Lesson
Learn what happens when shareholders pay less or more than the amount called by the company.
Understand call money, calls in arrears, calls in advance, paid-up capital, and simple accounting treatment with easy examples.
Concept explanation
When a company asks shareholders to pay part of the share money, it is called a call.
Example: a share has face value Rs.10.
The company may ask application Rs.3, allotment Rs.4, and first call Rs.3.
Total amount collected becomes Rs.10.
Simple line: A call means the company asks shareholders to pay money due on shares.
Calls in arrears means the company asked shareholders to pay money, but some shareholders did not pay.
Example: company made first call of Rs.3 per share.
Raju has 100 shares.
Amount due from Raju = 100 x Rs.3 = Rs.300.
But Raju did not pay.
This Rs.300 is Calls in Arrears.
Simple line: Calls in arrears = amount called by company but not paid by shareholder.
Accounting idea: it reduces paid-up capital because the company has not actually received the money.
Calls in advance means a shareholder pays money before the company officially asks for it.
Example: company has called only Rs.7 per share so far.
But Amit pays the remaining Rs.3 per share early.
If Amit has 100 shares, advance amount = 100 x Rs.3 = Rs.300.
This Rs.300 is Calls in Advance.
Simple line: Calls in advance = money received before it is called by the company.
Accounting idea: it is a liability for the company until the call becomes due.
Riya Stationery Ltd. issues shares of Rs.10 each.
The company asks shareholders to pay in parts: application Rs.3, allotment Rs.4, and first call Rs.3.
Raju owns 100 shares.
When the company asks for first call of Rs.3 per share, Raju should pay Rs.300.
But Raju does not pay, so Rs.300 is Calls in Arrears.
Amit also owns 100 shares.
Before the company asks for first call, Amit pays Rs.300 early, so Rs.300 is Calls in Advance.
Simple line: Raju paid less than called. Amit paid more than called.
When call money is due, the entry idea is: Share First Call A/c Dr., To Share Capital A/c.
When money is received, the entry idea is: Bank A/c Dr., To Share First Call A/c.
If some shareholder does not pay, Calls in Arrears represents the unpaid amount.
Example: first call due on 1,000 shares at Rs.3 = Rs.3,000.
Only Rs.2,700 is received.
Calls in arrears = Rs.300.
Entry idea: Bank A/c Dr. Rs.2,700, Calls in Arrears A/c Dr. Rs.300, To Share First Call A/c Rs.3,000.
Simple line: Bank shows amount received. Calls in Arrears shows amount not received.
If company receives money before making the call, it is calls in advance.
Example: Amit pays Rs.300 before first call is made.
Entry idea: Bank A/c Dr. Rs.300, To Calls in Advance A/c Rs.300.
Bank increases because money is received.
Calls in Advance is liability because company has received money before it is due.
When call becomes due later, Calls in Advance is adjusted.
Simple line: Calls in Advance is money received early and adjusted later.
Called-up capital is the amount the company has asked shareholders to pay.
Paid-up capital is the amount shareholders have actually paid.
If the company calls Rs.5,000 but receives Rs.4,600, paid-up money is less than called-up money.
The difference Rs.400 is calls in arrears.
Simple line: Called-up means asked. Paid-up means actually paid.
The company may charge interest from shareholders who pay late.
Example: Raju did not pay Rs.300 on time. The company may charge interest on this unpaid amount.
Simple line: Late payer may pay interest.
The company may pay interest to shareholders who paid early if rules allow.
Example: Amit paid Rs.300 before due date. The company may give interest on this advance amount.
Simple line: Early payer may receive interest.
At this beginner level, focus on the idea. Legal rates and detailed rules can be studied later.
Simple comparison
| Calls in Arrears | Calls in Advance |
|---|---|
| Money not received though called | Money received before being called |
| Amount receivable from shareholder | Liability until call becomes due |
| Reduces actual paid-up money | Extra money received early |
| Example: Raju did not pay call | Example: Amit paid future call early |
Memory line: Arrears = late payment. Advance = early payment.
Visual flow
Company calls share money
Shareholder should pay
If not paid: Calls in Arrears
If paid early: Calls in Advance
Adjust later when call becomes due
Charge or pay interest if applicable
Solved examples
Example 1
Amount due = 100 x Rs.3 = Rs.300 Calls in arrears = Rs.300
The company asked for Rs.300.
Raju did not pay, so the full amount is calls in arrears.
Example 2
Amount due = Rs.300 Amount paid = Rs.200 Calls in arrears = Rs.100
Raju paid only part of the amount due.
The unpaid part is calls in arrears.
Example 3
Calls in advance = 100 x Rs.2 Calls in advance = Rs.200
The company has not called this money yet.
Because Amit paid early, it is calls in advance.
Example 4
Total due = Rs.3,000 Calls in arrears = Rs.300 Bank A/c Dr. Rs.2,700 Calls in Arrears A/c Dr. Rs.300 To Share First Call A/c Rs.3,000
Bank records the amount actually received.
Calls in Arrears records the amount still unpaid.
Example 5
Bank A/c Dr. Rs.500 To Calls in Advance A/c Rs.500
The company received money before it was due.
Calls in Advance is a liability until adjusted.
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After learning calls in arrears and advance, the next topic is what happens when a shareholder fails to pay and shares are forfeited.
Continue to Forfeiture and Reissue of Shares