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Over Subscription Pro Rata (Accounting for Shares)

Arjun EP

Published on: July 22, 2020

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S. Company Ltd issued 50,000 shares of Rs 100 each payable as:

Rs 30 on application; Rs 40 on allotment and balance on first and final call

Applications were received for 80,000 shares. Board of directors decided to allot as under:

Share applied

Remaining on

15,000

5,000

pro-rata basic

full

reject

Money over paid on pro-rata allotment was utilized in allotment and other calls. All money was duly received expect Mr. X, who was holding 7,000 shares under pro-rata basis and Mr. Y, who was holding 2,000 shares under full allotment did not pay allotment and call money

Required: journal entries

[Answer: Calls in arrears on allotment = Rs 210,000: Arrears on F&F call = Rs 270,000]

SOLUTION:

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance	Share Applied	Shares Allotted
50,000	100	Application Allotment F&F calls	30 40 30	. −7,000; −2,000 −7,000; −2,000	15,000 5,000 60,000	15,000 Nil 35,000^A
					80,000	50,000

Return or refunded money

= 5,000 share (Nil) x Rs 30 application money

= Rs 150,000^#

Excess money

= Difference in pro–rata shares x Application money

= (60,000 – 35,000) x Rs 30

= 25,000 shares x Rs 30

= 750,000*

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

Amount need on allotment (50,000 shares @ Rs 40)

Less: Excess amount of pro-rata

20,00,000

(750,000*)

Arrears seem on allotment (7,000 Shears @ Rs 40)

Less: Paid = 750,000* x 7,000 ÷ 35,000^A

280,000

(150,000)

12,50,000

(130,000)

Received amount on allotment (bank)

Arrears on 2,000 shares of 100% allotment (2,000 x Rs 40)

11,20,000

(80,000)

Bank allotment

10,40,000

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

Total arrears on allotment (130,000 + 80,000) = 210,000^B

Total arrears on F&F call (7,000 + 2,000) x Rs 30 = 270,000^C

Journal entries

In the book of Samsung Corporation Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account To Equity share application account (Being- amount received on 80,000 shares @ Rs 30)	Dr		24,00,000	24,00,000
Transfer	Amount transfer of application
	Equity share application account To Equity share capital account To Bank account (return) To Equity shares allotment account (excess) (Being- amount transfer of application to capital, Excess amount returned and adjusted)	Dr		24,00,000	15,00,000 1,50,000^# 7,50,000*
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 Calls in arrear account To Equity share allotment account (Being- amount received on 41,000 shares from working note after adjusting excess and arrears)	Dr Dr		10,40,000 2,10,000^B	12,50,000
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		15,00,000	15,00,000
Received	Amount received on first and final call
	Bank account Calls in arrears account To Equity share first and final call account (Being- amount received on 41,000 shares @ Rs 30 Each and arrears adjusted)	Dr Dr		12,30,000 2,70,000^C	15,00,000