Step 1: Understanding the Concept:
Shares are usually paid for in installments (Application, Allotment, First Call, Final Call).
Sometimes, a shareholder pays future call amounts along with a current installment before the company has officially asked (called) for that money.
This excess money is known as "Calls-in-Advance."
Step 2: Detailed Explanation:
From the company's perspective, receiving money in advance of a call creates a liability.
The company has received cash (an asset) but has not yet earned the right to transfer that money into its "Share Capital Account" because the call has not been made.
Therefore, the accounting treatment follows these principles:
1. Receipt of Money: When the advance is received, the Bank Account is debited. To represent the liability, a separate account called "Calls-in-Advance Account" is created and credited.
Journal Entry:
\[ \text{Bank A/c \dots Dr.} \]
\[ \text{To Calls-in-Advance A/c} \]
2. Nature of Account: It is a representative personal account and appears on the "Equity and Liabilities" side of the Balance Sheet under the head "Current Liabilities."
3. Interest on Calls-in-Advance: Since the company is using the shareholders' money early, it pays interest. As per Table F of the Companies Act 2013, the maximum rate is 12% p.a.
4. Adjustment: When the call finally becomes due, the amount is transferred:
\[ \text{Calls-in-Advance A/c \dots Dr.} \]
\[ \text{To Relevant Call A/c} \]
Options (C) and (D) are incorrect because the money is not yet "Capital" in the legal sense.
Option (A) is incorrect because liabilities are increased by crediting them.
Step 3: Final Answer:
Calls in advance represent a liability and are credited to the respective account.
Correct Answer is (B).