Calls in Advance

What is Calls in Advance?

When a company makes calls on its shares, shareholders are expected to pay only when the call is due. But sometimes, a shareholder pays part or the whole of the amount of a call before it is actually made by the company. This amount — received before it is due — is called Calls in Advance.

The key point: this is not share capital. It is money the company has received but has not yet earned the right to keep. Until the call falls due, the company holds this money as a liability. It must be repaid if the call is never made, and it usually carries interest.

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Accounting Treatment — Receipt of Calls in Advance

When the company receives money in advance of a call, the journal entry is:

Why this entry? Bank is debited because cash comes in. Calls in Advance is credited because it is a liability — the company owes this amount to the shareholder until the call is due.

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Accounting Treatment — Adjustment When Call Becomes Due

On the due date of the call, the company no longer owes this money. The liability is settled by converting it into the call money due. The entry is:

Why this entry? Calls in Advance is debited to close the liability. The particular call account (e.g., Equity Share First Call A/c) is credited because the call amount is now considered received — the shareholder's obligation for that call is satisfied.

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Where Does Calls in Advance Appear in the Balance Sheet?

Calls in Advance is shown as a separate item under Equity and Liabilities, under the head Current Liabilities, as sub-head Other Current Liabilities.

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Interest on Calls in Advance

Since the company holds the shareholder's money before it is due, it is fair that the company pays interest for that period. The rules are:

• Table F of the Companies Act provides that interest on calls in advance may be paid at a rate not exceeding 12% per annum.
• The company's Articles of Association may specify a different rate. If the Articles are silent, Table F applies.
• Interest is payable from the date of receipt of the advance up to the date when the call becomes due for payment.

Journal Entries for Interest on Calls in Advance

Case 1: Interest is paid directly

Case 2: Interest is due but not yet paid

First, record the interest as due:

Then, when the interest is actually paid:

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Key Distinctions to Remember