State the meaning of calls in advance. [1]

Calls in advance refer to the amount received by a company from its shareholders before the actual allotment of shares. These are prepaid amounts for shares that have not yet been allotted or issued. Such payments are treated as liabilities in the company’s balance sheet until the shares are allotted.

Key points:

• Nature: It is a current liability (short-term obligation).
• Accounting Treatment: Recorded under "Calls in Advance" in the liability side of the balance sheet.
• Refundable: The company must refund these amounts if shares are not allotted within the stipulated time (usually within 3–6 months).
• Interest: If retained beyond the specified period, it may earn interest for the shareholders.

Example: If a company receives ₹50,000 as calls in advance for 1,000 shares of ₹10 each, it is recorded as:

Liabilities Side (Balance Sheet)
Calls in Advance A/c: ₹50,000