Issue, Forfeiture, Reissue of Shares

Calls In Arrears and Calls In Advance

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.  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 Arrears

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.  XXX
     To Calls-In-Advance a/c Cr.  XXX
(being money received in advance against the calls)
2. Calls-In-Advance a/c Dr.  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,[email protected] ₹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)

           

                                     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
2   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

 

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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