Accounting: Issue of Shares: Full Subscription of Shares, over Subscription and Issue of Shares at Premium (For CBSE, ICSE, IAS, NET, NRA 2022)

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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
On Receipt of Application Money

Bank A/c Dr.

To Share Application A/c

(Application money received on … . shares of ₹ … 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 ₹ 100 each payable as ₹ 30 per share on application, ₹ 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 allotted 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
S. No.ParticularsL. FAmount (₹)
Dr.Cr.
1.Bank A/c Dr.

To Share Application A/c

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

900000900000
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.)

900000600000

150000

150000

3.Share Allotment A/c Dr.

To Share Capital A/c

(Allotment money due)

600,000600,000
4.Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received)

450000450000
5.Share First and Final Call A/c Dr.

To Share Capital A/c.

(Call money due)

800000800000
6.Bank A/c Dr.

To Share First & Final call A/c

(Call money received)

800000800000

Basically, companies՚ issues share 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

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

On application ₹ 4 (including ₹ 2 premium) per share

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

On call ₹ 3 per share

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

Make journal entries.

Solution:

Journal Entries

Shares at Premium
S. No.ParticularsL. FAmount (₹)
Dr.Cr.
1.Bank A/c Dr.

To Share Application A/c

(Application money received for 100000 shares)

400000400000
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)

400000200000

200000

3.Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received @ ₹ 8 per share)

800,000800,000
4.Share Allotment A/c Dr.

To Share Capital A/c

To Securities Premium A/c

(Allotment money due)

800000500000

300000

5.Share First and Final Call A/c Dr.

To Share Capital A/c.

(Call money due@3 per share)

300000300000
6.Bank A/c Dr.

To Share First & Final call A/c

(Call money received @ ₹ 3 per share)

300000300000

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