Q.X Limited Issued 10,000, 12% debentures of ₹100 each payable ₹40 on application and ₹60 on allotment. The public applied for 14,000 debentures. Applications for 9,000 debentures were accepted in full; applications for 2,000 debentures were allotted 1,000 debentures and the remaining applications, were rejected. All money was duly received. Journalise the transactions.

When applications exceed the debentures on offer, the issue is over-subscribed. A company can never allot more debentures than it invited, so applicants fall into three groups here: those allotted in full (9,000), those allotted only part of what they applied for on a pro-rata basis (2,000 applications → 1,000 debentures), and those rejected entirely (3,000 applications). The rejected group's money is refunded in full; the pro-rata group's excess application money is adjusted against their allotment due, not refunded. …

Concept

An issue is over-subscribed when applications exceed the number of debentures offered. A company cannot allot more debentures than it invited for subscription, so it must decide how to treat each category of applicant:

• Applicants allotted the full number of debentures they applied for — no adjustment needed.
• Applicants allotted only part of what they applied for (a pro-rata allotment) — the excess application money they already paid is adjusted against the allotment money due from them, reducing the cash they still need to pay.
• Applicants who receive no allotment at all — their application money must be refunded in full; the company cannot retain any money against debentures never allotted.

The Debenture Application account is fully closed off in a single entry that simultaneously transfers the correct amount to Debentures A/c, credits the excess to Debenture Allotment A/c, and debits the refund to Bank A/c.

Working Note

• Categories: 9,000 applications allotted in full; 2,000 applications allotted 1,000 debentures (pro-rata); 3,000 applications rejected. Total allotted = 9,000 + 1,000 = 10,000 (matches the number offered).
• Total application money received = 14,000 × ₹40 = ₹5,60,000
• Application money required for the 10,000 debentures actually allotted = 10,000 × ₹40 = ₹4,00,000 — transferred to Debentures A/c
• Excess from the pro-rata group: they paid 2,000 × ₹40 = ₹80,000 but are only credited for 1,000 × ₹40 = ₹40,000 worth of debentures, so the excess of ₹40,000 is adjusted against their Allotment money due, not refunded
• Refund to rejected applicants = 3,000 × ₹40 = ₹1,20,000
• Check: ₹4,00,000 (to Debentures) + ₹40,000 (adjusted to Allotment) + ₹1,20,000 (refunded) = ₹5,60,000 — matches total application money received
• Allotment money due on 10,000 debentures = 10,000 × ₹60 = ₹6,00,000
• Net allotment cash actually collected = ₹6,00,000 − ₹40,000 (already adjusted from excess application money) = ₹5,60,000

Solution

Books of X Limited — Journal

Step 1 — Receipt of application money on all 14,000 debentures applied for

Step 2 — Transfer to Debentures A/c, excess adjusted to allotment, rejected applications refunded