Janta Papers Limited invited applications for 1,00,000 equity shares of ₹25 each payable as under:
| Instalment | Amount per share (₹) |
|---|---|
| On Application | 5.00 |
| On Allotment | 7.50 |
| On First Call (due two months after allotment) | 7.50 |
| On Second and Final Call (due two months after First Call) | 5.00 |
Applications were received for 4,00,000 shares on January 01, 2017 and allotment was made on February 01, 2017.
Record journal entries in the books of the company to record these share capital transactions under each of the following circumstances:
- The directors decide to allot 1,00,000 shares in full to selected applicants and the applications for the remaining 3,00,000 shares were rejected outright.
- The directors decide to make a pro-rata allotment of 25 per cent of the shares applied for to every applicant; to apply the balance of application money towards amount due on allotment; and to refund the amount remaining thereafter.
- The directors totally reject applications for 2,00,000 shares, accept full applications for 80,000 shares and make a pro-rata allotment of the 20,000 shares to remaining applicants and the excess application money is to be adjusted towards allotment and calls to be made.
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Start your 14-day free trial to unlock the full solution →4,00,000 applications are received for 1,00,000 shares of ₹25 (₹5 application). Application money is ₹20,00,000; ₹5,00,000 goes to share capital in every case. The ₹15,00,000 excess is handled three ways: fully refunded (Alt 1); ₹7,50,000 adjusted to allotment and ₹7,50,000 refunded (Alt 2); or ₹1,50,000 to allotment, ₹2,50,000 to calls-in-advance and ₹11,00,000 refunded (Alt 3).
Concept
Over-subscription (applications exceeding shares offered) is resolved at allotment. Money on shares actually allotted goes to Share Capital; the excess is either refunded, adjusted against allotment, or — where the surplus is large enough — adjusted against future calls (Calls-in-Advance) with the residue refunded. Application money on rejected applications is always refunded in full.
Working Notes
- Application money received: 4,00,000 × ₹5 = ₹20,00,000.
- To share capital (1,00,000 allotted × ₹5): ₹5,00,000. Excess: ₹15,00,000.
- Alt 1: reject 3,00,000 → refund 3,00,000 × ₹5 = ₹15,00,000.
- Alt 2: allot 25% of 4,00,000 = 1,00,000; allotment due 1,00,000 × ₹7.50 = ₹7,50,000 met from excess; balance ₹15,00,000 − ₹7,50,000 = ₹7,50,000 refunded.
- Alt 3: reject 2,00,000; accept 80,000 in full; pro-rata 20,000 to applicants for 1,20,000 (ratio 1:6). Pro-rata excess = 1,00,000 shares × ₹5 = ₹5,00,000 → allotment on 20,000 × ₹7.50 = ₹1,50,000, calls on 20,000 (₹7.50 + ₹5 = ₹12.50) = ₹2,50,000 (to Calls-in-Advance), balance ₹1,00,000. Total refund = rejected 2,00,000 × ₹5 (₹10,00,000) + ₹1,00,000 = ₹11,00,000.
Solution
Books of Janta Papers Limited — First Alternative (full acceptance and full rejection)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2017 Jan 01 | Bank A/c Dr. | 20,00,000 | ||
| To Equity Share Application A/c | 20,00,000 | |||
| (Money received on applications for 4,00,000 shares @ ₹5 per share) | ||||
| Feb 01 | Equity Share Application A/c Dr. | 20,00,000 | ||
| To Equity Share Capital A/c | 5,00,000 | |||
| To Bank A/c | 15,00,000 | |||
| (Transfer of application money on 1,00,000 shares to share capital and money refunded on rejected applications) | ||||
| Feb 01 | Equity Share Allotment A/c Dr. | 7,50,000 | ||
| To Equity Share Capital A/c | 7,50,000 | |||
| (Amount due on the allotment of 1,00,000 shares @ ₹7.50 per share) | ||||
| Feb 01 | Bank A/c Dr. | 7,50,000 | ||
| To Equity Share Allotment A/c | 7,50,000 | |||
| (Allotment money received) | ||||
| Apr 01 | Equity Share First Call A/c Dr. | 7,50,000 | ||
| To Equity Share Capital A/c | 7,50,000 | |||
| (First call money due on 1,00,000 shares @ ₹7.50 per share) | ||||
| Apr 01 | Bank A/c Dr. | 7,50,000 | ||
| To Equity Share First Call A/c | 7,50,000 | |||
| (First call money received) | ||||
| Jun 01 | Equity Share Second and Final Call A/c Dr. | 5,00,000 | ||
| To Equity Share Capital A/c | 5,00,000 | |||
| (Final call money due on 1,00,000 shares @ ₹5 per share) | ||||
| Jun 01 | Bank A/c Dr. | 5,00,000 | ||
| To Equity Share Second and Final Call A/c | 5,00,000 | |||
| (Final call money received) |
Second Alternative (pro-rata allotment of 25%)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2017 Jan 01 | Bank A/c Dr. | 20,00,000 | ||
| To Equity Share Application A/c | 20,00,000 | |||
| (Money received on applications for 4,00,000 shares @ ₹5 per share) | ||||
| Feb 01 | Equity Share Application A/c Dr. | 20,00,000 | ||
| To Equity Share Capital A/c | 5,00,000 | |||
| To Equity Share Allotment A/c | 7,50,000 | |||
| To Bank A/c | 7,50,000 | |||
| (Transfer of application money on shares allotted to share capital, excess application amount credited to allotment account and money refunded) | ||||
| Feb 01 | Equity Share Allotment A/c Dr. | 7,50,000 | ||
| To Equity Share Capital A/c | 7,50,000 | |||
| (Amount due on the allotment of 1,00,000 shares @ ₹7.50 per share) |
The entries for the two calls (First Call and Second and Final Call) are the same as in the First Alternative. Since the allotment due is fully met from the excess application money, no further cash is received on allotment.
Third Alternative (combination of rejection and pro-rata allotment)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2017 Jan 01 | Bank A/c Dr. | 20,00,000 | ||
| To Equity Share Application A/c | 20,00,000 | |||
| (Money received on applications for 4,00,000 shares @ ₹5 per share) | ||||
| Feb 01 | Equity Share Application A/c Dr. | 20,00,000 | ||
| To Equity Share Capital A/c | 5,00,000 | |||
| To Equity Share Allotment A/c | 1,50,000 |
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