Question

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

Answer 1

In accounting records, over-subscription requires specific adjustments because the company collects more application money than it can legally keep as capital. Initially, the total money received on all applied shares is recorded by debiting the Bank Account and crediting the Share Application Account. During allotment, this excess money is dealt with in three ways: the application money for completely rejected applications is refunded by crediting the Bank Account; the excess money from pro-rata (proportionate) allotment is retained and transferred to the Share Allotment Account to adjust against future dues; and any remaining surplus is transferred to the Calls-in-Advance Account. Ultimately, only the funds for the shares actually offered are transferred to the permanent Share Capital Account to balance the books.