Question

How is ‘Under-subscription’ dealt with in accounting records?

Answer 1

In accounting records, under-subscription is very simple to handle because no excess application money is received, meaning there is no need for refunds or pro-rata adjustments. The company records all subsequent journal entries (for application, allotment, and calls) based solely on the actual number of shares applied for, rather than the number originally offered. For example, if a company offers 1,000 shares but receives applications for 80,000 shares, the accounting entries for the entire process will be recorded using 80,000 shares. If the company fails to meet the minimum subscription target, an entry is passed to refund the entire amount collected from applications by debiting the Share Application Account and crediting the Bank Account.