In the past, companies typically issued shares payable by installments. These installments were Application, Allotment, First Call, Second Call, and Final Call.

If there is only one call, it is not referred to as the First Call. The words “first,” “second,” and “final” are only used when there is more than one call.

When shares are issued payable by installments, the amount due for each installment may be debited to the shareholders’ account. However, by doing so, no distinction will be made between the various installments.

Therefore a separate account is opened for each installment when it becomes due (e.g., Application, Allotment, First Call, Second Call, and Final Call).

It is worth remembering that these accounts replace the shareholders’ accounts. The amount payable on the application of each share will be the full nominal amount of the shares.

Therefore, accounting entries for the issuance of shares, when payable by installments, have not been explained.


Frequently Asked Questions

What is an installment?

An installment is part of the full amount payable for shares. It relates to each portion of the total amount due. Therefore, there are as many installments as there are parts to be paid in full for one or more shares.

What happens to the payments made by shareholders when they become due?

When a payment becomes due, it is recorded in the ledger. It is not 'credited' to the company's profit and loss account (p & l a/c). No entry in any journal will be made.

What happens if a shareholder fails to pay an installment when it becomes due?

If a shareholder fails to pay an installment when it becomes due, the company will pursue the matter through legal channels. The creditor will have no right of action against the company until he/she has written notice of his/her claim to the company.

What are the issues surrounding the issuance of shares payable by installments?

When a company-issued share is payable by installments, it was faced with two issues that needed to be resolved. The first issue concerned the opening of a new segment for each installment in order to record in it payments received from shareholders on a specific installment. This procedure does not reconcile the full amount due with the amount received. The second issue was that the accounting records did not provide for both revenue and cash receipts (in case of payment). If a part is paid, it is debited to an account in the creditor's ledger; but there can be no cash receipt if only one installment is received at any one time.

What are the effects of the current implementation of the IAS 32 on installment issues?

The implementation of ias 32 has been effective in resolving two major issues affecting companies when shares are issued payable by installments. The first issue is that each installment is recorded as a separate transaction. The second issue is that under ias 32, revenue and cash receipts are recorded in one transaction when a payment is made. From the above, it can be concluded that the implementation of ias 32 has not affected past accounting practice concerning installment issues.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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