Account M.C.Q (1 Marks)

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:
For interest due
Interest on calls in advance A/c Dr.
To sundry shareholder's A/c
For interest paid
Sundry shareholder A/c Dr.
To Bank A/c
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

Total assets are either created or purchased through funds raised by business through internal and external sources.
when businessman invests his own money into business it is termed as capital.
when business borrows money from external sources like Bank, Lenders etc an obligation is raised for repayment in future called Liability .
Therefore, Capital $+$ Liabilities $=$ Assets
Hence, Asset $-$ Liabilities $=$ Capital.

A system where Profit or loss earned by the business is based on the difference between its Opening and closing capital. is called Single entry system.
In order to find the capitals, Statement of affairs are prepared which are based on an equation Capital $=$ Assets $-$ Liabilities
Hence, basic accounting aspects of debit and credit are not followed.

Profit or loss earned by the business under single entry system is based on the difference between its opening and closing capital.
Hence, if the sum of capital from which the trader starts the year is less than closing capital on the last day of the financial year than it is considered a loss.
e.g. if the opening capital is $Rs. 1,00,000$ and closing capital is $Rs. 90,000$ then Closing capital $-$ Opening capital will give a negative $Rs.10,000$ resulting a Loss.

Profit or loss earned by the business under single entry system is based on the difference between its opening and closing capital.
Hence, if the sum of capital on the last day of the financial year is more then opening capital on the first day of financial year then it is considered as a Profit.
eg. if the opening capital is $Rs . 1,00,000$ and closing capital is $Rs. 1,30,000$ than Closing capital $-$ Opening capital will give a Positive $Rs.30,000$ resulting a Profit.

Calculation of total assets at the end of the year:
Assets in the beginning of the year $= Rs 15000$
Less: Drawing made during the year $(7000)$
Add: Net profit for the year $12000$
$= Rs 20000$