Calls in Advance And Arrears

If some money is called upon for shares and is not paid before a specific due date, it will be called by the name ‘call in arrears’. Calls in advance are the advanced payment or excess payment made to the called due is known as ‘calls in advance’ which can not be shown by the company as capital unless such is due from the shareholders. 

A group of people makes a company that contributes money to their common purpose. The contributed money is the share capital by the company, and the contributors are the shareholders. It can be both profitable and Non-profitable. 

Concept of Calls in Arrears

Calls in arrears are the amount that is called with respect to sharing and if not paid before the due date. The call money can also be called allotment money, and the company can call it. If any failure or default arises to send the call money, it may be known as the calls in arrears. For the calls in arrears, a separate account should be opened and maintained. 

The account applied in the call of arrears can be reflected in the share capital of the balance sheet. It used to be shown as the deducted amount of subscribed but not fully paid under-subscribed capital. 

The amount is known as paid-up capital, and the charge of interest at 10% p.a is chargeable in the call of arrears. Though, it depends on the provision of the articles of the company itself. The company directors have the right to cut off or wave off the interest rate on arrears calls. 

Concept of Calls in Advance

Calls in advance are the excessive amount received by any company in advance upon which has been called up. If a company is allowed and authorised by its articles, it may accept the amount from the shareholders. The advance amount can be transferred to the account specially opened for the call in advance, known as call in the advance account. 

The amount that the company does not call should not be credited to the capital account. It appears separately on the company’s balance sheet as its liabilities. To make the shares fully paid, companies may resin such amounts. Once the amount gets transferred to the account, it can be known as the call in advance is closed. It comes under the name of current liabilities till the calls are made, and the amount becomes payable by the shareholders. 

What is the interest in Call in Advance?

The amount received through the call in advance is known as the company’s liabilities. The company is liable to pay the interest in the amount from the date of receiving till the date of due payment. 12% p.a rate of interest is charged on these calls in advance, and the company’s article agrees. The amount of calls in advance is 12%, and the interest has to be paid to the shareholder, even if the company has not made any profit or earned any profit.

Difference between Calls in Advance and Calls in Arrears:

1. A call in arrears is the amount the defaulter shareholder calls up by the company, whereas the call in advance is the advanced amount received from shareholders in the company.
2. Call in arrears can be recovered, and call in advance can be adjusted in the future.
3. The interest rate on the amount of call in arrears can be 10% maximum. However, the interest in calls in advance can be a maximum of 12%. 

Conclusion

When shareholders or a company demand the payment regarding a portion or share, it can be understood as a call. If the call remains uncalled until making a balance sheet, then it should be displayed as a separate item on the other side of the balance sheet as liabilities. Further, the interest on call in advance should be calculated between the time of call money is received and the date of due payment. 

This discussion on the calls in advance and arrears is defined as the concept of arrears and advance call making to provide a brief understanding of the subject of accountancy.