Issue of Shares at Par: Full, Under and Over Subscriptions

Shares of a company are actually ownership of a company. So every shareholder is a part owner of the company in which he owns shares. But it would be impossible to maintain capital accounts for so many shareholders. So there is a unique share capital account and accounting treatment for the Issue of Shares at par.

Issue of Shares at Par

The company may issue shares at par i.e. at the face value. The company can demand the whole amount due on the shares in a lump sum or in installments.

Usually, the company calls for the application money and then it calls the balance amount at the time of allotment and calls. A company may open Share Application A/c and Share Allotment A/c separately or a single Share Application and Allotment A/c.

When a Public company invites the public to apply and subscribe to its shares, it needs to issue a Prospectus. Thus, a Prospectus is an advertisement by the company to apply for its shares. It has the share application form attached to it. Hence, when a company issues shares to the public, there are three possibilities:

Full Subscription: Full Subscription is when the number of shares company offers to the public and the number of shares for which it receives application is the same.
Under Subscription: Under Subscription is when the number of shares company offers to the public is more than the number of shares for which it receives the application. In this case, a company can make allotment only if it receives the Minimum Subscription. Minimum Subscription is 90% of the total shares that a company offers to the public. In case Company does not receive the amount of Minimum Subscription, it needs to refund the amount of application to the share applicants.
Over-Subscription: Over Subscription is when the number of shares company offers to the public is less than the number of shares for which it receives the application. In this case, the Company makes pro-rata allotment to the share applicants.

Issue of Shares at par

(Source: novojuris)

We will understand all these cases in detail in the solved example.

Journal entries for Issue of Shares at Par

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1. On receipt of Application money	Bank A/c (actual amount received)	Dr.
	To Share Application A/c	Cr.
	(Being application money received on shares)
2. Transfer of application money to Share Capital A/c	Share Application A/c	Dr.
	To Share Capital A/c	Cr.
	(Being share application money transferred to share capital)
3. On Share Allotment due	Share Allotment A/c (amount due on allotment)	Dr.
	To Share Capital A/c	Cr.
	(Being share allotment due)
4. Share Allotment money received	Bank A/c (actual amount received)	Dr.
	To Share Allotment A/c	Cr.
	(Being share allotment money received)
5. On Share call due	Share Call A/c	Dr.
	To Share Capital A/c	Cr.
	(Being money on share call due)
6. Share call amount received	Bank A/c	Dr.
	To Share Call A/c	Cr.
	(Being share call amount received)

Alternatively, a company may choose to prepare a combined Share Application and Allotment A/c. Thus, in such a case, we will replace the first four entries by the following entries. The rest of the entries will remain the same.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1. On receipt of Application money	Bank A/c (actual amount received)	Dr.
	To Share Application andAllotment A/c	Cr.
	(Being application money received on shares)
2. Transfer of application money and share allotment due	Share Application and Allotment A/c (Total application and allotment amount)	Dr.
	To Share Capital A/c	Cr.
	(Being share application money transferred to share capital and allotment due)
3. Share Allotment money received	Bank A/c (actual amount received)	Dr.
	To Share Application and Allotmebt A/c	Cr.
	(Being share allotment money received)

Solved Example on Issue of Shares at Par

Venture Ltd. issues 10000 equity shares of ₹100 each. The amount payable is as follows:

Jan 1, 2018, On Application ₹20

Feb 1, 2018, On Allotment ₹50

Mar 1, 2018, On First and Final Call ₹30.

Show necessary journal entries in the following cases:

The company receives applications for 10000 shares and duly allots all shares.
The Company receives applications for 9500 shares and duly allots all shares.
A company receives applications for 12000 shares. It accepts the applications for 10000 shares and rejects the remaining ones. It duly allots all shares.

Ans.

Full Subscription:

Journal Entries

In the books of Venture Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	200000
	To Share Application A/c	Cr.		200000
	(Being application money received on 10000 shares @20 per share)
1 Feb	Share Application A/c	Dr.	200000
	To Share Capital A/c	Cr.		200000
	(Being share application money transferred to share capital)
1 Feb	Share Allotment A/c	Dr.	500000
	To Share Capital A/c	Cr.		500000
	(Being share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c	Dr.	500000
	To Share Allotment A/c	Cr.		500000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 10000 shares @30 per share)
1 Mar	Bank A/c	Dr.	300000
	To Share First and Final Call A/c	Cr.		300000
	(Being share call amount received)

2. Under Subscription:

Journal Entries

In the books of Venture Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	190000
	To Share Application A/c	Cr.		190000
	(Being application money received on 9500 shares @20 per share)
1 Feb	Share Application A/c	Dr.	190000
	To Share Capital A/c	Cr.		190000
	(Being share application money transferred to share capital)
1 Feb	Share Allotment A/c	Dr.	475000
	To Share Capital A/c	Cr.		475000
	(Being share allotment due on 9500 shares @50 per share)
1 Feb	Bank A/c	Dr.	475000
	To Share Allotment A/c	Cr.		475000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	285000
	To Share Capital A/c	Cr.		285000
	(Being money on share call due on 9500 shares @30 per share)
1 Mar	Bank A/c	Dr.	285000
	To Share First and Final Call A/c	Cr.		285000
	(Being share call amount received)

3. Over-Subscription:

Journal Entries

In the books of Venture Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	240000
	To Share Application A/c	Cr.		240000
	(Being application money received on 12000 shares @20 per share)
1 Feb	Share Application A/c	Dr.	240000
	To Share Capital A/c	Cr.		200000
	To Bank A/c	Cr.		40000
	(Being share application money transferred to share capital and excess refunded)
1 Feb	Share Allotment A/c	Dr.	500000
	To Share Capital A/c	Cr.		500000
	(Being share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c	Dr.	500000
	To Share Allotment A/c	Cr.		500000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 10000 shares @30 per share)
1 Mar	Bank A/c	Dr.	300000
	To Share First and Final Call A/c	Cr.		300000
	(Being share call amount received)