Calls in Arrears and Calls in Advances

Calls in Arrears and Calls in Advances-min

When a business issues capital in the share market to get subscribers then it can collect the amount of capital in two forms, it can collect the whole amount in a lump sum or can collect a partial amount by making calls. The method of collecting the amount of share have to be predefined in the prospectus of the shares. If a business allows the public to make payment in calls then in a case where any subscriber fails to pay calls or pay all calls in advance then this amount will be known as Calls in Arrears and Calls in Advances respectively.  We will discuss both terms Calls in Arrears and Calls in Advances in this article with examples: 

What are Calls in Arrears?

Calls in Arrears means the amount due for calls which are not received by business yet. In other words, The total called money not paid by one or more shareholder(s). 

Example of Calls in Arrears:

XYZ co. limited issued 5,000 number of shares in the market for Rs 100. They will call the value of the share in the 4 following calls: 

On Application Rs. 30 at the time of applying 
On Allotment Rs 20
On 1st Calls Rs 30
On 2nd and Final Calls Rs 20

The company call all the due amount but Mr A holding 100 numbers of shares and pay only application money only.

So, Calculate the total amount of Calls in arrear. 

Solution: 

Calculation of the total amount of calls in Arrears: 

Calls  Call Amount per share
(Rs.)
No. of Shares  Amount of Arrears
(Rs.)
Allotment 20 100 2,000
1st Calls 30 100 3,000
2nd and Final Calls 20 100 2,000
The total amount of Arrears      7,000

Now question is that how we can record it in the books?

So we have also explained methods of the recording of calls in arrears in this article.  

Recording of the value of calls in arrears in the books:

Business can choose one from the following method of recording of calls in arrears: –

  1. Without an opening account of Calls in Arrears 
  2. By the opening account of Calls in Arrears.

1. Without an opening account of Calls in Arrears: 

In this method treatment of calls in arrears is shown as a balance in the ledger of every call and did not open a new separate account. We have explained the treatment of Calls in arrear with the help of the above example and this is shown as follows: 

Date   Particulars
L.F. Debit Credit
           
(i) Share Allotment A/c Dr.   1,00,000  
             To Share Capital A/c     1,00,000
  (Being Share allotment money called up)      
         
(ii) Bank A/c Dr.   98,000  
            To Share Allotment A/c       98,000
  (Being share allotment money received (98,000=1,00,000-2,000) expect 100 shares.)      
           
           
(iii) Share 1st Calls A/c Dr.   1,50,000  
             To Share Capital A/c     1,50,000
  (Being Share 1st Calls money called up)      
         
(iv) Bank A/c Dr.   1,47,000  
            To Share 1st Calls A/c       1,47,000
  (Being share 1st Calls money received (1,47,000=1,50,000-3,000)expect 100 shares.)      
           
(V) Share 2nd and Final Call A/c Dr.   1,00,000  
             To Share Capital A/c     1,00,000
  (Being Share 2nd and Final Call money called up)      
         
(Vi) Bank A/c Dr.   98,000  
            To Share 2nd and Final Call A/c     98,000
  (Being share 2nd and Final Call money received (98,000=1,00,000-2,000) expect 100 shares.)      
           

2. By the opening account of Calls in Arrears: 

In this method, the treatment of calls in arrears is to open a new separate account name as Calls in Arrears. We have explained the treatment of Calls in arrear with the help of the above example and this is shown as follows: 

Date   Particulars
L.F. Debit Credit
           
(i) Share Allotment A/c Dr.   1,00,000  
             To Share Capital A/c     1,00,000
  (Being Share allotment money called up)      
         
(ii) Bank A/c Dr.   98,000  
  Calls in Arrears A/c Dr.   2,000  
            To Share Allotment A/c       1,00,000
  (Being share allotment money received (98,000=1,00,000-2,000) expect 100 shares.)      
           
           
(iii) Share 1st Calls A/c Dr.   1,50,000  
             To Share Capital A/c     1,50,000
  (Being Share 1st Calls money called up)      
         
(iv) Bank A/c Dr.   1,47,000  
  Calls in Arrears A/c Dr.   3,000  
            To Share 1st Calls A/c       1,50,000
  (Being share 1st Calls money received (1,48,000=1,50,000-3,000)expect 100 shares.)      
           
(V) Share 2nd and Final Call A/c Dr.   1,00,000  
             To Share Capital A/c     1,00,000
  (Being Share 2nd and Final Call money called up)      
         
(Vi) Bank A/c Dr.   98,000  
  Calls in Arrears A/c Dr.   2,000  
            To Share 2nd and Final Call A/c     1,00,000
  (Being share 2nd and Final Call money received (98,000=1,00,000-2,000) expect 100 shares.)      
           

 

What are Calls in Advances?

Calls in advances mean that the whole amount of share received before actually due or called up.

Recording of the value of Calls in Advances in the books:

Business can choose one from the following method of recording of calls in arrears: –

  1. Without an opening account of Calls in Arrears 
  2. By the opening account of Calls in Arrears.

1. Without an opening account of Calls in Advances: 

 

 

Example of Calls in Advances:

XYZ co. limited issued 5,00,000 number of shares in the market for Rs 10. They will call the value of the share in the 4 following calls: 

On Application Rs. 3 at the time of applying 
On Allotment Rs 2 
On 1st Calls Rs 3
On 2nd and Final Rs 2

The company call all the due amount but Mr A holding 100 numbers of shares and pay only application money only.

So, Calculate the total amount of Calls in arrear. 

Solution: 

Thanks for reading the topic.

please comment your feedback whatever you want. If you have any questions, please ask us by commenting.

References: –

  1. mca.gov.in
  2. Class +2 Accountancy by Sultan Chand & Sons (P) Ltd.

 

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