Full Subscription of Shares Part 2

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In this case, company receives applications equal to the number of shares offered by the company. This is called Full Subscription of Shares. In this case, all applicants will be allotted shares.

Journal Entries:

Table of Receipt of Application Money
Title: Table of Receipt of Application Money

On Receipt of Application Money

Bank A/c Dr.

To Share Application A/c

(Application money received on ….shares of Rs…each)

On allotment of shares

Share Application A/c Dr.

To Share Capital A/c

(Application money transferred to share capital A/c)

Under Subscription

In this case company receives subscription to less number of shares than the number of shares offered by the company. Allotment will be done to all people.

Over Subscription:

Company receives more number of applications for shares than company offered to the public. In this case company cannot allot shares to all subscribed people. In such situation company may opt for one of the mentioned options

Option I:

Rejection of Excess Applications and Money Returned: Excess number of shares may be rejected and the money will be refunded and a letter of rejection will be sent to the applicants.

Journal Entry:

Share Application A/c Dr.

To Bank A/c

(Application money on … shares refunded to the applicants)

Excess application money adjusted towards sums due on allotment. The adjusted money retained as call-in-advance money and will be recorded in call-in-advance A/c.

Journal Entry:

Shares Application A/c Dr.

To Share Allotment A/c

(Excess application money adjusted towards sums due on allotment)

Share Application A/c Dr.

To Call-in-advance A/c

(The adjustment of excess share application money retained as call-in-advance).

Option II:

Partial Acceptance of Applications:

Sometimes company allots shares proportionally to all applicants based on some formula. Company will not allot total subscribed shares to the applicants.

Example:

The Full Health Care Ltd has offered to public for subscription 20000 shares of Rs 100 each payable as Rs 30 per share on application, Rs 30 per share on allotment and the balance on call. Applications were received for 30000 shares. Applications for 5000 shares were rejected all together and application money was returned. Remaining applicants were alloted the offered shares. Their excess application money was adjusted towards some due on allotment. Calls were made and duly received. Make journal entries in the books of the company.

Solution:

Solution of over Subscription
Solution of over subscription

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Bank A/c Dr.

To Share Application A/c

(Application money received for 30000 shares @ Rs 30 per share)

900000

900000

2.

Share Application A/c Dr.

To Share Capital A/c

To Bank A/c

To Share Allotment A/c

(Application money of 20000 shares transferred to share capital A/c on their allotment. That of 5000 shares returned and of 5000 shares adjusted towards sum due on allotment.)

900000

600000

150000

150000

3.

Share Allotment A/c Dr.

To Share Capital A/c

(Allotment money due)

600,000

600,000

4.

Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received)

450000

450000

5.

Share First and Final Call A/c Dr.

To Share Capital A/c.

(Call money due)

800000

800000

6.

Bank A/c Dr.

To Share First & Final call A/c

(Call money received)

800000

800000

Basically, companies issues shares at nominal value or face value. But, sometimes companies may issue shares either above the face value or below the face value.

Issue of Shares at Premium:

When shares are issued at more than the face value they called as premium shares.

Premium = Issue price – face value

Premium is a capital gain to the company and it is possible only when the financial position of the company is very good. Premium money may be demanded in any form i.e. application, allotment or calls. And the received premium is transferred to Securities Premium A/c.

As per Companies Act, section 78 the premium should be utilized for

  • Issuing fully paid bonus shares.

  • Writing off preliminary expenses, discount on issue of shares, underwriting commission or expenses on issue;

  • Paying premium on redemption of Preference shares or Debentures

Journal Entries:

Premium with share application money

Premium with Share Application Money

Premium with share application money

Example: Luxuary Cars Ltd. issued 100000 shares of Rs 10 each at a premium of Rs 5 per share, payable as:

On application Rs. 4 (including Rs 2 premium) per share

On allotment Rs 8 (including Rs 3 premium) per share

On call Rs. 3 per share

Applications were received for 100000 shares and allotment was made to all.

Make journal entries.

Solution:

Journal Entries

Shares at Premium
Shares at premium

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Bank A/c Dr.

To Share Application A/c

(Application money received for 100000 shares )

400000

400000

2.

Share Application A/c Dr.

To Share Capital A/c

To Securities Premium A/c (Share (application money transferred to share capital A/c and securities Premium A/c)

400000

200000

200000

3.

Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received @ Rs.8 per share)

800,000

800,000

4.

Share Allotment A/c Dr.

To Share Capital A/c

To Securities Premium A/c

(Allotment money due)

800000

500000

300000

5.

Share First and Final Call A/c Dr.

To Share Capital A/c.

(Call money due @3 per share)

300000

300000

6.

Bank A/c Dr.

To Share First & Final call A/c

(Call money received @Rs.3 per share)

300000

300000

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