Calls in Arrears and Calls in Advance | Accounting for Shares

 

Before study this study materials, learners are requested to study first calls in arrears and calls in advance

  

How to Adjust Calls in Arrears and Calls in Advance?

Sometimes, there may be both calls in arrears and calls in advance in one question.

 

If question indicates to arrears on final call, arrears only on final call,

If question indicates to arrears on first call, arrears on first call and final call,

If question indicates to arrears on allotment, arrears on allotment, first call and final call,

Call in arrears is never possible on application.

 

Calls in advance on application means advance for allotment, first call and final call

Calls in advance on allotment means advance for first call and final call

Calls in advance on first call means advance for final call      

Calls in advance on final call is not possible

 

Calls in advance is for next step viz advance for first call is paid with allotment,

Calls in advance, first credited then debited with received entry,

Calls in arrears is for same step viz arrears on allotment is for (arrears shares x allotment amount)

 

Balance Sheet

Liabilities		Amount	Assets	Amount
Issued & Paid Up Capital: xxxx Shares @ Rs xx     Less: Calls in arrears     Current liabilities: Calls in advance	xxxx (xxx)	xxxx       xxxx

  

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

PROBLEM: 11

EP Company Ltd issued 50,000 equity shares of $/₹/Rs 100 each for Rs 110 per share. Amount payable as under:

On application Rs 30 On allotment Rs 40 On first call Rs 25 Second and final call Rs 15

March 1 April 1 May 1 June 1

All the shares were issued, called and paid up. The entire amount was duly received except a shareholder Mr. Rana failed to pay due amount on allotment and calls for 500 shares. Another shareholder Mr. Mike who held 1,000 shares paid entire amount with allotment.

Required: Journal entries

[Answer: Calls in arrears: allotment 20,000; first call 12,500; final call 7,500;

Calls in advance: first call 25,000; final call 15,000;

Solution:

If question indicates to arrears on final call, arrear only on final call

Shares Issued	Issued Price	Installation		Arrears and Advance			Share Applied	Shares Allotted
50,000	100+10P	Application Allotment First call Final call	30 40 [30C+10P] 25 15	+1,000	−500 −500 −500

Note: lack of information, premium is adjusted with allotment. C is capital and P is premium

 

Given and working note:

Calls in advance for first call Calls in advance for second and final call	1,000 shares x Rs 25 1,000 shares x Rs 15	25,000a 15,000b
		40,000c

 

Given and working note:

Calls in arrears on allotment Calls in arrear first call  Calls in arrear final call

500 shares x Rs 40 500 shares x Rs 25 500 shares x Rs 15

20,0001 12,5002 7,5003

 

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received March 1	Amount received on application Bank account                  To Equity share application account (Being- amount received on 50,000 shares @ Rs 30)	Dr		15,00,000	15,00,000
Transfer March 1	Amount transfer of application Equity share application account                To Equity share capital account (Being- amount transfer of application to capital account)	Dr		15,00,000	15,00,000
Due April 1	Amount due/receivable on allotment Equity share allotment account           To Equity share capital account           To Share premium account  (Being- amount due/receivable on allotment and Discount adjusted)	Dr		20,00,000	15,00,000 5,00,000
Received April 1	Amount received on allotment Bank account      (b/f)  Calls in arrear account (on allotment)           To Equity share allotment account            To Calls in advance account (Being- amount received on 50,000 – 500 = 49,500 shares @ Rs 40, arrears and advance adjusted)	Dr Dr		20,20,000 20,0001	20,00,000 40,000c
Due May 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		12,50,000	12,50,000
Received May 1	Amount received on first call Bank account      (b/f)  Calls in arrears account (on first call) Calls in advance account           (for first call)            To Equity share first call account (Being- amount received on 50,000 – 500 = 49,500 shares @ Rs 25, arrear and advance adjusted)	Dr Dr Dr		12,12,500 12,5002 25,000a	12,50,000
Due June 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		7,50,000	7,50,000
Received June 1	Amount received on final call Bank account      (b/f)  Calls in arrears account (on final call) Calls in advance account           (for final call)           To Equity share second and final call account (Being- amount received on 50,000 – 500 = 49,500 shares @ Rs 15, arrears and advance adjusted)	Dr Dr Dr		7,27,500 7,5003 15,000b	7,50,000

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PROBLEMS   AND   ANSWERS

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

Basic Problem: 11       [calls in arrears and advance]

Birgunj Chemical Limited issued 7,000 equity shares of $/₹/Rs 100 each at 10% premium. The amount was payable as following:

        On application     Rs 30                   

        On allotment        Rs 45

        On calls                  Rs 35

All the shares were subscribed, allotted. All the amount were duly received except A shareholder Mr. Thapa to whom 1,000 shares were allotted, failed to pay allotment and calls amount. Another shareholder Mr. Pandey who held 500 shares, paid entire amount with allotment.

Required: Journal entries

[Answer: Arrears on allotment = Rs   45,000; arrears on calls = Rs   35,000;

Calls in advance = Rs   17,500]

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

Basic Problem: 12       [calls in arrears and advance]

Narayani Chemical Limited had been registered with an authorized capital of $/₹/Rs 5,00,000 divided into 50,000 equity shares of $/₹/Rs 10 each. The Company issued 80% of authorized capital @ 10% discount. The amount was payable as following:

On application             Rs 3                     

On allotment                Rs 4  

On first and final call   balance

All the shares were subscribed, allotted. All the amount were duly received except A shareholder Mr. Sharma to whom 1,000 shares were allotted, failed to pay allotment and calls amount. Another shareholder Mr. Pandey who held 500 shares, paid entire amount with allotment.

Required: Journal entries and balance sheet

[Answer: arrears on allotment = 4,000; arrears on calls = 2,000;

Calls in advance = 1,000]

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