What is meant by Calls in Advance?
Sometimes shareholders pay a part or the whole of the amount of calls not yet made by the company. The amount so received is known as Calls in Advance. It refers to any amount paid by a shareholder in excess of the amount due from them on allotment or calls.
The amount received in advance is a liability for the company and is credited to a separate 'Calls in Advance Account'. It is shown in the Balance Sheet under the head 'Current Liabilities' as sub-head 'Other Current Liabilities' and is not added to the paid-up capital.
The company is under obligation to pay interest on this amount from the date of receipt up to the date the call is due. As per Table F, the interest rate payable should not exceed 12% per annum.
Explanation
The answer is derived from Section 1.6.2 of the textbook. It defines 'Calls in Advance' as money received for calls not yet made. It highlights the accounting treatment (crediting a separate account) and presentation in the Balance Sheet (under Current Liabilities). It also mentions the liability aspect regarding interest payment as per Table F, which is a key provision often asked in exams.