Accounting for Share Capital Notes4

Study Material & Notes for the Chapter 8

Partnership - ACCOUNTING FOR SHARE CAPITAL

IV.  OVERSUBSCRIPTION AND UNDERSUBSCRIPTION OF SHARES

Share Capital topic 4
A.  Full Subscription of Shares
Meaning

Full-subscription is a situation where number of shares applied for is equal to the number for which applications have been invited for subscription.

Example

A company has offered 1,00,000 shares to the public and the public has applied for all the 1,00,000 shares, it is said to be full subscription.

Accounting treatment

As number of applications received is equal to the number of shares offered, accounting entries towards receipt of application money, allotment of shares will be passed on the basis of shares offered by the company.

B. Under Subscription of Shares
Meaning

Under subscription is a situation where number of shares applied for is less than the number for which applications have been invited for subscription..

Example

A company offered 2,00,000 shares for subscription to the public but the applications were received for 1,90,000 shares only.

Accounting treatment
  • In such a situation, the allotment will be confirmed to 1,90,000 shares and entries shall be made accordingly. It must be ensured that the company has received the minimum subscriptions, if not the company will have to refund the entire subscription amount received
  • As per SEBI (ICDR) regulations, if the amount of minimum subscription is not received to the extent of 90%, the issue dissolves.
C. Over Subscription of Shares
Meaning

Over-subscription is a situation where number of shares applied for is more than the number for which applications have been invited for subscription.

Example

A company offered 1,00,000 shares for subscription to the public but the applications were received for 2,00,000 shares

Accounting treatment

In such a condition, three alternatives are available to the directors to deal with the situation:

  1. they can accept some applications in full and totally reject the others;
  2. they can make a pro-rata allotment to all;
  3. they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.
Distinction between Over Subscription of Shares

Basis

Over Subscription 

Under Subscription

Meaning

Number of shares applied by the public is more than the shared offered for subscription

Number of share applied by the public is less than the shared offered for subscription

Limit

No limit

90%.  If the shares applied is less than 90%, the issue is dissolved

Allotment of Shares

Complete rejection, Pro-rata, rejection or both

All the applicants get the shares

Excess money

Can be refunded or adjusted with allotment money or calls

There is no excess money