Interest on Calls in Advance
The amount received by a company as Calls in Advance is its debt; i.e., the company is liable to pay this amount from the date of receipt till the date when the call is due for payment. Generally, the rate of interest on Calls in Advance is specified by the Article of Association of the Company. However, if the rate is not specified in the Articles, then Table F of Schedule I of the Companies Act, 2013 will be applicable, leaving the matter in the hands of the directors of the company subject to a maximum rate of 12% p.a. Besides, the interest on Calls in Advance is charged against the profits of the company. It is mandatory for a company to pay Interest on Calls in Advance even if there is no profit. Besides, the dividend on the shares for which calls in advance have been received is not payable as it is not a part of Share Capital.
Journal Entries on Interest on Calls in Advance
1. On making due the Interest on Calls in Advance:
2. On receipt of Interest on Calls in Advance:
3. On transfer of Interest on Calls in Advance to Profit & Loss A/c at the end of accounting period:
Note: If the rate of interest on Calls in Advance is not mentioned in a question, then 12% p.a. will be taken.
Example of Interest on Calls in Advance
Shreya Ltd. issued 5,000 shares of ₹10 each payable as follows:
₹5 on Application (1st February 2022)
₹2 on Allotment (1st April 2022)
₹3 on First & Final Call (1st June 2022)
Khushboo, holder of 600 shares paid the full amount on application, and Nisha to whom 500 shares were allotted paid the First & Final Call money along with allotment. Interest @ 12% was paid on 1st June 2022. Pass necessary Journal Entries in the books of Shreya Ltd.
Solution:
Calculation of Interest:
Khushboo’s 600 shares @ ₹3; i.e., 1,800 for 2 months
= 36
Nisha’s 500 shares @ ₹3; i.e., 1,500 for 2 months
= 30
Total Interest = 66
Note: Interest on Calls in Advance is always calculated from the date of allotment in case any advance amount is received on the application.
Calls in Advance: Accounting Entries with Examples on Issue of Shares
Calls in Advance is the amount of future calls which is received by the company in advance. Calls in Advance is just opposite to Calls in Arrear. It is a situation when the shareholders of a company pay the amount not yet called upon their shares. Section 50 of the Companies Act, 2013 says that the company can accept the amount of Calls in Advance only when it is authorised by its Articles of Association.
Table of Content
- Journal Entries on Calls in Advance
- Example of Calls in Advance
- Interest on Calls in Advance
- Journal Entries on Interest on Calls in Advance
- Example of Interest on Calls in Advance