Subscription of shares can be more than the number of shares offered or less than that.
Under Subscription
It is a situation when number of shares applied for is less than the number for which applications have been invited for subscription.
The condition of Minimum Subscription must be fulfilled.
Over Subscription
Sometimes, in respect of share issues of well-managed and financially strong companies applications are received for more shares than the number offered to the public for subscription, called a case of ‘Over Subscription’.
Three alternatives are available to the directors in case of over-subscription
(1) Accept some applications in full and totally reject the others.
(2) Make a pro-rata allotment to all.
(3) Adopt a combination of the above two alternatives (the most common).
(1) Accept some applications in full and totally reject the others.
When the directors decide to fully accept some applications and totally reject the others, the application money received from rejected applications is fully refunded.
The journal entries on application and allotment according to this alternative are as follows:
| No. | Transaction | Journal Entry | Amount |
| 1. | Receipt of Share Application money. | Bank A/c Dr.
To Share Application A/c |
App. money per share x no. of shares applied. |
| 2. | Transfer of application money to capital account and refund. | Share Application A/c Dr.
To Share Capital A/c To Bank A/c |
Application money received.
App. Money per share x No. allotted. App. Money per share x No. rejected. |
| 3. | Share allotment money made due. | Share Allotment A/c Dr.
To Share Capital A/c |
Allot. Money per share x No. of shares allotted. |
| 4. | Receipt of Allotment money. | Bank A/c Dr.
To Share Allotment A/c |
Actual allotment money received. |
(2) When there is a pro-rata allotment to all
When the directors decide to make a proportionate allotment to all the applicants (called ‘pro-rata’ allotment), the excess application money received is normally adjusted towards the amount due on allotment and excess ,if any, may either be refunded or credited to calls in advance( as mentioned in the question).
In this case, the journal entries on application and allotment can be shown as:
| No. | Transaction | Journal Entry | Amount |
| 1. | Application money received. | Bank A/c Dr.
To Share Application A/c |
App. money per share x no. of shares applied. |
| 2. | Transfer of application money. | Share Application A/c Dr.
To Share Capital A/c To Share Allotment A/c |
App. money received.
App. Mny/share x No. allotted. Excess App. Money. |
| 3. | Amount due on the Allotment. | Share Allotment A/c Dr.
To Share Capital A/c |
Allot. Money per share x No. allotted. |
| 4. | Allotment money received after adjustment. | Bank A/c Dr.
To Share Allotment A/c |
Net Allotment money received after adjustment. |
(3) When application for some shares are rejected
When application for some shares are rejected and pro-rata allotment is made to the remaining applicants, the money on rejected applications is fully refunded and the excess application money received from applicants to whom pro-rata allotment has been made is adjusted towards the amount due on the allotment of shares allotted.
The journal entries on application and allotment recorded can be shown as:
| No. | Transaction | Journal Entry | Amount |
| 1. | Application money received. | Bank A/c Dr.
To Share Application A/c |
App. money per share x no. of shares applied. |
| 2. | Transfer of application money. | Share Application A/c Dr.
To Share Capital A/c To Share Allotment A/c To Bank A/c |
App. money received.
App. Mny/share x No. allotted. Excess App. Money. App. Money refunded. |
| 3. | Amount due on the Allotment. | Share Allotment A/c Dr.
To Share Capital A/c |
Allot. Money per share x No. allotted. |
| 4. | Allotment money received after adjustment. | Bank A/c Dr.
To Share Allotment A/c |
Net Allotment money received after adjustment. |
Test Your Understanding - Share Capital 2