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 received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in case of oversubscription of shares.

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.

Share Application A/c		Dr.
	To Share Capital A/c
	To Bank A/c
(Excess application money returned)

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

Bank A/c		Dr.		24,000
	To Share Application A/c				24,000
(Application money received for 12,000 shares)

 

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 pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

Share Application A/c		Dr.
	To Share Capital A/c
	To Share Allotment A/c
(Adjustment of application money on allotment)

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

Bank A/c		Dr.		24,000
	To Share Application A/c				24,000
(Application money received for 12,000 shares)

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)

 

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)

 

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 the method. It may reject some share applications and may allot some applications on the pro rata basis.

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

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

Bank A/c		Dr.		26,000
	To Share Application A/c				26,000
(Application money received for 12,000 shares)

 

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 balance is refunded)

Share Allotment A/c		Dr.		50,000
	To Share Capital A/c				50,000
(Amount due on share allotment of 10,000 share @ Rs 5 per share)

Bank A/c		Dr.		46,000
	To Share Allotment A/c				46,000
(Allotment money received, Rs 50,000 – Rs 4,000)