Calls in Arrears

When a shareholder fails to pay the amount due on allotment or on any call on the due date, that unpaid amount is called Calls in Arrears (also known as Unpaid Calls). This is essentially the debit balance of all the call accounts taken together.

In the balance sheet, calls in arrears are not shown as a separate liability or asset. Instead, they are deducted from the subscribed capital in the notes to accounts (as per Chapter 3 of the NCERT textbook). However, if the company chooses to maintain a separate Calls in Arrears Account, an additional journal entry is passed to bring the arrears into that account.

Accounting Treatment with a Calls in Arrears Account

The company first records the call money due in the usual way (debiting the respective call account and crediting share capital). When the call money is received, the bank account is debited and the respective call account is credited. But for the amount not received, the following entry is passed:

This entry transfers the unpaid call amounts from the individual call accounts into a single "Calls in Arrears" account. The call accounts are thus closed (they show a nil balance), and the arrears are collected in one place.

Interest on Calls in Arrears

The Articles of Association of a company may empower the directors to charge interest on calls in arrears at a stipulated rate. If the articles are silent on this matter, the rule given in Table F of the Companies Act applies: interest at a rate not exceeding 10% per annum must be paid on all unpaid amounts for the period between the due date and the actual date of payment.

When the shareholder finally pays the overdue call money along with the interest, the entry is: