Accountancy · Ch 5 — Accounting for Share Capital
Under Subscription
Under Subscription
Under subscription occurs when the number of shares applied for by the public is less than the number of shares the company offered for subscription. In other words, the issue is undersubscribed.
For example, if a company offered 2,00,000 shares to the public but received applications for only 1,90,000 shares, the issue is undersubscribed by 10,000 shares.
What happens in this situation?
The company simply allots the shares to all the applicants in full. Since the number of applications received (1,90,000) is less than the number offered (2,00,000), there is no need for pro-rata allotment or rejection of any applications. The allotment is confirmed for the full number of shares applied for — in this case, 1,90,000 shares.
The accounting entries are made exactly as they would be for a fully subscribed issue, but only for the actual number of shares applied for and allotted.
Even in under subscription, the company must ensure that it has received the minimum subscription as per the SEBI regulations (which is 90% of the issued amount). If the minimum subscription is not received, the company cannot proceed with the allotment and must refund the entire subscription amount received from applicants.
Journal entries for under subscription (assuming shares are issued at par):
The entries are the same as for a normal subscription, but the amounts are based on the actual applications received.
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c (amount received on applications) | Dr. | (actual amount received) | ||
| To Share Application A/c | (actual amount received) | |||
| (Being application money received on ___ shares @ ₹___ each) | ||||
| Share Application A/c | Dr. | (total application money) | ||
| To Share Capital A/c | (face value of shares allotted) | |||
| (Being application money transferred to Share Capital A/c on allotment of ___ shares) | ||||
| Share Allotment A/c (if allotment money is due) | Dr. | (amount due on allotment) | ||
| To Share Capital A/c | (face value of shares allotted) | |||
| (Being allotment money due on ___ shares @ ₹___ each) | ||||
| Bank A/c (if allotment money is received) | Dr. | (actual amount received) |