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What is the nature of calls in arrear A/c?
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What is the nature of calls in arrear A/c?
Calls-in-Arrears : If any amount has been called by the company either as allotment or call money and a shareholder has not paid the money, such amount not received is known as calls-in- arrears.
Rate of Interest : The company is authorised to charge interest on the Calls-in-Arrears at a rate specied in the Articles of Association from the last date xed for payment to the date of payment. But if the Articles of Association are silent, Table A shall apply, which empowers the Board of Directors to charge interest at a rate not exceeding 5% per annum.
Disclosure in Balance Sheet : The amount of the Calls-in-Arrears is shown by way of deduction from the called-up capital in the Balance
Sheet. Accounting Treatment of Calls-in-Arrears
There are two methods of dealing with the Calls-in-Arrears :
1. Without Opening the Calls-in-Arrears Account : Under this method, there is no need to pass any Journal entry for the Calls-in-Arrears because the difference between the entry of the call money due and call money received will clearly indicate the amount of the Calls-in-Arrears.
2. By Opening the Calls-in-Arrears Account : The alternative method to treat the Calls-in-Arrears is by opening a ‘Calls-in Arrears
Account’. If the amount of calls has not been paid by some shareholders, the Calls-in-Arrears Account is debited. In this case,
Home allotment and other call accounts will not show any balance but the Calls-in-Arrears Account will show a debit balance equal to the total unpaid on various instalments. If later on any amount is received, it is credited to the Calls-in-Arrears Account.
The Accounting Entries will be : The following accounting entries are passed regarding Calls-in-Arrears.
1. On non-receipt of call till the day xed:Calls-in-Arrears A/c Dr. [With the amount not paid] To Relevant Call A/c (Being the amount not received in class transferred)
2. On receipt of Calls-in-Arrears at a subsequent date:Bank A/c Dr. [With the Calls-in-Arrears received] To Calls-in-Arrears A/c (Being the amount received on Calls-in-Arrears)
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What is the nature of calls in arrear A/c?
What is the nature of calls in arrear A/c?
Calls in arrear A/c refers to the situation where a company issues shares to its shareholders but receives the payment for these shares at a later date. In other words, it is the amount called by a company on shares issued by it, but not yet paid by the shareholders. The nature of calls in arrear A/c can be explained in detail as follows:
1. Definition and Purpose:
- Calls in arrear A/c represents the outstanding amount of money that shareholders owe to the company for the shares they have subscribed to.
- It is a liability of the shareholders towards the company and reflects the unpaid portion of the share capital.
2. Recording the Arrear Amount:
- When shares are issued by a company, the amount called upon by the company is recorded as a debit entry in the calls in arrear A/c.
- The corresponding credit entry is made in the share capital A/c to reflect the increase in the share capital of the company.
3. Treatment of Calls in Arrear A/c:
- Calls in arrear A/c is shown on the liability side of the balance sheet as a part of the shareholder's equity.
- It is a temporary account and gets closed when the arrear amount is received from the shareholders.
- Once the arrear amount is received, it is transferred to the share capital A/c and reduces the liability of the shareholders.
4. Importance:
- Calls in arrear A/c helps in keeping track of the outstanding amount owed by shareholders to the company.
- It ensures that the company has a record of the unpaid share capital and can take appropriate action to recover the arrear amount.
5. Legal Implications:
- Non-payment of calls in arrear may have legal consequences for shareholders.
- The company has the right to forfeit the shares or take legal action against the shareholders for the recovery of the arrear amount.
Conclusion:
Calls in arrear A/c is a vital account that represents the unpaid portion of the share capital by the shareholders. It is recorded as a liability on the balance sheet until the arrear amount is received. Proper maintenance of this account helps in tracking the outstanding amount and ensures that the company can take necessary actions to recover the arrear amount.
Calls in arrear A/c refers to the situation where a company issues shares to its shareholders but receives the payment for these shares at a later date. In other words, it is the amount called by a company on shares issued by it, but not yet paid by the shareholders. The nature of calls in arrear A/c can be explained in detail as follows:
1. Definition and Purpose:
- Calls in arrear A/c represents the outstanding amount of money that shareholders owe to the company for the shares they have subscribed to.
- It is a liability of the shareholders towards the company and reflects the unpaid portion of the share capital.
2. Recording the Arrear Amount:
- When shares are issued by a company, the amount called upon by the company is recorded as a debit entry in the calls in arrear A/c.
- The corresponding credit entry is made in the share capital A/c to reflect the increase in the share capital of the company.
3. Treatment of Calls in Arrear A/c:
- Calls in arrear A/c is shown on the liability side of the balance sheet as a part of the shareholder's equity.
- It is a temporary account and gets closed when the arrear amount is received from the shareholders.
- Once the arrear amount is received, it is transferred to the share capital A/c and reduces the liability of the shareholders.
4. Importance:
- Calls in arrear A/c helps in keeping track of the outstanding amount owed by shareholders to the company.
- It ensures that the company has a record of the unpaid share capital and can take appropriate action to recover the arrear amount.
5. Legal Implications:
- Non-payment of calls in arrear may have legal consequences for shareholders.
- The company has the right to forfeit the shares or take legal action against the shareholders for the recovery of the arrear amount.
Conclusion:
Calls in arrear A/c is a vital account that represents the unpaid portion of the share capital by the shareholders. It is recorded as a liability on the balance sheet until the arrear amount is received. Proper maintenance of this account helps in tracking the outstanding amount and ensures that the company can take necessary actions to recover the arrear amount.
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What is the nature of calls in arrear A/c? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is the nature of calls in arrear A/c? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the nature of calls in arrear A/c?.
What is the nature of calls in arrear A/c? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is the nature of calls in arrear A/c? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the nature of calls in arrear A/c?.
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