Calls that are overdue and calls that are scheduled in advanceThe Definition of Calls in Arrears
In the event that any amount that is called in respect of a share is not paid before or on the date that has been established for payment, the amount in question is referred to as calls in arrears.
A corporation has the option of calling the sum either as allocation money or call money depending on their needs.
Therefore, any default that occurs as a result of the failure to send the call money is regarded as being in arrears with the call money. A new, separate account has been set up for calls that are past due.
Companies have the ability to charge interest on any such calls that are overdue for payment for the duration of time that the money is outstanding.
The rate that is applied is 5% every year. On the balance sheet, the sum of all calls that are overdue is deducted from the total amount of capital that has been called up.
Phone calls made in advance
The meaning of
The term “calls in advance” refers to the amount of money received by a corporation that is in excess of what has been called up.
Calls from shareholders can be accepted in advance by a corporation provided that this is permitted by the articles governing the company.
If an amount of this kind is received, but it has not yet been called, then the amount ought to be credited to a separate account that is known as the calls in advance account.
The sum that is not called, on the other hand, should not be credited to the capital account.
A corporation has the option of accruing interest at the rate of 6% per year on such monies as are received in advance. On this sum, there will be no dividend paid out.
The cash that is received will be applied, in accordance with when the calls are due, toward the payment of the debts that are owed.
Calls that are overdue and calls that are scheduled in advance are both examples.
United Limited was established with a nominal capital of $500,000 divided into shares of $100 each at the time of its registration.
It was decided to offer 3,000 shares for subscription, and each share was to be paid for at the following intervals: $12.50 upon application, $12.50 upon allotment, and $25 three months after allotment. The remaining balance was to be called up as and when it was needed.
All of the money up to the allotment was received in a timely manner; however, a shareholder who had 100 shares did not pay the amount that was due when it was called for $25.
Another shareholder who was given 150 shares contributed the whole money necessary to purchase those shares.
Display the necessary journal entries to record the aforementioned transactions, including any cash that was exchanged, and demonstrate how these items are reflected in the balance sheet.
The second example
On March 1st, X Limited issued 20,000 equity shares, each worth $10, at a price of $11, with payments to be made as follows:
The application fee is $2.
The allowance was $3.
$6 on both the first and final call (which comes three months after the allocation).
There were applications submitted for a total of 26,000 shares. The board of directors granted the full allotment to the applications that requested 10 shares or more, but they gave the money back to the applications that requested 6,000 shares.
While one shareholder who was given 40 shares paid both the allotment money and the first and final call money, another shareholder who was given 60 shares did not pay the allotment money but did pay the first and final call money.
The board of directors came to the conclusion that interest should be charged for calls made in advance and allowed for calls made in arrears, depending on the circumstances.
Make notations in the company’s diary and other books.