Introduction to Company Accounts

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.

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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.

 

calls in advance

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 ([email protected]% 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

 

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