ICAI Notes 9.2: Issue, Forfeiture & Reissue of Shares - 3 Notes | Study Principles and Practice of Accounting - CA Foundation

9. CALLS-IN-ARREARS AND CALLS-IN-ADYANCE

CALLS-IN-ARREARS

Sometimes shareholders fail to pay the amount due on allotment or calls. The total unpaid amount on one or more instalments is known as Calls-in-Arrears or Unpaid Calls. Such amount represents the uncollected amount of capital from the shareholders; hence, it is shown by way of deduction from Rscalled-up capitalRs to arrive at paid-up value of the share capital.

For recording RsCalls-in-ArrearsRs, the following journal entry is recorded :

The Articles of Association of a company usually empower the directors to charge interest at a stipulated rate on calls-in-arrears. According to Table F interest at the rate of 10 per cent per annum is to be charged on unpaid calls for the period intervening between the due date of the call and the time of actual payment. However, the directors have the authority to waive the application of this rule in individual cases at their discretion or charge at a higher rate of interest.

CALLS-IN-ADVANCE

Some shareholders may sometimes pay a part, or whole, of the amount not yet called up, such amount is known as Calls-in-advance. According to Table F, interest at a rate not exceeding 12 per cent p.a. is to be paid on such advance call money. This amount is credited in Calls-in-Advance Account. The following entry is recorded:

When calls become actually due, calls-in-advance account is adjusted at the time of the call. For this the following journal entry is recorded:

The accounting treatment of interest on Calls-in-Advance is as follows:

10. INTEREST ON CALLS-IN-ARREARS AND CALLS-IN-ADVANCE

Interest on calls in arrear is recoverable and that in respect of calls in advance is payable, according to provisions in this regard in the articles of the company, at the rates mentioned therein or those to be fixed by the directors, within the limits prescribed by the Articles. Table F prescribes 10% and 12% p.a. as the maximum rates respectively for calls in arrears and those in advance.
Directors, however, have the right to waive the payment of interest on calls in arrear. Calls received in advance are not entitled to any dividend. The book entries to be passed for the adjustment of such interest are much the same as those in case of temporary borrowings or loans raised, the only difference being that debits are raised and credits are given to Sundry Members Account (and not the individual accounts of shareholders) in respect of interest recoverable on calls in arrear or that payable on call received in advance, the corresponding entries being made in the Interest Receivable on Calls in Arrears and Interest Payable on Calls in Advance, respectively.
Illustration 8
Rashmi Limited issued at par 10,000 Equity shares of Rs 10 each payable Rs 2.50 on application; Rs 3 on allotment; and balance on the final call. All the shares were fully subscribed and paid except a shareholder having 100 shares could not pay the final call. Give journal entries to record these transactions.

Illustration 9 

A limited Company, with an authorized capital of Rs 2,00,000 divided into shares of Rs 100 each, issued for subscription 1,000 shares payable at Rs 25 per share on application, Rs 30 per share on allotment, Rs20 per share on first call three months  after allotment  and the balance as and when required.
The subscription list closed on January 31, 2014 when application money on 1,000 shares was duly received and allotment was made on March 1, 2014.
The allotment amount was received in full but, when the first call was made, one shareholder failed to pay the amount on 100 shares held by him and another shareholder with 50 shares paid the entire amount on his shares.
Give journal entries in the books of the Company to record these share capital transactions assuming that all amounts due were received within one month of the date they were called.A limited Company, with an authorized capital of Rs 2,00,000 divided into shares of Rs 100 each, issued for subscription 1,000 shares payable at Rs 25 per share on application, Rs 30 per share on allotment, Rs20 per share on first call three months after allotment and the balance as and when required.
The subscription list closed on January 31, 2014 when application money on 1,000 shares was duly received and allotment was made on March 1, 2014.
The allotment amount was received in full but, when the first call was made, one shareholder failed to pay the amount on 100 shares held by him and another shareholder with 50 shares paid the entire amount on his shares.
Give journal entries in the books of the Company to record these share capital transactions assuming that all amounts due were received within one month of the date they were called.

Solution

Books of the Company 

Journal