What is the accounting treatment for calls in arrears on shares issued by a company?

JAMB Accounting 2023 50 views

What is the accounting treatment for calls in arrears on shares issued by a company?

  1. They are treated as an asset on the balance sheet.
  2. They are deducted from the share capital in the balance sheet. ✓
  3. They are recorded as a liability in the balance sheet.
  4. They are ignored in the financial statements.

Explanation

Calls in arrears means shareholders haven’t paid the full amount owed on their shares. This unpaid amount is subtracted from share capital on the balance sheet to show the actual cash received.

It’s not an asset because shareholders owe the company, and it may never be collected. It’s not a liability because the company doesn’t owe this money. It reduces stated capital.

Think of it as showing the truth: Share capital is shown, then unpaid amounts are subtracted to reveal real funding.

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