Double Pro Rata | Over Subscription with Calls in Arrears 

 

 

Pro Rata Over subscription

Sometimes when company is well-known or earning high profit, shares applicants like to purchase more shares.

In such a condition public applied more than offered shares of the company.

When share applicants applied more than offered share, it is called over subscription.

Normally, the company allots shares in proportion.

But sometimes company uses these three methods.

(1) Full rejection of excess applications

(2) Pro-rata allotment

(3) Mixed methods

 

 

Keep in mind

According to the guidelines of SEBI (Securities and Exchange Board of India), a company cannot reject directly any application.

However, it can do so where the information is incomplete like there is not proper information on the application and money is insufficient.

In some countries, the company rejects share applications directly on over subscription.

 

Full rejection of excess applications

Under this method, company rejects excess applications.

Company returns excess to the applicants with a letter of regret.

 

Pro rata allotment

Under this method, company allots excess applications in proportion. 

For example the company received 5,000 applications and allotted 1,000 shares.

Now 5,000: 1,000 or 5: 1.

Here the applicant of five shares received one share.

 

Mixed allotment

Under this method,

Company rejects some applications (nil)

Some applications allot in full (100%)

Some excess applications are allotted in proportion (pro-rata). 

 

 

Double Pro Rata

There are two pro rata in one question.

There are calls in arrears in one pro rata; working note should be done for this call in arrears.

There are no calls in arrears in other pro rata; no need to do working note for this pro rata.

 

Calls in Arrears

When shareholder(s) cannot pay due amount on due date, it is called calls in arrears.  

It may be on allotment, first call or second and final call.

There is never arrear in application.

According to Company Act, the company should send writing notice or letter to shareholders about calls in arrears. 

Calls in arrears are debited with bank entry.

 

 

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 12A                  NEB/HSEB 2072 Supp, Q: 10

A Company Ltd issued 10,000 shares of Rs 10 each at par. The amount was payable on the following terms:

On Application Rs 3

On allotment Rs 2

On first and final call Rs 5

Applications were received for 22,000 shares.  Allotments were made as follows:

To applications of 4,000 shares             2,000 shares

To applications of 2,000 shares                         2,000 shares

To applications of 2,000 shares                         Nil

To applications of 14,000 shares           Pro rata

It is resolved that the excess amount paid on application is to be utilized on allotment and calls. All the money was duly received.

Required: Entries for (a) Application; (b) Allotment; (c) First and final call

[Answer: Excess on allotment (4,000 + 12,000) = Rs 16,000;

Excess on first and final call (2,000 + 12,000) = Rs 14,000;

Bank (allotment) = Rs 4,000; Bank (F&F call) = Rs 36,000]

SOLUTION:

Given and working note:

Shares	Issued	Installation		Arrears and	Group	Share	Shares
Issued	Price			Advance		Applied	Allotted
10,000	10	Application	3		A	4,000	2,000
		Allotment	2		B	2,000	2,000
		First and final call	5		C	2,000	Nil
					D	14,000	6,000
						22,000	10,000

Return or refunded money (Group C)

= Rejected or Nil share × Always application amount

= 2,000 shares × Rs 3

= Rs 6,000

 

Excess money (Group A)

= Difference in pro-rata shares × Always application money
= (4,000 – 2,000 shares) × Rs 3
= 2,000 × Rs 3
= Rs 6,000
Excess amount	6,000
Adjusted on allotment 2,000 shares × Rs 2 allotment	4,000*
Balance adjusted on first and final call	2,000

 

 

Excess money (Group D)

= Difference in pro-rata shares × Always application money
= (14,000 – 6,000 shares) × Rs 3
= 8,000 × Rs 3
= Rs 24,000
Excess amount	24,000
Adjusted on allotment 6,000 shares × Rs 2 allotment	12,000*
Balance adjusted on first and final call	12,000

 

 

Journal Entries

In the book of AM Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account	Dr		66,000
	To Equity share application account				66,000
	(Being: amount received on 22,000 shares @ Rs 3)
Transfer	Amount transfer of application
	Equity share application account	Dr		66,000
	To Equity share capital account				30,000
	To Bank account (return)				6,000
	To Equity shares allotment account  (excess)				16,000*
	To Equity shares first and final call (excess)				14,000
	(Being: amount transfer of application to capital,
	excess amount returned and adjusted)
Due	Amount due/receivable on allotment
	Equity share allotment account	Dr		20,000
	To Equity share capital account				20,000
	(Being: amount due on allotment and premium adjusted)
Received	Amount received on allotment
	Bank account	Dr		4,000
	To Equity share allotment account				4,000
	(Being: amount received on 10,000 shares @ Rs 2, after excess
	adjusted 200,000 – 16,000* = Rs 4,000)
Due	Amount due/receivable on first call
	Equity share first call account	Dr		50,000
	To Equity share capital account				50,000
	(Being: amount due/ receivable on first calls)
Received	Amount received on first call
	Bank account	Dr		36,000
	To Equity share first call account				36,000
	(Being: amount received on 10,000 shares @ Rs 5 after
	excess adjusted; 50,000 – 14,000 = Rs 36,000)

 

 

 

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 12B

AM Company Ltd invited application for 50,000 equity shares of Rs 10 each. The amount was payable as under:

On application Rs 3

On Allotment Rs 2

On first and final call Rs 5

The company received application for 110,000 shares. The BOD decided to allot the shares as under:

Group	Shares applied	Shares allotted
A	20,000	10,000
B	10,000	10,000
C	10,000	Rejected
D	70,000	Remaining shares

The company has authority to use excess money towards the allotment and calls. All the shares were issued, allotted and amount was received except a shareholder who held 6,000 share from the Group D failed to pay first and final call money.

After proper notice, his shares were forfeited.

Required: Journal entries

[Answer: Excess on allotment (20,000 + 60000) = Rs 80,000;

Excess on first and final call (10,000 + 60,000) = Rs 70,000;

Bank (allotment) = Rs 20,000; Bank (F&F call) = Rs 150,000;

Share forfeiture = Rs 30,000

SOLUTION:

Given and working note:

Shares	Issued	Installation		Arrears and	Group	Share	Shares
Issued	Price			Advance		Applied	Allotted
50,000	10	Application	3	.	A	20,000	10,000
		Allotment	2		B	10,000	10,000
		First and final call	5	−6,000	C	10,000	Nil
					D	70,000	30,000
						110,000	50,000

Return or refunded money (Group C)

= Rejected or Nil share × Always application amount

= 10,000 shares × Rs 3

= Rs 30000

 

Excess money (Group A)

= Difference in pro-rata shares × Always application money
= (20,000 – 10,000 shares) × Rs 3
= 10,000 × Rs 3
= Rs 30,000
Excess amount	30,000
Adjusted on allotment 10,000 shares × Rs 2 allotment	20,000*
Balance adjusted on first and final call	10,000

 

 

Excess money (Group D)

= Difference in pro-rata shares × Always application money
= (70,000 – 30,000 shares) × Rs 3
= 40,000 × Rs 3
= Rs 120,000
Excess amount	120,000
Adjusted on allotment 30,000 shares × Rs 2 allotment	60,000*
Balance adjusted on first and final call	60,000

 

Calls in arrears on first and final call    = 6,000 shares x Rs 5 first call money = Rs 30,000

 

Journal Entries

In the book of AM Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account	Dr		330,000
	To Equity share application account				330,000
	(Being: amount received on 110,000 shares @ Rs 3)
Transfer	Amount transfer of application
	Equity share application account	Dr		330,000
	To Equity share capital account				150,000
	To Bank account (return)				30,000
	To Equity shares allotment account  (excess)				80,000*
	To Equity shares first and final call (excess)				70,000
	(Being: amount transfer of application to capital,
	excess amount returned and adjusted)
Due	Amount due/receivable on allotment
	Equity share allotment account	Dr		100,000
	To Equity share capital account				100,000
	(Being: amount due on allotment and premium adjusted)
Received	Amount received on allotment
	Bank account	Dr		20,000
	To Equity share allotment account				20,000
	(Being: amount received on 50,000 shares @ Rs 2, after excess
	adjusted 100,000 – 80,000* = Rs 20,000)
Due	Amount due/receivable on calls
	Equity share first and final calls account	Dr		250,000
	To Equity share capital account				250,000
	(Being: amount due/ receivable on first calls)
Received	Amount received on calls
	Bank account	Dr		150,000
	Calls in arrear account	Dr		30,000
	To Equity share first and final calls account				180,000
	(Being: amount received on 50,000−6,000 shares = 44,000
	shares @ Rs 5 and excess and arrear adjusted;
	250,000 – 70,000 – 30,000 = Rs 150,000)
Forfeiture	6,000 shares forfeited
	Equity share capital account  (6,000 × Rs 10)	Dr		60,000
	To Calls in arrears (first and final call)				30,000
	To Share forfeiture account  (paid or b/f)				30,000
	(Being: 6,000 shares forfeited for non-payment)

#####

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 12C       [double pro rata over subscription with calls in arrears] 

Nepal Pashmina Industries Ltd has authorized capital Rs 60,00,000 divided into shares of $/₹/Rs 100 each. The Company issued 40,000 equity shares at Rs 120 per share. The amount payable as under:

          On application Rs 20

          On allotment Rs 50

          On first Rs 20

          Second and final call Rs 30

The Company received applications for 60,000 shares. The BOD decided to allotment as:

          Applicants for 20,000 shares        Full

          Applicants for 10,000 shares        50%

          Applicants for 18,000 shares        Pro-rata

          Applicants for 12,000 shares        Nil

Excess money can be utilizes toward allotment. The entire amount was duly received except a shareholder who held 800 shares under pro-rata of 50% group failed to pay allotment and calls.

Required: Journal entries

[Answer: Arrears on allotment = Rs 24,000; Allotment bank = Rs 18,16,000;

Arrear on first call = Rs 16,000; Arrears on final call = Rs 24,000]

SOLUTION:

Given and working note:

Shares	Issued	Installation		Arrears and		Share	Shares
Issued	Price			Advance		Applied	Allotted
40,000	100+20P	Application	20	.		20,000	20,000
		Allotment	50 [30C+20P]	−800		10,000	5,000A
		First call	20	−800		18,000	15,000
		Final call	30	−800		12,000	Nil
						60,000	40,000

Return or refunded money        

= Rejected or Nil share × Always application amount

= 12,000 shares × Rs 20

= Rs 240,000^$

 

Excess money         

= Difference in pro-rata shares × Always application money

= (10,000 – 5,000 shares) × Rs 20                   

= 5,000 × Rs 20

= Rs 100,000*

 

Excess money         

= Difference in pro-rata shares × Always application money

= (18,000 – 15,000 shares) × Rs 20                

= 3,000 × Rs 20

= Rs 60,000^#

 

When there is a call in arrears on allotment, this formula can be applied:

Amount need on allotment         (40,000 shares @ Rs 50)		20,00,000
Less:   Excess amount of pro-rata		(100,000*)
		19,00,000
Arrears seem on allotment         (800 Shears @ Rs 50)	40,000
Less: Paid = (Rs 100,000* × 800) ÷ 5,000A	(16,000)	(24,000)
Received amount on allotment (bank)		18,76,000
Less: Excess amount form pro-rata group		60,000#
Net amount received on allotment (bank)		18,16,000

Where: Paid = (Excess amount x Arrears shares) ÷ Pro-rata allotted shares

 

Calls in arrears on first call          = 800 shares x Rs 20 first call money = Rs 16,000

Calls in arrears on final call         = 800 shares x Rs 30 first call money = Rs 24,000

 

Alternatively,

Excess amount per share = Excess amount ÷ Pro-rata allotted = Rs 100,000* ÷ 5,000^A shares = Rs 20

Calls in arrears per share = Allotment amount ‒ Excess amount per share = Rs 50 ‒ Rs 20 = Rs 30

Calls in arrears on allotment = 800 shares x Rs 30 = Rs 24,000

 

Journal Entries

In the book of Nepal Pashmina Industries Ltd

Date	Particulars		LF	Amount	Amount
Received	Amount received on application
	Bank account	Dr		12,00,000
	To Equity share application account				12,00,000
	(Being: amount received on 60,000 shares @ Rs 20)
Transfer	Amount transfer of application
	Equity share application account	Dr		12,00,000
	To Equity share capital account				8,00,000
	To Bank account (return)				2,40,000$
	To Equity shares allotment account  (excess)				1,60,000*+#
	(Being: amount transfer of application to capital,
	excess amount returned and adjusted)
Due	Amount due/receivable on allotment
	Equity share allotment account	Dr		20,00,000
	To Equity share capital account				12,00,000
	To Share premium (security premium) account				8,00,000
	(Being: amount due on allotment and premium adjusted)
Received	Amount received on allotment
	Bank account	Dr		18,16,000
	Calls in arrear account	Dr		24,000
	To Equity share allotment account				18,40,000
	(Being: amount received on 40,000 shares @ Rs 50
	from working note)
Due	Amount due/receivable on first call
	Equity share first call account	Dr		8,00,000
	To Equity share capital account				8,00,000
	(Being: amount due/ receivable on first calls)
Received	Amount received on first call
	Bank account	Dr		7,84,000
	Calls in arrear account	Dr		16,000
	To Equity share first call account				8,00,000
	(Being: amount received on 40,000−800 shares =
	39,200 shares @ Rs 20 and arrear adjusted)
Due	Amount due/receivable on final call
	Equity share second and final call account	Dr		12,00,000
	To Equity share capital account				12,00,000
	(Being: amount due/ receivable on final calls)
Received	Amount received on first call
	Bank account	Dr		11,76,000
	Calls in arrear account	Dr		24,000
	To Equity share second and final call account				12,00,000
	(Being: amount received on 39,200 shares @ Rs  30
	each and arrears adjusted)

#####

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PROBLEMS   AND   ANSWERS  OF  DOUBLE  PRO RATA

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 12A                   [Double Pro-Rata]

Modern Bank Ltd invited application for 10,000 shares of Rs 10 each, payable as follows:

Rs 2 on application                       

Rs 3 on allotment              

Rs 5 on first and final calls

Applications were received for 14,000 shares. The BOD decided to allot the shares on the following pattern:

Group	Share applied	Share allotted
Group A	2,000	2,000
Group B	4,000	2,000
Group C	8,000	Pro-rata

 

Directors are empowered by the Articles to utilize the excess money on application towards subsequent calls.

All money called was duly received, with the exception of Mr. Sharan to whom 1,000 shares were allotted from group C failed to pay in allotment. These shares were forfeited by the company and re-issue to Mr. Gagan of Rs 9 as fully paid.

Required: Journal entries for: (a) Share applications, allotments and calls;

(b) Forfeiture of shares, re-issue of shares and transfer                                                   

[Answer: Arrear on allotment = 2,333 and bank = 19,667;

Arrear on calls = 5,000;

Share forfeiture = 2,667; Capital reserve = Rs 1,667]

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 12B                             [Double Pro-Rata]

Nepal International Bank Ltd was registered with 1 crore authorized capital divided into shares of $/₹/Rs 10 each. Issued 5,00,000 such shares to public at a premium of Rs 2 per share payable as under:

            Rs 2 per share on application

            Rs 5 per share including premium on allotment

            Rs 5 per share on first call and final call

Applications were received for 600,000 shares. The shares were allotted on the following pattern:

Group	Share applied	Share allotted
Group A	2,00,000 applicants	100%
Group B	1,00,000 applicants	50%
Group C	3,00,000 applicants	Pro-rata

Articles provide that the company may utilize the overpaid moneys towards the subsequent calls. Mr. Pradhan to whom 7,500 shares were allotted from category C failed to pay the allotment and subsequent calls. These shares were forfeited by the company. Later the company reissued all shares at Rs 9 per share as fully paid.

Required: Journal entries for: (1) Share applications, allotments and calls

(2) Forfeiture of shares, re-issue of shares and transfer                           

 [Answer: Arrear on allotment = Rs 34,500; bank = Rs 22,65,500;

Arrear on calls = Rs 37,500;

Share forfeiture = 18,000; Capital reserve = Rs 10,500]

 

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