Use app×
Join Bloom Tuition
One on One Online Tuition
JEE MAIN 2025 Foundation Course
NEET 2025 Foundation Course
CLASS 12 FOUNDATION COURSE
CLASS 10 FOUNDATION COURSE
CLASS 9 FOUNDATION COURSE
CLASS 8 FOUNDATION COURSE
0 votes
631 views
in Accounts by (57.2k points)

Explain the terms ‘Over-subscription’ and ‘Under-subscription’. How are they dealt with in accounting records?

1 Answer

+1 vote
by (62.7k points)
selected by
 
Best answer

When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in ease of oversubscription of shares.

• Excess applications are refused and money received on excess applications is returned to the applicants. 

• The company can allot shares on pro-rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment. 

• In this case, the company follows a combination of both the method. It may reject some share applications and may allot some applications on the pro rata.basis.

Under-subscription: When the number of shares applied by the public is lesser than the number of shares issued by the company, then the situation of Undersubscription arises. As per the Company Act, the Minimum Subscription is 90% of the shares issued by the company. This implies that the company can allot shares to the applicants provided if applications for 90% of the issued shares are received. Otherwise, the company should refund the entire application amount received. In this regard, necessary Journal entry is passed only after receiving and refunding of the application money.

Welcome to Sarthaks eConnect: A unique platform where students can interact with teachers/experts/students to get solutions to their queries. Students (upto class 10+2) preparing for All Government Exams, CBSE Board Exam, ICSE Board Exam, State Board Exam, JEE (Mains+Advance) and NEET can ask questions from any subject and get quick answers by subject teachers/ experts/mentors/students.

Categories

...