Tag: elements of book keeping and accountancy

Sometimes a shareholder pays a portion or whole on the unpaid amount on the shares held by him in advance. In such a case, money so received in advance is transferred to Calls-in- advance account. It is important to note that calls-in-advance does not form part of share capital. In-spite of this, according to Section 93 dividend may be paid on calls in advance, if authorized by the Articles.

Disclosure in Balance Sheet:

Calls in advance is shown separately, in the Balance Sheet as liability of the company under the heading ‘Current Liabilities’ until the calls are made and the amount actually becomes payable by the shareholder.

Interest on Calls-in-advance:

Since the amount received as calls-in-advance is a liability of the company, it is liable to pay interest on the calls-in-advance from the date of receipt of the amount till the date when the call becomes due for payment. If the Articles of the Company are silent about the rate of interest on calls-in-advance, then rate of interest is 6% p.a. Such an interest is a charge on profits and has to be paid to the concerned shareholder even if there is no profit.

The accounting treatemt for interest on calls in advance is as follows:

1. For interest due

 Interest on calls in advance A/c     Dr.

                To sundry shareholder's  A/c

2. For interest paid

 Sundry shareholder A/c                  Dr.

                To Bank A/c

3. For transfer of balance of interest to profit and loss A/c

  Profit and Loss A/c                            Dr.

                  To Interest on calls in advance A/c

Calculation of total assets at the end of the year :- 

Sometimes the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.  In such cases the old bill is cancelled and fresh bill with new terms of payment is drawn it is called as renewal of bill. 

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. Its treatment is same as we do in the case of Interest Received in Advance.

When bill is sold to the bank at a discounted rate it is called discounting the bill of exchange.
As cash is received on discounting the bill it is also called encashment.

A bill is drawn by the drawer(debtor) on the drawee (creditor) so as to give him a sense of  security for the receivables. But in case the drawer does not want to wait till the maturity period of the bill or rather he has some urgent need of funds, what he will do is get the bill discounted by a bank. When the bill is discounted by the bank, it pays the drawer an amount after deducting a certain percentage, because they are giving the drawer the funds he needs before the date of maturity of the bill and the discount is a type of fee for their service. So here in this case the amount of discount is calculated as follows: