–
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. |
Under this method, company rejects excess applications.
Company returns excess to the applicants with a letter of regret.
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.
Under this method,
Company rejects some applications (nil)
Some applications allot in full (100%)
Some excess applications are allotted in proportion (pro-rata).
Generally, excess money of pro-rata is adjusted on allotment and subsequent calls.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 14A
Excel Corporation Ltd issued 100,000 equity shares of Rs 100 each. The amount payable as under:
On application Rs 30
On allotment Rs 20
On first and final call Rs 50
The company received applications for 120,000 shares and allotment was made on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
100,000 |
100 |
Application Allotment First and final call |
30 20 50 |
|
|
120,000 |
100,000 |
|
|
|
|
|
|
120,000 |
100,000 |
Excess money
= Difference in pro-rata shares x Always application money
= (120,000 – 100,000 shares) x Rs 30
= 20,000 x Rs 30
= Rs 600,000*
Journal Entries
In the book of Excel Corporation Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 120,000 shares @ Rs 30) |
Dr
|
|
36,00,000
|
36,00,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account To Equity shares allotment account (excess) (Being- amount transfer of application to capital and Excess amount adjusted) |
Dr
|
|
36,00,000
|
30,00,000 6,00,000*
|
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/receivable on allotment) |
Dr
|
|
20,00,000
|
20,00,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 100,000 shares @ Rs 20 And excess adjusted 20,00,000 – 6,00,000* = 14,00,000) |
Dr
|
|
14,00,000
|
14,00,000
|
Due
|
Amount due/receivable on first and final call Equity share first and final call account To Equity share capital account (Being- amount due/ receivable on calls) |
Dr
|
|
50,00,000
|
50,00,000
|
Received
|
Amount received on first and final call Bank account To Equity share first and final call account (Being- amount received on 100,000 shares @ Rs 50) |
Dr
|
|
50,00,000 |
50,00,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 14B
Excel Corporation Ltd issued 9,000 equity shares of $/₹/Rs 100 each. The amount payable as under:
On application Rs 50
On allotment Rs 25
On first call Rs 15
On second and final call Rs 10
The company received applications for 15,000 shares. Company allotted 3,000 shares for full allotment and remaining on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
9,000 |
100 |
Application Allotment First call Final call |
50 25 15 10 |
|
|
12,000 3,000 |
6,000 3,000 |
|
|
|
|
|
|
15,000 |
9,000 |
Excess money
= Difference in pro-rata shares x Always application money
= (12,000 – 6,000 shares) x Rs 50
= 6,000 x Rs 50
= Rs 300,000*
Excess amount Adjusted on allotment 6,000 shares x Rs 25
Adjusted on first call 6,000 shares x Rs 15
Adjusted on final call 6,000 shares x Rs 10 |
300,000* 150,0001 |
|
150,000 90,0002 |
||
60,000 60,0003 |
Journal Entries
In the book of Excel Corporation Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 15,000 shares @ Rs 50) |
Dr
|
|
750,000
|
750,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account To Equity shares allotment account (excess) To Equity shares first call account (excess) To Equity shares final account (excess) (Being- amount transfer of application to capital and Excess amount adjusted) |
Dr
|
|
750,000
|
450,000 150,0001 90,0002 60,0003 |
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/receivable on allotment) |
Dr
|
|
225,000
|
225,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 9,000 shares @ Rs 25 And excess adjusted 225,000 – 150,0001 = 75,000) |
Dr
|
|
75,000
|
75,000
|
Due
|
Amount due/receivable on first call Equity share first call account To Equity share capital account (Being- amount due/ receivable on first calls) |
Dr
|
|
135,000
|
135,000
|
Received
|
Amount received on first call Bank account To Equity share first call account (Being- amount received on 9,000 shares @ Rs 15 And excess adjusted 135,000 – 90,0002 = 75,000) |
Dr
|
|
45,000 |
45,000 |
Due
|
Amount due/receivable on first call Equity share final call account To Equity share capital account (Being- amount due/ receivable on final calls) |
Dr
|
|
90,000
|
90,000
|
Received
|
Amount received on final call Bank account To Equity share final call account (Being- amount received on 9,000 shares @ Rs 10 And excess adjusted 90,000 – 60,0003 = 30,000) |
Dr
|
|
30,000 |
30,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 14C
Excel Corporation Ltd issued 9,000 equity shares of $/₹/Rs 100 each. The amount payable as under:
On application Rs 40
On allotment Rs 25
On first call Rs 15
On second and final call Rs 20
The company received applications for 15,000 shares. Company allotted 3,000 shares for full allotment and remaining on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
9,000 |
100 |
Application Allotment First call Final call |
40 25 15 20 |
|
|
12,000 3,000 |
6,000 3,000 |
|
|
|
|
|
|
15,000 |
9,000 |
Excess money
= Difference in pro-rata shares x Always application money
= (12,000 – 6,000 shares) x Rs 40
= 6,000 x Rs 40
= Rs 240,000*
Excess amount Adjusted on allotment 6,000 shares x Rs 25
Adjusted on first call 6,000 shares x Rs 15 |
240,000* 150,0001 |
|
90,000 90,0002 |
Journal Entries
In the book of Excel Corporation Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 15,000 shares @ Rs 40) |
Dr
|
|
600,000
|
600,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account To Equity shares allotment account (excess) To Equity shares first call account (excess) (Being- amount transfer of application to capital and Excess amount adjusted) |
Dr
|
|
600,000
|
360,000 150,0001 90,0002 |
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/receivable on allotment) |
Dr
|
|
225,000
|
225,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 9,000 shares @ Rs 25 And excess adjusted 225,000 – 150,0001 = 75,000) |
Dr
|
|
75,000
|
75,000
|
Due
|
Amount due/receivable on first call Equity share first call account To Equity share capital account (Being- amount due/ receivable on first calls) |
Dr
|
|
135,000
|
135,000
|
Received
|
Amount received on first call Bank account To Equity share first call account (Being- amount received on 9,000 shares @ Rs 15 And excess adjusted 135,000 – 90,0002 = 45,000) |
Dr
|
|
45,000 |
45,000 |
Due
|
Amount due/receivable on first call Equity share final call account To Equity share capital account (Being- amount due/ receivable on final calls) |
Dr
|
|
180,000
|
180,000
|
Received
|
Amount received on final call Bank account To Equity share final call account (Being- amount received on 9,000 shares @ Rs 20) |
Dr
|
|
180,000 |
180,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 14D
Excel Corporation Ltd issued 9,000 equity shares of $/₹/Rs 100 each. The amount payable as under:
On application Rs 40
On allotment Rs 30
On first call Rs 20
On second and final call Rs 10
The company received applications for 15,000 shares. Company allotted 3,000 shares for full allotment and remaining on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
9,000 |
100 |
Application Allotment First call Final call |
40 30 20 10 |
|
|
12,000 3,000 |
6,000 3,000 |
|
|
|
|
|
|
15,000 |
9,000 |
Excess money
= Difference in pro-rata shares x Always application money
= (12,000 – 6,000 shares) x Rs 40
= 6,000 x Rs 40
= Rs 240,000*
Excess amount Adjusted on allotment 6,000 shares x Rs 30 |
240,000* 180,0001 |
|
60,0002
|
Journal Entries
In the book of Excel Corporation Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 15,000 shares @ Rs 40) |
Dr
|
|
600,000
|
600,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account To Equity shares allotment account (excess) To Equity shares first call account (excess) (Being- amount transfer of application to capital and Excess amount adjusted) |
Dr
|
|
600,000
|
360,000 180,0001 60,0002 |
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/receivable on allotment) |
Dr
|
|
270,000
|
270,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 9,000 shares @ Rs 30 And excess adjusted 270,000 – 180,0001 = 90,000) |
Dr
|
|
90,000
|
90,000
|
Due
|
Amount due/receivable on first call Equity share first call account To Equity share capital account (Being- amount due/ receivable on first calls) |
Dr
|
|
180,000
|
180,000
|
Received
|
Amount received on first call Bank account To Equity share first call account (Being- amount received on 9,000 shares @ Rs 20 And excess adjusted 180,000 – 60,0002 = 120,000) |
Dr
|
|
120,000 |
120,000 |
Due
|
Amount due/receivable on first call Equity share final call account To Equity share capital account (Being- amount due/ receivable on final calls) |
Dr
|
|
90,000
|
90,000
|
Received
|
Amount received on final call Bank account To Equity share final call account (Being- amount received on 9,000 shares @ Rs 10) |
Dr
|
|
90,000 |
90,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 14E
Excel Corporation Ltd issued 9,000 equity shares of $/₹/Rs 100 each. The amount payable as under:
On application Rs 20
On allotment Rs 40
On first call Rs 25
On second and final call Rs 15
The company received applications for 15,000 shares. Company allotted 3,000 shares for full allotment and remaining on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
9,000 |
100 |
Application Allotment First call Final call |
20 40 25 15 |
|
|
12,000 3,000 |
6,000 3,000 |
|
|
|
|
|
|
15,000 |
9,000 |
Excess money
= Difference in pro-rata shares x Always application money
= (12,000 – 6,000 shares) x Rs 20
= 6,000 x Rs 20
= Rs 120,000*
Journal Entries
In the book of Excel Corporation Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 15,000 shares @ Rs 40) |
Dr
|
|
300,000
|
300,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account To Equity shares allotment account (excess) (Being- amount transfer of application to capital and Excess amount adjusted) |
Dr
|
|
300,000
|
180,000 120,000*
|
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/receivable on allotment) |
Dr
|
|
360,000
|
360,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 9,000 shares @ Rs 40 And excess adjusted 360,000 – 120,000* = 140,000) |
Dr
|
|
140,000
|
140,000
|
Due
|
Amount due/receivable on first call Equity share first call account To Equity share capital account (Being- amount due/ receivable on first calls) |
Dr
|
|
225,000
|
225,000
|
Received
|
Amount received on first call Bank account To Equity share first call account (Being- amount received on 9,000 shares @ Rs 20 And excess adjusted 180,000 – 60,0002 = 120,000) |
Dr
|
|
225,000 |
225,000 |
Due
|
Amount due/receivable on first call Equity share final call account To Equity share capital account (Being- amount due/ receivable on final calls) |
Dr
|
|
135,000
|
135,000
|
Received
|
Amount received on final call Bank account To Equity share final call account (Being- amount received on 9,000 shares @ Rs 15) |
Dr
|
|
135,000 |
135,000 |
#####
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*******
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 14 [over subscription pro rata and reject]
Nepalganj Garments Limited has invited applications for 20,000 equity shares of $/₹/Rs 100 each @ Rs 120 per share. The amount was payable as under:
On application Rs 40; on allotment Rs 40; on first call Rs 20; on second and final call balance amount
The Company has received applications for 25,000 shares. Allotment was made on pro-rata basis. Excess money was utilized on allotment. All the shares were subscribed, allotted and the entire amount was received.
Required: Journal entries
[Answer: excess for allotment = 200,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 15 [over subscription pro rata and reject]
JK Company Ltd has authorized capital $/₹/Rs 50,00,000 divided into shares of Rs 100 each. The Company issued 30,000 shares at par. The amount payable as under:
On application Rs 50; on allotment Rs 30; on first and final call Rs 20
The company received applications for 60,000 shares. The BOD rejected 10,000 shares, rest of others are allotted in pro-rata basis. Excess money can be utilizes toward allotment and subsequent call. All the shares were issued and the entire amount was duly received.
Required: Journal entries
[Answer: Amount return for rejected shares = Rs 500,000;
Excess for: allotment = Rs 900,000 and calls = Rs 100,000;
Amount received: on allotment = Nil and on calls = Rs 500,000
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 16 [over subscription pro rata and reject]
KP Company Ltd issued 40,000 shares of $/₹/Rs 100 each at par. The amount payable as under:
On application Rs 30; on allotment Rs 45; on first and final call Rs 25
The company received applications for 60,000 shares. The BOD rejected 8,000 shares; applicants for 15,000 shares were allotted 100%. Rest of shares is allotted in pro-rata basis. Excess money can be utilizes toward allotment. All the shares were issued and the entire amount was duly received.
Required: Journal entries
[Answer: Amount return = Rs 240,000; Excess for allotment = Rs 360,000;
Amount received on allotment = Rs 14,40,000
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 17 [over subscription pro rata and reject]
Excel Corporation Ltd issued 50,000 equity shares of Rs 100 each. The amount payable as under:
On application Rs 25; on allotment Rs 40; on first and final call Rs 35
The company received applications for 70,000 shares. Applicants for 5,000 shares were rejected and remaining shares were allotted on pro-rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
[Answer: Return amount = Rs 125,000; Excess amount = Rs 375,000;
Amount received on allotment = Rs 16,25,000]
***********
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