CALLS IN ARREAR AND INTEREST ON CALLS IN ARREAR :

When calls are made upon shares allotted, the shareholders holding the shares are bound to pay the call money within the date fixed for such payment. If a shareholder makes a default in sending the call money within the appointed date, the amount thus failed is called Calls-in-Arrear.

The interest on Calls-in-Arrear is recoverable according to the provisions in this regard in Articles of the company. But if the Articles are silent, Table ‘F’ shall be applicable which prescribes that if a sum called in respect of shares is not paid before or on the day appointed for payment, the person who failed to pay shall pay thereof from the day appointed for payment to the time of actual payment at a rate not exceeding 10% per annum. However, the directors have the right to waive the payment of interest on Calls-in-Arrear. The interest on Calls-on-Arrear Account is transferred to the Profit and Loss Account at the end of the year

Illustration 4:
On 1st January, 2012, New Ventures Ltd. issued 1,00,000 equity shares of `10 each payable as follows:
On application                          Rs. 3
On allotment                            Rs. 2
On 1st Call                                 Rs.2 (Payable after 2 months, from the date of allotment)
On Final Call                             Rs.3       (Payable after 2 months from the date of 1st call)

Applications were received on 15th January, 2012 for 1,20,000 shares and allotment was made on 1st February, 2012. Applicants for 50,000 shares were allotted in full, those for 60,000 shares were allotted 50,000 shares and applications for 10,000 shares were rejected.

Balance of amount due on allotment was received on 15th February. The calls were duly made on 1st March, 2012 and 1st April, 2012 respectively. One shareholder did not pay the 1st call money on 3,000 shares which he paid with the final call together with interest at 5% p.a. Another shareholder holding 2,000 share did not pay the final call money till end of the accounting year which ended on 31st March, 2013. Show the Cash Book and Journal Entries.

Solution:

Journal Entries

Date	Particulars	Dr. (Rs.)	Cr.( Rs.)
1.2.2012	Equity Share Application A/c                                                   Dr.	3,00,000
	To Equity Share Capital A/c		3,00,000
	(Being the transfer of application money on 1,00,000 shares @ Rs.3 per share transferred to share capital account)
1.2.2012	Equity Share Allotment A/c                                                                                  Dr.	2,00,000
	To Equity Share Capital A/c		2,00,000
	(Being the amount due on allotment of 10,00,000 shares @ Rs. 1 per share)
1.2.2012	Equity Share Application A/c                                                                              Dr.	30,000
	To Share Allotment A/c		30,000
	(Being the transfer of excess application money)
1.3.2012	Equity Share Ist Call A/c                                                                                        Dr.	2,00,000
	To Equity Share Capital A/c		2,00,000
	(Being the Ist call amount due on 1,00,000 shares @ Rs.2 per share)
1.4.2012	Calls-in-Arrear A/c                                                                                                 Dr.	6,000
	To Equity Share Ist Call A/c		6,000
	(Being the transfer of Ist call money on 3,000 equity shares @ Rs. 2 per share)
1.4.2012	Equity Share Final Call A/c                                                                                Dr.	3,00,000
	To Equity Share Capital A/c		3,00,000
	(Being the final call amount due on 1,00,000 shares @Rs.3 per share)
1.5.2012	Calls-in-Arrear A/c Dr.	6,000
	To Equity Share Final Call A/c		6,000
	(Being the transfer of final call money on 2,000 equity shares @ Rs.3 per share)
31.3.2013	Sundry Shareholders A/c                                                                                           Dr.	200
	To Interest on Calls-in-Arrears A/c		200
	(Being the interest due on ` 6,000 @5% for eight months)

 

Dr.                                                                                                                       Cash Book (Bank Column)                                                    Cr.

Date	Pariculars	Rs.	Date	Particulars	Rs.
15.1.2012	To Equity Share		1.2.2012	By Equity Share
	Application A/c	3,60,000		Application A/c	30,000
	(application money @ Z 3 per share 2,20,000 shares)			(refund of application money @ Z 3 per share on 10,000 shares rejected)
15.2.2012	To Equity Share
	Allotment A/c	1,70,000	1.5.2012	By Balance c/d	9,94,025
	(balance of allot­ment money on
	Z 1,00,000 shares)
1.4.2012	To Equity Share
	1st Call A/c	1,94,000
	(1st call money on 97,000 shares)
1.5.2012	To Equity Share
	Final A/c	2,94,000
	(final call money on 98,000 shares)
1.5.2012	To Calls-in-Arrear A/c	6,000
	(arrears of 1st call money @ Z 2 per share on
	3,000 shares)
1.5.2012	To Interest on Calls-
	in-Arrear A/c	25
	(interest on
	Z 6,000 for one month
	@ 5% p.a.)
		10,24,025			10,24,025