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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#####
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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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