[Commerce Class Notes] on Introduction to Company Accounts – Calls in Advance Pdf for Exam

A company is a voluntary group of people who contribute money for a common purpose that may be profit or non-profit in nature. It is a separate legal entity. The money thus contributed, is called the share capital of the company, and the contributors are called the investors or the shareholders. Indian Companies Act, 2013 administers all companies and provides guidelines for them to follow.

Company accounts are a condensed summary of all sorts of financial activities of the company that it has committed in a period of twelve months. Company accounts include all sorts of financial statements ranging from the financial Balance Sheets, the Profit and Loss Statement to the Cash Flow Statement. The contributions done by the actual investors of the company which are always paid in advance are shown as calls in advance. This amount which is received as calls in advance is usually shown as credits in accounts because the amount is received in excess of what the company actually needs.

Calls in Arrears in Balance Sheet 

Calls in the Arrears Account appear in the Notes to Accounts on Share Capital to the Balance Sheet. It is shown as a deduction from the amount of ‘Subscribed but not fully paid-up’ under ‘Subscribed Capital’. The amount is called paid-up capital. Though the interest is chargeable in calls in arrears, according to the provisions of the Articles of the company, the directors of the company do have the right to waive off the interest on calls in arrears.

 

Calls in Advance in Balance Sheet

The meaning of calls in advance is that the excess amount received by the company exceeds what has been called up. They appear separately, in the Balance Sheet as the company’s liability. The company retains such an amount to make the shares fully paid. Once this amount is transferred to the relevant accounts the calls in advance are closed.

It comes under the heading ‘Current Liabilities’ till the calls are made and the amount becomes payable by the shareholder.

 

Calls in Arrears Journal Entry

In case of any default, the amount is called as Calls in arrears and a separate Calls in Arrears Account has to be opened, to make the call in arrears entry. An interest of 5% p.a. is charged on all such calls in arrears until the amount is repaid. And, finally, the total is brought to the balance sheet as a deduction from the Called up Capital.

 

Call in Advance Journal Entry

At times, the company’s shareholder pays a portion or full of the amount due on the shares held in advance. It is an important fact that calls in advance never form a part of the share capital, even though it is being paid by the shareholders. An authorized company can accept calls in advance from its shareholders but the amount of call in advance in the journal entry cannot be credited to the capital amount. Call in advance needs to be credited to the calls in the advance account. 

 

Interest on Calls in Advance

The amount received as calls in advance is written as a liability and the company is liable to pay interest from the date of receipt till the date that the call gets due for payment. A rate of 6% p.a. interest is charged on these calls in advance meaning the articles of the company authorized for the same. This interest has to be paid to the shareholder even when the company does not earn a profit.