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.
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.
- It is the amount which is received in advance before the amount is due from shareholders.
- Calls in advance is adjusted in future at the time of relevant call.
- Interest on calls in advance is the expenses of company
- There is no question of loosing the membership
- Maximum rate of interest is 6% p.a.
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.
- It is the amount which defaulter shareholders have not paid on the amount called up by company
- Calls in arrears may be recovered in future or in the event not received shares may be forfeited
- Interest on calls in arrears is the income of company
- It may lead to loosing the membership if calls in arrears are not cleared
- Maximum rate of interest is 5% p.a.