If a company receives excess application money and the application money equal to shares issued transferred to Share Capital A/c and application money received on excess shares-some money is adjusted and against allotment and remaining was refunded, then which of the following entry is correct?

The correct option is B Share Application A/c Dr.
To share Allotment A/c Dr.
To Share Capital A/c
To Bank A/c

• Sometimes a company may receive applications for a large number of shares than offered to public by it for subscription and this situation is termed as over-subscription.

• Therefore, such surplus (applications received > offered to public) is to be adjusted.

• Generally, it is stated in the given question that surplus money received on applications will be adjusted either on:

a) Share allotment only or

b) Share allotment and on subsequent calls

But if question does not specify treatment then it is to be adjusted against allotment and surplus money is refunded by cash or cheque.

• For example:-

Question- A Company invited for 30000 equity shares of ₹ 10 each, payable ₹ 2 on application,₹ 3 on allotment and balance on call. Total applications money received at ₹ 2 per share was ₹ 72000. Application money should be adjusted against allotment and excess money is to be refunded by bank.

Solution- Total application money received is ₹ 72000

Number of applications received = Total application money received ÷ Rate of application money

= ₹ 72000 ÷ ₹2 = 36000 shares

Number of shares to be issued = 30000 shares

Number of application is more than shares to be issued hence, it is over- subscription. As given in question, company decides to allot 30000 shares in full and refund the excess money received on application by bank for 6000 shares at ₹ 2 per share.