Calls in Advance

The company treats calls-in-advance as a debt of until it makes the calls. The amount already
paid is adjusted. Calls-in-advance may also arise when the number of shares allotted to a person
is much smaller than the number applied by him for and the terms of issue allow the company
to retain the amount received in excess of application and allotment money.

The company can retain only such amount as is required to make the allotted shares fully paid.
After transferring the amount to the relevant call accounts, the company closes the calls-in-
advance account. It shows this amount under a separate heading, namely ‘calls-in-advance’ on
the liabilities side.

A company may pay interest on such amount received in advance at the rate of 12% p.a. No
dividend is payable on this amount. It adjusts the amount of calls-in-advance for the payment of
calls when they become due.

Interest payable on Calls-in- Advance is a liability against the profits of the company. A
company has to pay Interest on Calls-in-Advance even when there is no profit.

Journal Entries

Date Particulars Amount(Dr.) Amount(Cr.)

(i) On receipt of
Bank Dr.
call money
 To Call-in-Advance A/c

(Being receipt of calls in advance)

(ii) On making calls Calls-in-Advance A/c Dr.

To Relevant Call A/c

(Being transfer of the calls-in-advance)

(iii) When Interest

on Calls-in-
Interest on Calls-in-Advance A/c Dr.
Advance is paid in
cash

To Bank

(Being payment of Interest on Calls-in-

Advance)

(iv) When interest

on Calls-in-
Interest on Calls-in-Advance A/c Dr.
Advance is not
paid in cash

To Sundry Shareholders A/c

(Being Interest on Calls-in-Advance

due)

(v) For payment to

Sundry Shareholders A/c Dr.
shareholders
 To Bank

(being interest paid)

(vi) On transfer of
interest on Calls-in-
Profit and Loss A/c Dr.
Advance to P & L
A/c

To Interest on Calls-in-Advance A/c

(Being the transfer of interest expenses

to profit and loss A/c)

Solved Example For You

ABC Ltd. issues 50,000 Equity Shares of 10 each payable as follows:

Application (On 1st March 2018) 4

Allotment (On 1st April 2018) 1

First Call (On 1st August 2018) 3

Final Call (On 1st October 2018) 2

It receives applications for 1,30,000 shares. Of these 5,000 shares were in disorder; 20,000
shares in lots of 100 shares; 60,000 shares in lots of exceeding 100 but less than 500 shares;
30,000 shares in lots of exceeding 500 but less than 1,000 shares and the balance in lots of
exceeding 1,000 shares.

The allotment is as follows:

Application for the 5,000 shares in disorder is rejected.

Application for 100 shares in full, i.e. 100% 40,000

Application over 100 shares but not exceeding 500 shares – 40% 12,000
Application over 500 shares but not exceeding 1,000 shares – 15% 4,500

Applications over 1,000 shares – 10% 1,500

It retains the excess receipt of money on shares to the extent possible. Show the cash book and
journal entries assuming that the company receives all the installments duly and pays interest on
calls-in-advance @ 6.1% per annum on 1st October 2018.

Ans:

Journal Entries

Date Particulars Amount(Dr.) Amount(Cr.)

01 Apr Equity Share Application A/c Dr. 200000

To Equity Share Capital A/c 200000

(Being the transfer of application money on 50,000

shares to share capital account)

01 Apr Equity Share Allotment A/c Dr. 50000

To Equity Share Capital A/c 50000

(Being the allotment money due in respect 50,000

equity shares @ Re. 1 per share)

01 Apr Share Application A/c Dr. 180000

To Share Allotment A/c 30000

To Calls in Advance A/c 150000

 (Being the transfer of surplus application money on
30,000 shares)

01 Aug Equity Share 1st Call A/c Dr. 150000

To Equity Share Capital A/c 150000

(Being the 1st call money due on 50,000 equity

shares @ 3 per share)

01 Aug Calls-in-Advance A/c Dr. 90000

To Equity Share 1st Call A/c 90000

(Being calls in advance account adjusted)

01 Oct Equity Share Final Call A/c Dr. 100000

To Equity Share Capital A/c 100000

(Being the final call money due on 50,000 equity

share @ 2 per share)

01 Oct Calls-in-Advance A/c Dr. 60000

To Equity Share Final Call A/c 60000

(Being the amount transferred from the calls-in-

advance account)
Cash book (Bank Column)

Date Particulars Amount Date Particulars Amount

2018 2018

To Equity Share
By Equity Share
1 Application A/c
520000 01 Apr Application A/c (refund 140000
Apr (application money @
of application money)
4 per share)

By interest on call in
advance A/c
To Equity Share
01 (Interest@6% on 90000
Allotment A/c (Balance 20000 01 Oct 3600
Apr for 4 month=1800 and
of allotment money)
on 60000 for 6
months=1800)

To Equity Share 1st call

01
a/c (balance of share 60000 01 Oct By balance c/d 496400
Aug
1st call money)

01 To Equity Share Final

40000
Oct A/c

640000 640000

Working Notes

Statement showing the adjustment of Application Money and Calls in Advance Money

Surplus
Shar Shar Amount
Amount Amount Amount
e e received Balance application
due on due on received on transferr
appli allott on an money
application allotment an allotment ed
ed ed application
to calls-
in
 advance

1 2 3 4 5 6 7 8

5000 Nil 40000 Nil Nil Nil Nil Nil

2000 2000
80000 80000 Nil 20000 20000 Nil
0 0

6000 2400
240000 96000 144000 24000 Nil 120000
0 0

3000
4500 120000 18000 102000 4500 Nil 22500
0

1500
1500 60000 6000 54000 1500 Nil 7500
0

1300 5000
520000 200000 300000 500000 20000 150000
00 0

Adjustm
ent of
Calls-in- Amoun Surplu
Refun Calls-in
Amount Advance adj t s in Amount
d advance Amount payable
due to usted due on calls- due on
Amou on final call
1st call against 1st in adva final call
nt against
1st call call nce a/c
final
call

9 10 11 12 13 14 15 16

20000 Nil Nil Nil Nil Nil Nil Nil

Nil 60000 Nil 60000 Nil 40000 Nil 40000

Nil 72000 72000 Nil 48000 48000 48000 Nil

75000 13500 13500 Nil 9000 9000 9000 Nil

45000 4500 4500 Nil 3000 3000 3000 Nil

14000
150000 90000 60000 60000 100000 60000 40000
0

Forfeiture of Share
As we know, a company can forfeit shares on non-payment of the number of calls. The
company before forfeiture must first give clear 14 days’ notice to the defaulting shareholder that
he shall pay the due amount along with the interest.

If not paid by the specified date, the shares shall be forfeited. If the shareholder still does not
pay, the company may forfeit the shares by passing an appropriate resolution.

On forfeiture, we need to cancel the shares and to that extent, reduce the Share Capital. The
amount received by the company is not refunded.

Till the time the company re-issues the forfeited shares, it adds the balance of the Forfeited
Shares Account to paid-up capital under Subscribed Capital in the Notes to Accounts on ‘Share
Capital’.

Being part of shareholders’ Funds we show it under Equity and Liabilities part of the Balance
Sheet.
Accounting Entries on Forfeiture of Share

The company may issue the forfeited shares at par or at a premium. Accounting entry for
forfeiture will vary according to the situation.

1. When Forfeiture of shares Issued at Par

In this case,

1. The company debits the Share Capital Account with the amount called-up up to the date of
forfeiture on shares.
2. It credits the Shares Allotment Amount or Shares Call Account with amount called-up on
forfeited shares but due from the shareholders. If we are maintaining Calls-in-Arrears Account
then we credit Calls-in-Arrears Account.
The company credits the Forfeited Shares Account by the receipt of the amount on the shares
forfeited.

Learn more about Shares Issued at Par here in detail.

Journal entry for forfeiture of shares is:

Date Particulars Amount (Dr.) Amount (Cr.)

 Share Capital A/c Dr. XXX

To Forfeited Shares Account A/c Cr. XXX

To Shares Allotment A/c Cr. XXX

To Shares Call A/c Cr. XXX

If, we maintain Calls-in-Arrears Account we will credit Calls-in-Arrears Account instead of

“Shares Allotment Amount” and “Shares Call Account”.

Journal entry for this will be:

Date Particulars Amount (Dr.) Amount (Cr.)

Equity Share Capital A/c Dr. XXX

To Forfeited Shares Account A/c Cr. XXX

To Calls-in-Arrears A/c Cr. XXX

2. Forfeiture of Shares which were originally issued at Premium

When shares issued at a premium are forfeited, two following possibilities exist:

a. Securities Premium amount has been received:

In this case, we will debit the Share Capital Account with the amount called up and will credit
Forfeited Shares (amount received less premium), Shares Allotment (amount not received on
allotment), First Call (amount not received on calls); Final Call Account in the same manner.

Journal entry will be:

Date Particulars Amount (Dr.) Amount (Cr.)

Share Capital A/c Dr. XXX

To Shares Allotment A/c Cr. XXX

To Forfeited Shares A/c Cr. XXX

To First Call A/c Cr. XXX

b. Securities Premium amount has not been received:

In this case, we will debit the Share Capital Account with the amount called-up. If Securities
Premium has not been received, we will debit Securities Premium in order to cancel it.

Learn more about Shares Issued at Premium here in detail.

And we will credit Forfeited Shares (amount received less premium), Shares Allotment (amount
not received on allotment), First Call (amount not received on calls); Final Call Account in the
same manner.

Date Particulars Amount (Dr.) Amount (Cr.)

Share Capital A/c Dr. XXX

Securities Premium A/c Dr. XXX

To Shares Allotment A/c Cr. XXX

To Forfeited Shares A/c Cr. XXX

 To First Call A/c Cr. XXX

Solved Example on Forfeiture of Share

Give Journal entry relating to ‘Forfeiture of Shares’ for the following:

1.ABC Ltd. Issued 10,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. The
amount is payable as ₹ 4 per share on the application, ₹ 5 per share (including premium)
on the allotment, ₹ 3 per share on first and final call.

The company allows 200 shares to Mr. Gaurav.

Case 1: If Gaurav fails to pay allotment money and on his subsequent failure to pay the first and
final call, the company forfeits his shares.

Case 2: If Gaurav fails to pay the first and final call and company forfeits his shares.

2. XYZ Ltd. Issued 5,000 equity shares of ₹ 10 each at par payable as ₹ 2 per share on the
application, ₹ 3 per share on the allotment, ₹ 3 on first and final call and ₹ 2 per share on
second and final call. The company allots 40 shares to Mr. Ashish.

Case 1: If Mr. Ashish fails to pay allotment money and company forfeits his shares.

Case 2: If Mr. Ashish fails to pay the first call and on his subsequent failure to pay the final call,
the company forfeits his shares.

Ans:

1. Journal Entries

IN THE BOOKS OF ABC LTD.

Amount Amount
Date Particulars
(Dr.) (Cr.)

Case
Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
1
 Securities Premium A/c (200 x ₹ 2) Dr. 400

To Shares Allotment A/c (200 x ₹ 5) Cr. 1,000

To Forfeited Shares A/c (200 x ₹ 4) Cr. 800

To First and final Call A/c (200 x ₹ 3) Cr. 600

(Being 200 shares forfeited for non-payment of allotment

and first and final call money)

Case
Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
2

To Forfeited Shares A/c (200 x ₹ 7) Cr. 1,400

To First and final Call A/c (200 x ₹ 3) Cr. 600

(Being 200 shares forfeited for non-payment of first and

final call money)

2. Journal Entries

IN THE BOOKS OF XYZ LTD.

Amount Amount
Date Particulars
(Dr.) (Cr.)

Case
Equity Share Capital A/c ( 40 x ₹ 5) Dr. 200
1
 To Shares Allotment A/c ( 40 x ₹ 3) Cr. 120

To Forfeited Shares A/c (40 x ₹ 2) Cr. 80

(Being 40 shares forfeited for non-payment of allotment

money )

Case
Equity Share Capital A/c (40 x ₹ 10) Dr. 400
2

To Forfeited Shares A/c (40 x ₹ 5) Cr. 200

To Shares First Call A/c (40 x ₹ 3) Cr. 120

To Shares Second and Final Call A/c (40 x ₹ 2) Cr. 80

(Being 40 shares forfeited for non-payment of first and

second and final call)