Call in Arrears

Definition:

When a company calls for an unpaid amount of shares it has issued and an investor fails to pay the amount fully or partially, then it is known as call in arrears. In simple words, it refers to the amount of difference between called up capital and paid up capital.

Call in arrears = Called up capital – paid up capital.

In case of a company where there is no difference between the amount of called up capital and paid up capital, call in arrears will be zero. Although it seems impractical in real world but for some companies it may not be impossible because of their goodwill.

It is also known as unpaid call.

Example of call in arrears:

Suppose ABC ltd. registered with a capital of INR 1,00,00,000 (1 crore) divided in share of INR 10 each. It issued 8,00,000 (8 lakh) shares to raise a fund of INR 80,00,000 (80 lakh) and the investors subscribed only for 6,00,000 (6 lakh) shares. The company called for INR 4 per share out of INR 10 (Nominal value of shares) and it got full amount for only 5,50,000 (5 lakh 50 thousand) shares.

Authorized share capital	1 crore
Issued share capital (800000 x 10)	80 lakh
Subscribed share capital (600000 x 10)	Rs 60 lakh
Called up share capital (600000 x 4)	Rs 24 lakh
Paid up share capital (550000 x 4)	Rs 22 lakh
Call in arrears (50000 x 4)	Rs 2 lakh

Application of the given formula:

Call in arrears = 24,00,000 – 22,00,000 = 2,00,000

Interest on Calls-in arrears:

The interest on calls-in-arrears is recoverable from the defaulters according to the provisions of Articles. But if the Articles are silent, shall be applicable  a rate of 5% p.a., on the amount of Calls-in-arrears. However, the directors have the right to waive off the payment of interest on calls-in-arrears. Interest on calls-in-arrears is a nominal account. It is the income of the company, therefore, it is credited.

Disclosure in Balance Sheet:

The calls in arrears is deducted from called up capital in the liabilities side of Balance sheet. The amount left is called paid up capital.

There are two methods to deal with calls-in-arrears:

(i) When Calls in arrears account is not opened:

The companies Act, does not require that opening of calls in arrears account is mandatory. In case company decides not to open this account on default then the actual amount received is debited to Bank A/c and the Relevant call A/c is credited with the amount received. This leaves a debit balance in the relevant call account with the amount not received from defaulter shareholders. Subsequently when amount is received from defaulter shareholders, Bank A/c is debited and Relevant call A/c is credited. This make the ‘Relevant call A/c’ closed.

(ii) When calls-in-arrears account is opened:

In this case, the amount which company has not received from the defaulter is debited to ‘Calls in arrears Account’. Thus, Share Allotment Account, Share Calls Account will close. Total of calls in arrears is deducted from called up capital in balance sheet to find out paid up capital. It may be noted that calls in arrears account has debit balance. When the calls in arrears are collected bank account is debited and calls in arrears is credited.