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’ of Schedule I of the Companies Act, 2013, 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.

Journal Entries

(i) When call money is in arrear:

Calls-in-Arrear A/c                                                                      Dr. (with the amount-failed by the shareholders)

To Relevant Call A/c

(ii) On receipt of amount of Calls-in-Arrear with interest, on a subsequent date: Bank                                                                                                                               Dr. (with the amount received) To Calls-in-Arrears A/c