Dr.

Neyaz Ahmad
Assistant Professor
R.D.S. College, Muz.

Unit 3
Accounting for Share Capital: Issue, Forfeiture
and Re-issue of Shares
Part II
3.6 CALLS IN ARREARS AND CALL IN ADVANCE

A) Calls in Arrears
Calls in arrears is the sum of money due but not received from shareholders till the last
day of payment fixed for any instalment’s money on account of failure of shareholders.
The calls in arrears is assets for company from which it expects to receive cash later on.
The calls in arrears money is subtracted from called up share capital in order to find out
paid up share capital.
Calls in arrears is not shown on the face of financial statement that is balance sheet but
it is shown in note to account while computing paid up share capital. The company can
charge interest on calls in arrears if the articles of association of the company so
provides at the rate specified in it on the recommendation of board of directors. If the
article of the company is silent, then the company has to follow Table F of company act
which give powers to BOD to charge maximum interest @ 10% per year on amount of
calls in arrears for due period. However, the BOD has power to exempt interest on calls
in arrears at their discretion.
The following Journal Entries are recorded for Calls in Arrears:
 Date Particulars Debit Credit
(i) For Non-Receipt of any instalment
Calls in Arrears A/c …............
To Relevant Installment A/c …............
(Being Calls in arrears on …...shares @ Rs…..each)
(ii) On Receipts on Calls in Arrears money
Bank A/c …............
To Calls in Arrears A/c ......... …............
(Being Calls in arrears received on …...shares
@ Rs…..each)
(iii) When Interest become due on Calls in Arrears
Shareholder A/c …............
To Interest Income A/c …............
(Being Interest due on Rs….@ …..% p.a for n time)
(iv) When interest is received on Calls in Arrears
Bank A/c Dr …............
To Shareholder A/c …............
(Being interest due received)
(v) When interest is transferred to Profit & Loss A/c
Interest Income A/c …............
To Profit and Loss A/c …............
(Being Interest earned transferred to P/L A/c)

B) Calls in Advance
Calls in Advance is the sum of money received for subsequent instalments together with
any earlier instalment. For example, if sum of money due on first call or second call is
received on allotment, then such amount received is called calls in advance. Calls in
advance is current liabilities for company and it is disclosed under the head other current
liabilities in the balance sheet. The company is required to pay interest on calls in
advance at the rate mentioned in the article of association of the company. If the article
of the company is silent, then the board of director can follow Table F in the company
that gives powers to BOD to provide maximum interest at the rate of 12% per year for
the concerned period.

The Following Journal Entries are recorded for calls in Advance.

 Date Particulars Debit Credit
(i) On Receipt of Calls in Advance money
Bank A/c …............
To Calls in Advance A/c …............
(Being Calls in Adv. received on ..shares @ Rs..each)
(ii) On adjustment of Calls in Advance money
Calls in Advance A/c …............
To Relevant Calls A/c …............
(Being Calls in adv. adjusted on...shares @ Rs…each)
(iii) When Interest Exp. becomes due on Calls in Adv.
Interes Expense A/c …............
To Shareholder A/c …............
(Being Interest due on Rs….@ …..% p.a for n time)
(iv) When Interest Expense is paid on calls in Adv.
Shareholder A/c …............
To Bank A/c …............
(Being interest paid on calls in advance)
(v) When interest is transferred to P & L A/c
Profit & Loss A/c …............
To Interest Expense A/c …............
(Being Interest expense transferred to P & L A/c)

Example 6.
Calls in Arrear and Calls in Advance
Big B Corporation issued 20,000 equity shares of ₹ 100 each payable as follows:
On Application ₹ 25 as on Jan.1, 2019; On Allotment ₹ 30 as on Apr.1, 2019; On
First Call ₹ 25 on Jun. 1, 2019 and on Final Call ₹ 20 as on Aug.1, 2019.
All the issued shares were subscribed for and all the money were duly received.
Mr. X who had been allotted 2,000 shares failed to pay both calls money and Mr.
Y who were allotted 3,000 shares paid both calls money along with allotment. The
company charges interest on calls in arrears @ 10% per annum and provides
interest on calls in advance @12% per annum. The calls in arrears money was
received on Dec. 1, 2019 from Mr. X.
You are required to Record Journal Entries in the books of Big B Corporation and
show notes for computation of interest with respect to X and Y.

Solution
Date Particulars Debit Credit
2019
Jan. 1 Bank A/c ₹ 5,00,000
To Share Application A/c ₹ 5,00,000
(Being Share App. money received on 20,000 shares
Jan. 1 Share Application A/c ₹ 5,00,000
To Share Capital A/c ₹ 5,00,000
(Being share App. Money trasferred to share capital)
Apr. 1 Share Allotment A/c ₹ 6,00,000
To Share Capital A/c ₹ 6,00,000
(Being share Allot. Money received on 20,000 shares
Apr. 1 Bank A/c ₹ 7,35,000
To Share Allotment A/c ₹ 6,00,000
To Calls in Advance A/c ₹ 1,35,000
(Being Allot. money received along with calls in Adv.)
Jun. 1 Share First Call A/c ₹ 5,00,000
To Share Capital A/c ₹ 5,00,000
(Being 1st Call money due on 20,000 share @
Jun. 1 Bank A/c ₹ 3,75,000
Calls in Advance A/c ₹ 75,000
Calls in Arrears A/c ₹ 50,000
To Share First Call A/c ₹ 5,00,000
(Being 1st Call money received after adjustment)
Aug. 1 Share Final Call A/c ₹ 4,00,000
To Share Capital A/c ₹ 4,00,000
(Being share final call due on 20,000 share @
Aug. 1 Bank A/c ₹ 3,00,000
Calls in Advance A/c ₹ 60,000
Calls in Arrears A/c ₹ 40,000
To Share Final Call ₹ 4,00,000
(Being final call money received after adjustment)
Aug. 1 Interest Expense A/c ₹ 3,900
To Y's A/c ₹ 3,900
(Being interest due on Rs.1,35,000 @ 12% p.a, W.N1)
Aug. 1 Y's A/c ₹ 3,900
To Bank A/c ₹ 3,900
(Being Interest Expense paid)
 Dec. 1 Bank A/c ₹ 90,000
To Calls in Arrears A/c ₹ 90,000
(Being Calls in arrears on first call & final call received)
Dec. 1 X's A/c ₹ 3,833
To Interest Income A/c ₹ 3,833
(Being interest on calls in arreara due-W.N2)
Dec. 1 Bank A/c ₹ 3,833
To X's A/c ₹ 3,833
(Being Interest received from X on calls in arrear)
Dec. 31 Profit & Loss A/c ₹ 3,900
To Interest Expense ₹ 3,900
(Being interest expense transferred to P&L a/c)
Dec. 31 Interest Income A/c ₹ 3,833
To Profit & Loss A/c ₹ 3,833
(Being Interest income transferred to P&L a/c)

Working Notes:
1) Calls in Advance Money received from Y
On First call= 3,000 shares × ₹ 25 = ₹75,000 and
On Final call = 3,000 shares × ₹ 20 = ₹60,000
Total Calls in Advance Money = ₹135,000

First call money ₹75,000 will be due on June 1 but it was received 2 months earlier
on April 1, 2019. The Final call money is also received 4 months earlier (on April
1 in place of Aug.1). Therefore,
Interest on call in advance on first call = ₹75,000 × 12/100 × 2/12 = ₹1,500
Interest on call in advance on final call = ₹ 60,000 × 12/100 × 4/12 = ₹2,400
Total Interest Payable to Y on call in Advance = ₹1,500 + ₹2,400 = ₹3,900
2) Calls in Arrears due from X
On First call = 2,000 × ₹ 25 = ₹50,000 and On Final Call = 2,000 × ₹ 20 = ₹40,000
The first call due on June 1 and final call due on Aug.1 were received on Dec. 1,
2019. The first call money was unpaid for 6 month and final call money was due
for 4 months. Thus,
Interest on calls in Arrears on first call = ₹50,000 × 10/100 × 6/12 = ₹2,500
Interest on call in Arrears on final call = ₹ 40,000 × 10/100 × 4/12 = ₹1,333
Total Interest Receivable from X on calls in Arrears = ₹2,500 + ₹1,333 = ₹3,833

Pro-rata-Allotment:
When there is over subscription of shares either the excess amount is
refunded or shares are allotted on ratio or proportion basis. Allotment of
shares on ratio basis is called Pro-rata Allotment.
The excess money received on application is adjusted towards money due
on the allotment and the excess over application and allotment is either
transferred in calls in advance or refunded to the shareholders.
Forfeiture of Shares:
Generally, if any shareholder fails to pay allotment or calls money, a notice
is sent by board of directors of the company to such shareholders to pay the
unpaid amount together with interest accrued on unpaid money. If the
shareholders fails to pay allotment or call money or any part of this by the
last date fixed by the board of directors proceed to forfeits the shares on
which allotment or call money is due or arrears. Forfeiture of share means
that the rights of ownership of the shareholders who failed to pay call in
arrears is taken back and they are no more shareholders of the company
after the forfeiture of shares and also their name is removed from the
registers. The procedure for forfeiture of shares is provided in the articles of
association of the company.
Re-issue of Forfeited Shares:
The forfeited shares can be re-issued by the board of the directors of the
company. If forfeited shares are re-issued at price less than the paid up or
called up value (at discount), then the amount of discount must not be more
than the amount actually received from issue of such shares. The new buyer
of forfeited share will make payment in future on call asked by the company,
if such share were bought partly paid up.
Transfer to Capital Reserve:
The amount forfeited from shareholders for non-payment of amount due
from them is transferred to capital reserve after deducting the discount
allowed on re-issue of forfeited shares. If shares are re-issued at par or
premium, then the whole amount forfeited is transferred to capital reserve
on the numbers of share re-issued.
When all Forfeited shares are not Re-issued:
The amount forfeited on shares is calculated on both shares re-issued and
not re-issued. The amount forfeited on share but not re-issued is shown in
share forfeiture account. When forfeited shares are re-issued, the forfeited
amount on such re-issued shares shall be calculated and the discount
allowed on re-issue of such shares is subtracted in order to transfer to
capital reserve. The amount forfeited shares subsequently re-issued is not
shown in share forfeiture account but it is transferred to capital reserve
account.
Surrender of Shares:
After allotment of shares to shareholders, if any shareholder is unable to
pay any call and presents his share certificate requesting for cancellation of
his membership. Such voluntary request for cancellation of shares is called
surrender of shares. The accounting entries are same as in case of forfeiture
of shares.
Example 7
Forfeiture of shares issue at Par
X Ltd. invited applications for 1,00,000 Equity Shares of ₹10 each payable as ₹ 2
on application, ₹ 3 on Allotment and the balance on first and final call. Application
were received for 3,00,000 shares and shares were allotted on pro-rata basis.
The excess application money was to be adjusted against allotment only. Ram a
shareholder who has applied for 3,000 shares failed to pay the call money and his
shares were forfeited and re-issued at ₹ 8 per share as fully paid. Pass necessary
journal entries in the books of company.

Solution.
Journal Entries in the books of X Ltd.
Date Particulars Debit-₹ Credit-₹
Bank A/c ₹6,00,000
To Share Application. A/c ₹6,00,000
(Being App. money received on 3,00,000
shares@Rs.2 per)
Share Application A/c 6,00,000
To Share Capital A/c 2,00,000
To Share Allotment A/c 3,00,000
To Bank A/c 1,00,000
(Being App. money adjusted & refunded)
Share Allotment A/c 3,00,000
To Share Capital A/c 3,00,000
(Being Allotment money due on 1,00,00
shares @3)
Share Final Call A/c 5,00,000
To Share Capital A/c. 5,00,000
(Being final call due on 1,00,000 share @ ₹ 5
each)
Bank A/c 4,95,000
Call in Arrears A/c 5,000
To Share Final Call A/c 5,00,000
(Being final called received & arrears recorded)
Share Capital A/c 10,000
 To Calls in Arrears 5,000
To Share Forfeiture A/c 5,000
(Being 1,000 share fortified for non-payment of
final call)
Bank A/c 8,000
Share Forfeiture A/c 2,000
To Share Capital A/c 10,000
(Being 1,000 shares re issued @ ₹ 8 fully paid)

Share Forfeiture A/c 3,000

To Capital Reserve 3,000
(Being forfeited money transferred to capital reserve)

Working Note:
No. of share Allotted to Ram= No of application received × No. of share allotted
No of Applied shares

No of share Allotted to Ram= 3,000 × 1/3 = 1,000 shares

Example: 8
Forfeiture of Shares originally issued at Premium
Y Ltd. issued 10,000 shares of ₹100 each at premium of ₹ 20 payable as ₹10
on Application, ₹ 50 on Allotment (including premium ₹10) and ₹ 60 on Final
call(including premium ₹10).
Application were received for 23,000 shares and Allotment was made as under
by the company. Applicants for 2,000 shares were allotted no shares,
Applicants for 12,000 shares were allotted only 1,000 shares, and applicants
for 10,000 shares were allotted 10,000 shares.
The Excess of application money was to be adjusted sums due on allotment
and remaining money was to be returned.
All money were duly received except from Ram on final call who was allotted
200 shares in the category of applicants for 12,000 shares and from Sunil on
final calls who was Applied for 500 shares in the category of applicants for
10,000 shares.
The shares of Ram and Sunil were forfeited for non-payment of final call money
and all the shares of Ram and only 300 shares of Sunil were re-issued for ₹ 90
fully paid up.
You are required to pass Journal entries and prepare partial balance sheet of Y
Ltd.
Solution.
Journal Entries in the Books of Y Ltd.
Date Particulars Debit-₹ Credit-₹
Bank A/c ₹2,30,000
To Share Application. A/c ₹2,30,000
 (Being App. money received on 23,000 shares
@10 per share)
Share Application A/c ₹2,30,000
To Share Capital A/c 1,00,000
To Share Allotment A/c 50,000
To Bank A/c 80,000
(Being App. money adjusted & refunded)
Share Allotment A/c 5,00,000
To Share Capital A/c 4,00,000
To Securities Premium A/c 1,00,000
(Being Allotment money due on 10,00 shares @
₹50 per share)
Bank A/c 4,50,000
Share Allotment A/c 4,50,000
(Being Allotment money due received)
Share Final Call A/c 6,00,000
To Share Capital A/c. 5,00,000
To Securities Premium A/c 1,00,000
(Being final call due on 10,000 share @ ₹60 each)
Bank A/c 5,58,000
Call in Arrears A/c 42,000
To Share Final Call A/c 6,00,000
(Being final called received & arrears recorded)
Share Capital A/c (700 x ₹ 100) 70,000
Securities Premium A/c (700 x ₹10) 7,000
To Calls in Arrears 42,000
To Share Forfeiture A/c 35,000
(Being 700 share fortified for non-payment of
final call)
Bank A/c (500 x ₹90) 45,000
Share Forfeiture A/c (500 x ₹10) 5,000
To Share Capital A/c (500 x ₹100) 50,000
(Being 700 shares re issued @ ₹ 90 fully paid)

Share Forfeiture A/c (500 x ₹ 40) 20,000

To Capital Reserve [500 x (₹50 - ₹40) 20,000
(Being forfeited money transferred to capital reserve)

Balance Sheet of Y Ltd.

Liabilities Amount Assets Amount
1. Shareholders’ Fund 1.Non-Current
Assets
A. Paid up share Capital 2.Current Assets
 (See working Note 3) 9,90,000 Cash at Bank (2) 12,03,000
B. Reserve & Surplus:
(i) Securities Premium(4) 1,93,000
(ii) Capital Reserve (1) 20,000
12,03,000 12,03,000

Working Note:
1. Transfer to Capital Reserve
Amount forfeited on 700 share is ₹ 35,000. Therefore,
Amount forfeited on 500 share will be………. ₹ 25,000
Less: Discount allowed on re-issue of shares….₹ 5,000
Amount to be transferred to capital Reserve…. ₹ 20,000

2. Bank Balance = ₹230,000 - ₹80,000 + ₹450,000 + ₹558,000 + ₹45,000 = ₹12,03,000

3. Paid up Share Capital:
9,800 shares of ₹ 100 each………………………….. ₹9,80,000
Add: Amount forfeited on 200 shares not re-issue……₹10,000
₹9,90,000
4. Securities Premium = ₹1,00,000 + ₹1,00,000 - ₹ 7,000 = ₹ 1,93,000
Example: 9
Issue of Share at Premium, Forfeiture and Re-issue
New India Ltd. Issued 10,000 shares of ₹10 each at premium of ₹2 per share,
payable as ₹ 3 on application, ₹5 on allotment (including premium), ₹ 2.50 on firs
call and balance on Final call.
All the shares were subscribed and all money were duly received except from Rahul
who held 500 shares failed to pay allotment money as well as both calls and Rima
who holds 1,000 shares failed to pay both calls money. The shares of Rahul and
Rima were forfeited.
The forfeited shares of Rahul was re-issued for ₹ 7 fully paid up and Rima’s shares
were re-issued for ₹ 4 full paid up. Prepare Journal entries in the books of the
company.
Solution
Journal Entries in the Books of Y Ltd.
Date Particulars Debit-₹ Credit-₹
Bank A/c ₹ 30,000
To Share Application. A/c ₹ 30,000
(Being App. money received on 10,000 shares @
₹ 3 per share)
Share Application A/c 30,000
To Share Capital A/c 30,000
(Being App. money transferred to share capital)
Share Allotment A/c 50,000
 To Share Capital A/c 30,000
To Securities Premium A/c 20,000
(Being Allotment money due on 10,000 shares @
₹5 per share)
Bank A/c 47,500
Share Allotment A/c 47,500
(Being Allotment money received on 9,500 share
@ ₹ 5 per share)
Share First Call A/c 25,000
To Share Capital A/c. 25,000
(Being 1st call due on 10,000 share @ ₹2.5 each)
Bank A/c 21,250
To Share First Call A/c 21,250
(Being 1st call money received on 8,500 share @
₹2.5 each)
Share Final Call A/c 15,000
To Share Capital A/c. 15,000
(Being final call money due on 10,000 share @
₹1.5 each)
Bank A/c 12,750
To Share Final Call A/c 12,750
(Being final call money received on 8,500 share
@ ₹1.5 each)
Share Capital A/c (1,500 x ₹10) 15,000
Securities Premium A/c ( 500 x ₹2) 1,000
To Share Allotment A/c 2,500
To Share First Call A/c 3,750
To Share Final Call A/c 2,250
To Share Forfeiture A/c 7,500
(Being 1,500 shares forfeited for non-payment of
allotment & calls money)
Bank A/c [ 500 x 7 + 1,000 x 5] 8,500
Share Forfeiture A/c [ 1,500 + 5,000] 6,500
To Share Capital A/c [1,500 x ₹10] 15,000
(Being 1,500 shares of Rahul & Rima re-issued)
Share Forfeiture A/c 1,000
To Capital Reserve 1,000
(Being gain on forfeited share transferred to
Capital Reserve)
 Self-exercise questions:
Q1. A Ltd. invited application for 10,000 equity shares of ₹ 20 each issued at par.
The whole issue price is payable on Application. The issue is fully subscribed. Pass
necessary journal entries in the books of X Ltd.

Q2. S Ltd. is registered with Share Capital of ₹ 10,00,000 divided into 1,00,000
equity shares of ₹ 10 each. It issues a prospectus inviting application for 20,000
shares payable as follows. Rs 3 on Application, ₹4 on Allotment and balance on
First & Final Call.
Application were received for 25,000 shares. The company allotted 20,000 shares
to the successful applicants and rejected the application for remaining 5,000
shares and refunded their application money. All money were duly received except
from one share holder holding 500 shares on Call.
You are required to pass necessary journal entries in the books of S Ltd. without
opening Calls in Arrears Account.

Q3. Acme Company is registered with capital of ₹ 50,00,000 divided in 50,000

units of shares of ₹100 each. It issued 20,000 shares of ₹100 payable as ₹20 on
Application, ₹40 on Allotment, ₹ 20 on first call and balance on final call.
When first call was made, X- a shareholder holding 300 shares paid entire balance
(including final call money) on his shares while another shareholder-Y holding
1,000 shares failed to pay money due on first call.
The shares of Y were immediately forfeited for non-payment of first call and after
forfeiture final call was made. The forfeited shares of Y were-issued for ₹ 60 fully
paid up.
You are required to Pass necessary Journal entries in the books of the Company and
show calculation in working notes.
Q4. Moon Ltd. has nominal Capital of ₹10,00,000 divided into shares of ₹100
each. It issued 30,000 share to the public payable ₹ 40 on Application, ₹20 on
Allotment and ₹ 20 on first call and ₹20 on final call. All the shares were subscribed
for by the public. The money received on these share were as follows:
On 1,000 shares ₹40 only; on 2,000 shares ₹60 only; on 5,000 shares ₹80 only
and on 22,000 shares₹100 per share. The directors of the company forfeited only
3,000 share on which less than ₹80 were received. Later on the forfeited shares
were re-issued for ₹80 fully paid up.
You are required to Pass Necessary Journal entries in the books of Moon Ltd.
Q6. Nerolac Company invited application for 1,00,000 shares of ₹10 each at
premium of ₹2 per share payable as follows: On Application ₹2, on Allotment ₹4
(including ₹ 2 premium), on First call ₹2.5 and ₹ 3.50 on final call. Application for
1,50,000 shares were received.
Application for 1,20,000 shares were allotted 1,00,000 shares (pro-rata basis) and
application for 30,000 shares were rejected and their money was returned. All
calls were made and all money were duly received except from Sohan on Allotment
and both calls who was allotted 5,000 shares. Due to failure to pay money due on
allotment and calls his shares were forfeited. Later, out of forfeited share 3,000
shares were re-issued for ₹ 8 per share fully paid up. You are required to Pass
Journal Entries and Prepare Balance sheet of the Company.