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).
Power Company Ltd issued 60,000 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 80,000 shares. Applicants for 5,000 shares were rejected. Applicants for 40,000 shares were allotted 100% 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 200,000; Excess amount = Rs 600,000;
Received amount on allotment = Rs 12,00,000
SOLUTION:
Shares Issued |
Issued Price |
Installation |
Arrears and Advance |
|
Share Applied |
Shares Allotted |
|
60,000 |
100 |
Application Allotment First call S&F call |
40 30 20 10 |
|
|
5,000 40,000 35,000 |
Nil 40,000 20,000 |
|
80,000 |
60,000 |
|||||
Return money
= Rejected shares x Always application money
= 5,000 shares x Rs 40
= Rs 200,000*
Excess money
= Difference in pro-rata shares x Always application money
= (35,000 – 20,000 shares) x Rs 40
= 15,000 x Rs 40
= Rs 600,000#
Journal Entries
In the book of Power Company Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received |
Amount received on application |
|
|
|
|
|
Bank account To Equity share application account (Being- amount received on 80,000 shares @ Rs 40) |
Dr
|
|
32,00,000
|
32,00,000 |
Transfer |
Amount transfer of application |
|
|
|
|
|
Equity share application account To Equity share capital account To Bank account (return) To Equity shares allotment A/c (excess) (Being- amount transfer of application to capital, Excess amount returned and adjusted) |
Dr
|
|
32,00,000
|
24,00,000 2,00,000* 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
|
|
18,00,000
|
180,00,000
|
Received |
Amount received on allotment |
|
|
|
|
|
Bank account To Equity share allotment account (Being- amount received on 60,000 shares @ Rs 50 And excess adjusted 18,00,000 – 600,000# = 12,00,000) |
Dr
|
|
12,00,000
|
12,00,000
|
Due |
Amount due/receivable on first call |
|
|
|
|
|
Equity share first call account To Equity share capital account (Being- amount due/ receivable on first call) |
Dr
|
|
12,00,000
|
12,00,000
|
Received |
Amount received on first and final call |
|
|
|
|
|
Bank account To Equity share first and final call account (Being- amount received on 60,000 shares @ Rs 20) |
Dr
|
|
12,00,000 |
12,00,000 |
Due |
Amount due/receivable on final call |
|
|
|
|
|
Equity share second and final call account To Equity share capital account (Being- amount due/ receivable on final call) |
Dr
|
|
6,00,000
|
6,00,000
|
Received |
Amount received on first and final call |
|
|
|
|
|
Bank account To Equity share second and final call (Being- amount received on 60,000 shares @ Rs 10) |
Dr
|
|
6,00,000 |
6,00,000 |
#####
Click on link for YouTube videos
SHARE (ACCOUNTING FOR SHARE) http://tiny.cc/889jkz
SHARE IN Nepali http://tiny.cc/k99jkz
DEBENTURES http://tiny.cc/yeakkz
FINAL ACCOUNT: CLASS 12 http://tiny.cc/e89jkz
FINAL ACCOUNT IN NEPALI http://tiny.cc/w89jkz
WORK SHEET http://tiny.cc/579jkz
RATIO ANALYSIS (ACCOUNTING RATIO) http://tiny.cc/4fakkz
FUND FLOW STATEMENT http://tiny.cc/wiakkz
CASH FLOW STATEMENT http://tiny.cc/8gakkz
THEORY ACCOUNTING XII http://tiny.cc/nfakkz
THEORY: COST ACCOUNTING http://tiny.cc/tfakkz
COST ACCOUNTING http://tiny.cc/p29jkz
LIFO−FIFO http://tiny.cc/dgakkz
COST SHEET, UNIT COSTING http://tiny.cc/w49jkz
COST RECONCILIATION STATEMENT http://tiny.cc/829jkz
#####
KC Company Ltd issued 40,000 shares of $/₹/Rs 100 each at 10% discount. The amount payable as under:
On application Rs 30
On allotment Rs 45
On first and final call Rs 15
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 for rejected shares = Rs 240,000;
Excess for allotment = Rs 360,000; Amount received on allotment = Rs 14,40,000
SOLUTION:
Given and working note:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
40,000 |
100 – 10D |
Application Allotment F&F call |
30 45 (55C–10D) 15 |
.
|
|
8,000 15,000 37,000 |
Nil 15,000 25,000 |
|
60,000 |
40,000 |
Return or refunded money
= Rejected or Nil shares x Always application amount
= 8000 shares x Rs 30
= Rs 240,000A
Excess money
= Difference in pro-rata shares x Always application money
= (37,000 – 25,000 shares) x Rs 30
= 12,000 x Rs 30
= Rs 360,000B
Journal Entries
In the book of KC Company Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received |
Amount received on application |
|
|
|
|
|
Bank account To Equity share application account (Being- amount received on 60,000 shares @ Rs 30) |
Dr |
|
18,00,000
|
18,00,000
|
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 |
|
18,00,000
|
12,00,000 240,000A 360,000B
|
Due |
Amount due/receivable on allotment |
|
|
|
|
|
Equity share allotment account Discount on issue of shares account To Equity share capital account (Being- amount due on allotment and discount adjusted) |
Dr Dr |
|
18,00,000 6,00,000
|
22,00,000
|
Received |
Amount received on allotment |
|
|
|
|
|
Bank account To Equity share allotment account (Being- amount received on 40,000 shares @ Rs 45 and Excess adjusted 18,00,000 – 3,60,000B = Rs 14,40,000 |
Dr |
|
14,40,000
|
14,40,000
|
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 |
|
6,00,000
|
6,00,000
|
Received |
Amount received on first and final call |
|
|
|
|
|
Bank account To Equity share first and final call account (Being- amount received on 40,000 shares @ Rs 15) |
Dr |
|
6,00,000
|
6,00,000 |
PROBLEM: 20 [pro rata over subscription mixed allotment]
Annapurna Agro Ltd issued 40,000 equity shares of $/₹/Rs 100 each at Rs 110. The amount payable as under:
On application Rs 20; on allotment Rs 40; on first and final call Rs 50
The Company received applications for 80,000 shares. The BOD decided to accept 10,000 application for full; 10,000 application were rejected and remaining shares were allotted on pro–rata basis. Excess money can be utilizes toward allotment. The entire amount was duly received.
Required: Journal entries
[Answer: Amount received on allotment = Rs 10,00,000]
SOLUTION
Given and working note:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
40,000 |
100 + 10P |
Application Allotment First and final call |
20 40 [30C+10P} 50 |
|
|
10,000 10,000 60,000 |
10,000 Nil 30,000 |
|
80,000 |
40,000 |
Return or refunded money
= 10,000 share (Nil) x Rs 20 always application money
= Rs 200,000#
Excess money
= Difference in pro-rata shares x application money (Always)
= (60,000 – 30,000 shares) x Rs 20
= 30,000 x Rs 20
= Rs 600,000*
Journal Entries
In the book of Annapurna Agro 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 |
|
16,00,000
|
16,00,000
|
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 |
|
16,00,000
|
8,00,000 2,00,000# 6,00,000*
|
Due |
Amount due/receivable on allotment |
|
|
|
|
|
Equity share allotment account To Equity share capital account To Share premium (security premium) (Being- amount due/receivable on allotment and premium adjusted) |
Dr |
|
16,00,000
|
12,00,000 4,00,000
|
Received |
Amount received on allotment |
|
|
|
|
|
Bank account To Equity share allotment account (Being- amount received on 40,000 shares @ Rs 40 And excess adjusted 16,00,000 – 6,00,000* = 10,00,000) |
Dr |
|
10,00,000
|
10,00,000
|
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 |
|
20,00,000
|
20,00,000
|
Received |
Amount received on first and final call |
|
|
|
|
|
Bank account To Equity share first and final call account (Being- amount received on 40,000 shares @ Rs 50) |
Dr |
|
20,00,000 |
20,00,000 |
***********
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 18 [pro rata over subscription mixed allotment]
Unity International Nepal Limited offered 50,000 equity shares of Rs 100 each @ 10% discount. The amount was payable Rs 15 on application, Rs 25 on allotment, Rs 20 on first call and Rs 30 on second and final call.
Applications were received for 100,000 shares and allotment was made as under:
Group |
Shares Applied |
Share Allotted |
|
A B C |
25,000 50,000 25,000 |
full pro-rata nil |
|
The board of directors (BOD) decided to utilize excess application money toward allotment. All the money was duly received.
Required: Journal entries
[Answer: returned money = Rs 375,000; excess for allotment = Rs 375,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 19 [pro rata over subscription mixed allotment]
Power Company Ltd issued 60,000 equity shares of Rs 100 each. The amount payable as under:
On application Rs 40
On allotment Rs 50
On first and final call Rs 10
The company received applications for 80,000 shares. Applicants for 5,000 shares were rejected. Applicants for 40,000 shares were allotted 100% 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 200,000; Excess amount = Rs 600,000;
Received amount on allotment = Rs 24,00,000
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 20 [pro rata over subscription mixed allotment]
Power Company Ltd issued 40,000 equity shares of $/₹/Rs 100 each. The amount payable as under:
On application Rs 40
On allotment Rs 30
On first and final call Rs 30
The company received applications for 60,000 shares. Applicants for 5,000 shares were rejected. Applicants for 28,000 shares were allotted full 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 200,000; Excess amount = Rs 600,000;
Amount received on allotment = Rs 600,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 21 [pro rata over subscription mixed allotment]
ND Bank Limited has an authorized equity share capital $/₹/Rs 20,00,000 divided into shares of $/₹/Rs 100 each. The bank issued 15,000 shares for public @ 20% premium. The money was payable as under:
Rs 25 on application
Rs 50 on allotment (with premium)
Rs 45 on first and final call
Applications were received for 25,000 shares. Applications for 5,000 shares were accepted in full, 5,000 applications were rejected and remaining applications were allotted on pro-rata basis. Mr. Agrawal failed to pay amount on 800 shares on allotment and calls, which were allotted on pro-rata basis.
Required: Journal entries
[Answer: returned money = Rs 125,000; excess for allotment = Rs 125,000;
Arrears on allotment = Rs 30,000; arrears on calls = Rs 36,000]
***********
Thank you for investing your time.
Please comment on article.
You can help me by sharing this article at your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मीडिया