30,000 shares in lots of exceeding 500 but less than 1,000 shares and the balance in lots of exceeding 1,000 shares.

The allotment is as follows:

Application for the 5,000 shares in disorder is rejected.

Application for 100 shares in full, i.e. 100% 40,000

Application over 100 shares but not exceeding 500 shares – 40% 12,000

Application over 500 shares but not exceeding 1,000 shares – 15% 4,500

Applications over 1,000 shares – 10% 1,500

It retains the excess receipt of money on shares to the extent possible. Show the cash book and journal entries assuming that the company receives all the installments duly and pays interest on calls-in-advance @ 6.1% per annum on 1st October 2018.

Ans:

Journal Entries

Date	Particulars		Amount(Dr.)	Amount(Cr.)
01 Apr	Equity Share Application A/c	Dr.	200000
	To Equity Share Capital A/c			200000
	(Being the transfer of application money on 50,000 shares to share capital  account)
01 Apr	Equity Share Allotment A/c	Dr.	50000
	To Equity Share Capital A/c			50000
	(Being the allotment money due in respect 50,000 equity shares @ Re. 1 per share)
01 Apr	Share Application A/c	Dr.	180000
	To Share Allotment A/c			30000
	To Calls in Advance A/c			150000
	(Being the transfer of surplus application money on 30,000 shares)
01 Aug	Equity Share 1st Call A/c	Dr.	150000
	To Equity Share Capital A/c			150000
	(Being the 1st call money due on 50,000 equity shares @ 3 per share)
01 Aug	Calls-in-Advance A/c	Dr.	90000
	To Equity Share 1st Call A/c			90000
	(Being calls in advance account adjusted)
01 Oct	Equity Share Final Call A/c	Dr.	100000
	To Equity Share Capital A/c			100000
	(Being the final call money due on 50,000 equity share @ 2 per share)
01 Oct	Calls-in-Advance A/c	Dr.	60000
	To Equity Share Final Call A/c			60000
	(Being the amount transferred from the calls-in-advance account)

 

Cash book (Bank Column)

 

Date	Particulars	Amount		Date	Particulars	Amount
2018				2018
1 Apr	To Equity Share Application A/c (application money @ 4 per share)	520000		01 Apr	By Equity Share Application A/c (refund of application money)	140000
01 Apr	To Equity Share Allotment A/c (Balance of allotment money)	20000		01 Oct	By interest on call in advance A/c (Interest@6% on 90000 for 4 month=1800 and on 60000 for 6 months=1800)	3600
01 Aug	To Equity Share 1st call a/c (balance of share 1st call money)	60000		01 Oct	By balance c/d	496400
01 Oct	To Equity Share Final A/c	40000
		640000				640000

Working Notes

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

Share applied	Share allotted	Amount received         on an application	Amount       due on application	Balance application   money	Amount     due on   allotment	Amount           received on an allotment	Surplus                       transferred                        to calls-in                    advance
1	2	3	4	5	6	7	8
5000	Nil	40000	Nil	Nil	Nil	Nil	Nil
20000	20000	80000	80000	Nil	20000	20000	Nil
60000	24000	240000	96000	144000	24000	Nil	120000
30000	4500	120000	18000	102000	4500	Nil	22500
15000	1500	60000	6000	54000	1500	Nil	7500
130000	50000	520000	200000	300000	500000	20000	150000

 

Refund Amount	Amount     due to 1st call	Calls-in-Advance adjusted   against 1st call	Amount due on 1st call	Surplus in  calls- in advance a/c	Amount     due on    final call	Adjustment   of Calls-in advance   against       final call	Amount          payable       on final           call
9	10	11	12	13	14	15	16
20000	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Nil	60000	Nil	60000	Nil	40000	Nil	40000
Nil	72000	72000	Nil	48000	48000	48000	Nil
75000	13500	13500	Nil	9000	9000	9000	Nil
45000	4500	4500	Nil	3000	3000	3000	Nil
140000	150000	90000	60000	60000	100000	60000	40000