Balance of interest on calls-on-advance account is transferred to the ___________ at the end of the year.
Balance of interest on calls-on-advance account is transferred to the ___________ at the end of the year.
The correct option is D Profit & loss account
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
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
