When a company issues its share in the market, public purchases its shares and they become its shareholders. The Company may call the whole amount at a time in a lump sum or partially by way of calls. Sometimes, the shareholders may not pay the amount called on a particular date, that amount is known as Calls in Arrears.
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Calls In Arrears and Calls In Advance
Calls-In-Arrears
If a shareholder is not able to pay the call amount due on allotment or on any calls according to the terms, the amount that becomes due is Calls-In-Arrears. We may transfer or not transfer the arrear amount on account of allotment or calls to Calls-in-Arrears Account.
Methods of Accounting Treatment of Calls-In-Arrears
- Without opening Calls-in-Arrears Account
- By opening Calls-in-Arrears Account
Without opening Calls-in-Arrears Account
Under this method, we credit the receipt from shareholders to the relevant call account and various call accounts will show debit balance equal to the total unpaid amount of calls.
On a subsequent date, when we receive the amount of Calls-in-Arrears, we debit Bank Account and credit the relevant Call Account.
For example, The company makes the first call @ ₹ 2 per share on 10,000 shares. The receipt of the amount on the first call is for 9,500 shares. Entries will be as follows:
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Shares First Call a/c | Dr. | 20,000 | |
  To Share Capital a/c | Cr. | 20,000 | ||
(being the first call money due on 10,000 shares @ ₹ 2 per share) | ||||
2. | Bank a/c | Dr. | 19,000 | |
  To Shares First Call a/c | Cr. | 19,000 | ||
(being first call money received only on 9,500 shares) |
By opening Calls-in-Arrears Account
Under this method, we transfer the unpaid amount to Calls-In-Arrears Account. As a result, Shares Allotment Accounts and Shares Calls Accounts will not show any balance.
The Calls-in-Arrears Accounts will show a debit balance equal to the total unpaid amount on allotment and calls. Later, on receipt of arrear amount, we credit it to the Calls-in-Arrears Account.
Learn more about Issue of Shares at Par here in detail.
In the above example, if we open Calls-in-Arrears Account is then the first two entries will be the same and third entry passed will be:
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Calls-in-Arrears A/c | Dr. | 1,000 | |
  To Shares First Call a/c | Cr. | 1,000 | ||
(Being unpaid amount on call transferred to calls-in-arrears A/c) |
In place of second and third entry we can also pass a combined entry which is as follows:
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Bank a/c | Dr. | 19,000 | |
Calls-in-Arrears A/c | Dr. | 1,000 | ||
  To Shares First Call a/c | Cr. | 20,000 |
 On receipt of Calls-in-Arrears at a subsequent date:
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Bank a/c | Dr. | Â XXX | |
  To Calls-in-Arrears a/c | Cr. |  XXX |
We show the Calls-in-Arrears Account in the Notes to Accounts on Share Capital to the Balance Sheet as a deduction from the amount of ‘Subscribed but not fully paid-up’ under ‘Subscribed Capital’.
Calls-In-Advance
If a company accepts the amount against the call or calls which are not made yet, the amount so received in advance is called Calls-In-Advance.
It may also happen in case of partial or pro-rata allotment of shares when the company retains excess amount received on the application of shares beyond the allotment money.
We show the Calls-In-Advance in the Equity and Liabilities part of the Balance Sheet under the head Current Liabilities and sub-head Other Current Liabilities.
Journal entry to record Calls-In-Advance is:
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Bank a/c | Dr. | Â XXX | |
   To Calls-In-Advance a/c | Cr. |  XXX | ||
(being money received in advance against the calls) | ||||
2. | Calls-In-Advance a/c | Dr. | Â XXX | |
   To Shares Relevant Call a/c | Cr. |  XXX | ||
(being calls –in –advance transferred to the share call A/c) |
Solved Example on Calls In Arrears and Calls In Advance
The Indore Coir Mills Ltd. With a registered capital of 5,00,000 Equity Shares of ₹ 10 each, issued 2,00,000 Equity Shares, payable ₹ 3 on the application, ₹ 2 on the allotment, ₹ 3 on the first call and ₹ 2 on second and final call.
The company duly receives the amount due on allotment. One shareholder holding 6,000 Equity Shares pays second and final call along with the first call. While five shareholders with a total holding of 10,000 Equity Shares did not pay the first call on their Equity Shares. The company did not make the final call.
Pass journal entries to record the transactions.
Ans:
                                                      In the Books of Indore Coir Mills Ltd.
                                                                            JOURNAL
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1. | Bank a/c (2,00,000 @ ₹ 3) | Dr. | 6,00,000 | |
  To Equity Shares Application a/c | Cr. | 6,00,000 | ||
(Being application money received) | ||||
2. | Equity Shares Application a/c | Dr. | 6,00,000 | |
  To Equity Shares Capital a/c | Cr. | 6,00,000 | ||
(Being application money transferred to Equity Share Capital Account) | ||||
3. | Equity Shares Allotment a/c (2,00,000@ ₹2 per share) | Dr. | 4,00,000 | |
  To Equity Share Capital a/c | Cr. | 4,00,000 | ||
(Being amount due on allotment) | ||||
4. | Bank a/c | Dr. | 4,00,000 | |
  To Equity Shares Capital a/c | Cr. | 4,00,000 | ||
(Being allotment money received) | ||||
5. | Equity Shares First Call a/c (2,00,000 @ ₹ 3 per share) | Dr. | 6,00,000 | |
  To Equity Share Capital a/c | Cr. | 6,00,000 | ||
(Being first call money due) | ||||
6. | Bank a/c | Dr. | 5,82,000 | |
  To Equity Shares First Call a/c | Cr. | 5,70,000 | ||
  To Calls-In-Advance a/c | 12,000 | |||
(Being first call money received on 1,90,000 shares @ ₹ 3 per share and ₹ 2 per share on 6,000 shares received in advanced) |
          Â
                                    BALANCE SHEET OF INDORE COIR MILLS LTD as at…
Particulars | Note No. | Amount | |
I | EQUITY AND LIABILITIES | ||
1  Shareholders’ Funds | |||
    Share Capital | 1 | 15,70,000 | |
2Â Â Current Liabilities | |||
    Other Current Liabilities | 2 | 12,000 | |
Total | 15,82,000 | ||
II | ASSETS | ||
Current Assets | |||
Cash and Cash Equivalents | 3 | 15,82,000 | |
Total | 15,82,000 |
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Notes to Accounts
1 | Share Capital | |
 | Authorized Capital | |
5,00,000 Equity Shares of ₹10 each | 50,00,000 | |
Issued Capital | ||
2,00,000 Equity Shares of ₹ 10 each | 20,00,000 | |
Subscribed Capital | ||
Subscribed but not fully paid-up | ||
2,00,000 Equity Shares of ₹ 10 each; ₹ 8 called-up                            16,00,000 | ||
Less: Calls-in-Arrears ( 10,000 x ₹ 3 )                                                   30,000 | 15,70,000 | |
2 | Other Current Liabilities | |
Calls-in-Advance | 12,000 | |
3 | Cash and Cash Equivalents | |
Cash at Bank | 15,82,000 |
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