Calls in Advance | How to Adjust Calls in Advance in Shares?

  

Calls in Advance | What is Calls in Advance?

When a shareholder pays due amount before calling is calls in advance.

According to Company Act, shareholders can get 6% p.a. interest on calls in advance if it is mentioned on memorandum of association.

Shareholder can get dividend of calls in arrears shares if Articles of Association mentions.

 

Reason for calls in advance may be as under:

·          Shareholder wants to get interest.

·          He has to go out-of-station for long time.

·          May be, in future he cannot pay due amount within time etc.

 

Calls in advance first time credited

Received

Amount received on allotment Bank account           To Equity share allotment account            To Calls in advance account (Being-

Dr

 

Calls in advance second time debited

Received

Amount received on first call Bank account Calls in advance account      (on first call)           To Equity share first call account (Being-

Dr Dr

 

Interest paid on calls in advance

Interest on calls in advance account           To Bank account   (Being-interest paid on calls in advance)

Dr

 

Interest paid transfer to profit and loss account

Profit and loss account           To Interest on calls in advance account (Being-interest paid on calls in advance transfer to Profit and loss account )

Dr

 

 

Balance Sheet

Liabilities	Amount	Assets	Amount
Current liabilities: Calls in advance	xxxx

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 9

EP Company Ltd issued 50,000 equity shares of $/₹/Rs 100 each. Amount payable as under:

January 12 February 1 March 1 April 1

On application On allotment On first call Second and final call

$20 $30 $40 $10

All the shares were issued, called and paid up. A shareholder Mr Rana paid entire amount with allotment of 500 shares. Company pays interest on calls in advance.

Required: Journal entries

[Answer: Calls in advance; first call 20,000; final call 5,000; interest 150]

Solution:

If shareholder paid advance on application, it means advance on allotment, first call and final call

Shares Issued	Issued Price	Installation		Arrears and Advance			Share Applied	Shares Allotted
50,000	100	Application Allotment First call Final call	20 30 40 10	+500

Calls in advance on allotment = 500 shares x $30 = $15,000

Calls in advance on first call = 500 shares x $40 = $20,000

Calls in advance on final call = 500 shares x $10 = $5,000

 

If shareholder paid advance on allotment, it means advance on first call and final call

Shares Issued	Issued Price	Installation		Arrears and Advance			Share Applied	Shares Allotted
50,000	100	Application Allotment First call Final call	20 30 40 10	+500

Calls in advance on first call = 500 shares x $40 = $20,000

Calls in advance on final call = 500 shares x $10 = $5,000

 

If shareholder paid advance on first call, it means advance on final call

Shares Issued	Issued Price	Installation		Arrears and Advance			Share Applied	Shares Allotted
50,000	100	Application Allotment First call Final call	20 30 40 10	+500

Calls in advance on final call = 500 shares x $10 = $5,000

 

Calls in advance on final call is not possible

 

Again, according to question

Calls in advance for first call Calls in advance for second and final call	500 shares x $40 500 shares x $10	20,000a 5,000b	1 month 2 months
		25,000c

 

Interest = 20,000@6% x 1/12 + 5,000@6% x 2/12 = 100 + 50 = $150

 

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount	Amount
Received Jan 12	Amount received on application Bank account                  To Equity share application account (Being- amount received on 50,000 shares @ $20)	Dr		10,00,000	10,00,000
Transfer Jan 12	Amount transfer of application Equity share application account            To Equity share capital account (Being- amount transfer of application to capital account)	Dr		10,00,000	10,00,000
Due Feb 1	Amount due/receivable on allotment Equity share allotment account              To Equity share capital account (Being- amount due/receivable on allotment)	Dr		15,00,000	15,00,000
Received Feb 1	Amount received on allotment Bank account      (b/f)            To Equity share allotment account            To Calls in advance account (Being- amount received on 50,000 shares @ $30, and advance adjusted)	Dr		15,25,000	15,00,000 25,000c
Due Mar 1	Amount due/receivable on first call Equity share first call account           To Equity share capital account (Being- amount due/ receivable on first call)	Dr		20,00,000	20,00,000
Received Mar 1	Amount received on first call Bank account      (b/f) Calls in advance account      (on first call)           To Equity share first call account (Being- amount received on 50,000 shares @ $40, after advance adjusted)	Dr Dr		19,80,000 20,000a	20,00,000
Due Apr 1	Amount due/receivable on final call Equity share second and final call account            To Equity share capital account (Being- amount due/ receivable on final call)	Dr		5,00,000	5,00,000
Received   Apr 1	Amount received on allotment Bank account      (b/f) Calls in advance account      (for final call)            To Equity share second and final call account (Being- amount received on 50,000 shares @ $10, after advance adjusted)	Dr Dr		4,95,000 5,000b	5,00,000
Interest Apr 1	Interest on calls in advance account           To Bank account   (Being-interest paid on calls in advance)	Dr		150	150

 

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PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 9                    [calls in advance]

Annapurna Travels Limited had been registered with an authorized capital of $/₹/Rs 10,00,000 divided into 100,000 equity shares of $10 each. The Company issued 50% of authorized capital @ 20% premium. The amount was payable as following:

On application $3                        

On allotment $4       

On first and final call $5    

All the shares were subscribed, allotted. A shareholder Mr. Khan to whom 200 shares were allotted, paid entire amount with allotment.

Required: Journal entries

[Answer: Calls in advance = $1,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 10                 [calls in advance]

Ace Travels Limited issued 60,000 equity shares of $/₹/Rs 10. The amount was payable as following:

Jan 15, Application $2                      

Feb 1, Allotment $3            

March 1, First call $2           

April 1, Second and final call $3      

All the shares were subscribed, allotted. A shareholder Mr. Chaudhary to whom 5,000 shares were allotted, paid entire amount with allotment. Company pays interest on advance 6% p.a.

Required: Journal entries

 [Answer: Calls in advance: for first call = $10,000; for final call = $15,000]

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