Question

Discuss the process for the allotment of shares of a company in case of over subscription.

Answer 1

When the total number of applications for shares exceeds the number of shares offered to the public, oversubscription occurs. A company can opt for any of the three alternatives to allot shares in the event of oversubscription.

(i) Excess applications are refused, and money received on excess applications is returned to the applicants.

The company can refuse excess applications, and the money received on these excess applications is returned to the applicants.

Praticulars	Debit (₹)	Credit (₹)
Share Application A/c   ....Dr.	xxx	-
To Share Capital A/c	-	xxx
To Bank A/c	-	xxx
(Excess application money returned)

Example: Shares issued: 10,000 @ Rs 10 per share; money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, and Rs 3 on first and final call.

Date	Praticulars	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.	24,000	-
	To Share Application A/c	-	24,000
	(Application money received for 12,000 shares)
2.	Share Application A/c   ...Dr.	24,000	-
	To Share Capital A/c	-	20,000
	To Bank A/c	-	4,000
	(Application money transferred to Share Capital Account, and the excess money returned)

(ii) Pro rata Basis:

The company can allot shares on a pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

Praticulars	Debit (₹)	Credit (₹)
Share Application A/c   ...Dr.	xxx	-
To Share Capital A/c	-	xxx
To Share Allotment A/c	-	xxx
(Adjustment of application money on allotment)

Example: Shares issued: 10,000 @ Rs 10 per share; money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, and Rs 3 on first and final call.

Date	Praticulars	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.	24,000	-
	To Share Application A/c	-	24,000
	(Application money received for 12,000 shares)
2.	Share Application A/c   ...Dr.	24,000	-
	To Share Capital A/c	-	20,000
	To Share Allotment A/c	-	4,000
	(Application money transferred to Share Capital Account, and the balance amount is transferred to Share Allotment Account)
3.	Share Allotment A/c   ...Dr.	50,000	-
	To Share Capital A/c	-	50,000
	(Amount due on allotment of 10,000 shares @ Rs 5 per share)
4.	Bank A/c   ...Dr.	46,000	-
	To Share Allotment	-	46,000
	(Allotment money received, Rs 50,000 – Rs 4,000)

(iii) Pro rata and refund of money:

In this case, the company follows a combination of both methods. It may reject some share applications and allot others on a pro rata basis.

Share Application A/c   ...Dr.	xxx	-
To Share Capital A/c	-	xxx
To Share Allotment A/c	-	xxx
To Bank A/c	-	xxx
(Application money transferred to Share Capital Account, and the balance amount is transferred to Share Allotment Account, and the excess application money is refunded)

Example: Shares issued: 10,000 @ Rs 10 per share; money received for 13,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, and Rs 3 on first and final call. If the company rejects the applications for 1,000 shares and allots the remaining on a pro rata basis.

Date	Praticulars	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.	26,000	-
	To Share Application A/c	-	26,000
	(Application money received for 13,000 shares)
2.	Share Application A/c   ...Dr.	26,000	-
	To Share Capital A/c (10,000 × Rs 2)	-	20,000
	To Share Allotment A/c (2,000 × Rs 2)	-	4,000
	To Bank A/c (1,000 × Rs 2)	-	2,000
	(Amount received on share application adjusted to Share Capital and share allotment, and the balance is refunded)
3.	Share Allotment A/c   ...Dr.	50,000	-
	To Share Capital A/c	-	50,000
	(Amount due on share allotment of 10,000 shares @ Rs 5 per share)
4.	Bank A/c   ...Dr.	46,000	-
	To Share Allotment A/c	-	46,000
	(Allotment money received, Rs 50,000 – Rs 4,000)