Difference Between Calls in Arrears and Calls in Advance

The difference between calls in arrears and calls in advance is that calls in arrears are assets to a company for they are the amount of allotment a shareholder is due and fails to pay a company within the prescribed time while on the other hand, calls in advance are the excess amount of money a shareholder pays as part of his or her shares to a company before it calls for payment.

Calls in arrears represent the difference between the money that a shareholder owes a company and the call money received by a company from the shareholder.

The interest rate of calls in arrears is 10%of the total as per table F of the companies act 2013 that is if the books of the company are silent about the interest rate to be charged.

Calls in advance are the amount of money paid in excess by a shareholder to a company as part of his or her shares before the actual call by the company.

It is therefore credited and in case of an allotment by the company, the amount is adjusted towards the payment of the calls.

Calls in advance are not part of the current liabilities in a balance sheet but part of other current liabilities.

Comparison Table Between Calls in Arrears and Calls in Advance

Parameter of ComparisonCalls in arrearsCalls in advance
Balance sheetIt is debitedIt is debited
Interest rate10%12%
InstallmentAfter a company callsBefore a company calls
Action by CompanyForfeiture of sharesAdjusted when a call comes
State of the moneyOwes the companyOwed by the company

What are Calls in Arrears?

When a shareholder is applying for shares in a company, the company will make a legitimate offer, and when it approves the application and gives these shares to the applicant, it turns out as a legal contract between the two parties.

Thereafter, the shareholder is expected to pay the amount of money that he or she owes the company when it calls for payment. In the case where the shareholder fails to pay the money at the expected prescribed time, it may lead to the forfeiture of shares.

Therefore, the company will deduct calls in arrears from the called-up capital to determine the amount of capital that has been paid up.

As per table F of the companies act 2013, calls in arrears interest rate is 10% of the total and is expected to be paid at the time the company makes a call.

Therefore, calls in arrears are the amount of money a shareholder fails to pay a company at a time when it has already made a call. This might lead to the termination of shares by the company.

When a company does not maintain a separate calls of arrears account, the amount of money the shareholder owes the company appears as notes to the accounts.

It is an asset to a company as it is the amount a shareholder owes the company but fails to pay at the time of the call.

What are Calls in Advance?

This is the excess amount of money paid by a shareholder to a company as part of his or her shares before a call for payment.

This money acts as security to the shareholder because, at the time when the company will call for payment, the excess amount will be adjusted towards the payment.

It is termed as a liability to a company. It is therefore credited on the left side of the balance sheet.

As per table, F of the companies acts 2013, calls in advance interest rates are 12% of the total and it is expected to be adjusted at the time the company calls for payment.

There are no dividends on calls in advance to a shareholder as it is not termed as part of the called-up capital by the company.

Furthermore, there are no extra voting rights given to the shareholder as much as the shareholder pays before the company calls for payment.

Main Differences Between Calls in Arrears and Calls in Advance

  1. Calls in arrears are the amount of money a shareholder owes a company and fails to initiate payment at the time the company calls for payment whereas, calls in advance are the excess amount of money a shareholder pays a company before a company calls for payment.
  2. Calls in arrears are termed assets to a company for it is the amount a shareholder owes the company, it is debited on the balance sheet. Conversely, calls in advance are termed as liabilities to a company and it is therefore credited on the balance sheet.
  3. As per table F, companies act 2013, the calls in arrears interest rate are 10% of the total while on the other hand calls in advance are 12% of the total.
  4. Calls in arrears are the amount of money that failed to be paid after a company has called for payment while calls in advance are paid before a company calls for payment and acts as security money to the shareholder.
  5. Calls in arrears are the amount of money a shareholder owes a company whereas calls in advance are the excess amount of money a shareholder pays a company and therefore the company owes them.

Conclusion

As per the above points, a shareholder’s capital will determine how they will respond when a company calls for payment of their shares.

In the case where the shareholder is not in a position to pay the company when it calls for payment, we term it as calls in arrears as it may lead to the termination of shares.

In the case where a shareholder is capable of paying excessively before the company calls for paying the excess amount of money is credited into the shareholder’s account and will thereafter be adjusted when the company calls for payment.

Due to the failure of being paid at the prescribed time, calls in arrears are different from calls in advance as calls in advance are the excess amount of money paid before a company calls for payment.

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