Accounting · Company Accounts

Over-subscription and Under-subscription of Shares

Updated 1 October 2026

Over-subscription means applications exceed the shares offered, so you allot shares pro rata or reject some applications. Application money on allotted shares goes to Share Capital. Excess money is refunded or adjusted against allotment dues. Under-subscription means fewer applications than shares offered, so you allot all shares applied for.

Understand Over-subscription and Under-subscription of Shares

A company invites the public to apply for shares. It fixes the number of shares offered and the amount payable on application, allotment and calls. The number of shares people apply for may not match the number offered.

Over-subscription means applications are for more shares than the company offered. The company cannot allot everything asked. It can reject some applications fully and refund their money. It can allot pro rata, meaning each applicant gets a fixed fraction of the shares applied for. Or it can combine both: reject some, allot pro rata to the rest, and give full allotment to a few.

In each case the applicant has paid application money on more shares than they receive. The extra is excess application money. The company either refunds it or keeps it and adjusts it against the amount due from that applicant on allotment (and on later calls if allotment is fully covered). Adjusted money is not new cash. It is a transfer from the Share Application account to the Share Allotment account.

Under-subscription means applications are for fewer shares than offered. You allot shares to every applicant for the number applied for. Issued capital is only what is actually allotted. There is no pro rata and no excess money. Remember that a company must receive the minimum subscription before it can allot. If the minimum subscription is not received, the allotment cannot be made. Otherwise, in exam questions, allot all shares applied for.

Two related terms often come in the same question. Calls in arrears is the amount a shareholder has failed to pay on a call that is due. Calls in advance is the amount a shareholder pays before it is called. Calls in arrears is a debit balance, but it is not an asset. It is deducted from called-up share capital in the balance sheet. Advance is a liability until the call falls due. As per Table F, the Board may charge interest on calls in arrears at up to 10% p.a. and may pay interest on calls in advance at up to 12% p.a. if the articles allow. In exam questions, use the rate the question gives.

Key rules to remember

Pro rata ratio: Ratio = Shares applied for : Shares allotted; Example: applied 24,000, allotted 20,000 gives 6 : 5. Each applicant gets 5/6 of the shares applied for.
Shares allotted to an applicant: Shares allotted = Shares applied for × (Shares available for pro rata group ÷ Shares applied by that pro rata group); Shares available for the pro rata group = shares offered less any shares given in full to other applicants. Rejected applications are not part of the group.
Application money due on allotted shares: Shares allotted × Application money per share; This is transferred from Share Application A/c to Share Capital A/c.
Excess application money: Total application money received − Application money on shares allotted; This is the amount to refund or adjust. Money of rejected applicants is part of it.
Excess adjusted to allotment: Excess received − Refund paid; Credit this to Share Allotment A/c. Cash due on allotment = Allotment due − this amount.
Calls in arrears: Calls in arrears = Amount called − Amount received; Debit Calls in Arrears A/c and credit the call account.
Key journal entries: Bank Dr, To Share Application. Then Share Application Dr, To Share Capital, To Share Allotment, To Bank (refund).; Calls in advance: Bank Dr, To Calls in Advance. When the call is made: Calls in Advance Dr, To Call A/c.

How to solve Over-subscription and Under-subscription of Shares questions

Follow the same order for every allotment question. Do the workings first and the journal entries second.

1Read the issue terms: shares offered, face value, amounts payable on application, allotment and each call, and any premium.
2Find the shares applied for and decide whether the issue is over-subscribed, under-subscribed or exactly subscribed.
3If over-subscribed, work out the allotment: which applications are rejected, which get full allotment and which get pro rata. Write the ratio.
4Calculate total application money received, application money on allotted shares, refund (if any) and excess to be adjusted.
5Pass the entries in order: receipt of application money, transfer to Share Capital (and to Allotment and Bank for refund), then allotment due, then allotment money received.
6Compute cash due on allotment: allotment due less excess adjusted. Check that the Share Allotment A/c balances to nil after receipt.
7Handle calls: make the call entry, then show money received, and record calls in arrears or calls in advance as separate balances.
8Check that Share Capital credited equals shares allotted × amount called per share, and that bank received equals bank paid for refunds plus the balance.

Quickest way: Four-line working table

When to use it: Use this under time pressure when the question gives applications, allotment and refunds and asks for journal entries or cash book figures.

Write four lines: Received on application, Kept as application money on allotted shares, Refunded, Adjusted to allotment. Received = Kept + Refunded + Adjusted, so any one missing figure follows.
Write one line for allotment: Due − Adjusted = Cash to receive.
Write the ratio once (for example 6 : 5) and use it for every pro rata calculation.
Then pass the entries directly from the numbers on your working. Keep the working neatly on the page, because it earns step marks.

Common mistakes in Over-subscription and Under-subscription of Shares

Crediting the whole application money to Share Capital.
Students forget that the company can keep only the application money on shares actually allotted.
Fix: Credit Share Capital with allotted shares × application money per share. The rest goes to refund or Share Allotment.
Applying the pro rata ratio to the rejected applications as well.
The question gives total applications and the student divides shares offered by that total.
Fix: Remove rejected applications first. Use the remaining applications as the denominator.
Showing the adjusted excess as cash received on allotment.
The word 'received' is confused with the excess already in hand.
Fix: Cash on allotment = Allotment due − excess adjusted. The adjustment is only a transfer entry.
Treating under-subscription as needing pro rata.
Students apply the over-subscription method automatically.
Fix: If applications are fewer than shares offered, allot in full to each applicant. Issued capital equals shares allotted.
Mixing up calls in arrears and calls in advance.
Both involve a shareholder paying a different amount from what is called.
Fix: Arrears: called but not paid, debit Calls in Arrears. Advance: paid before called, credit Calls in Advance.
Forgetting the refund entry or debiting Bank for the refund.
Students rush and skip the refund line in the transfer entry, or they treat the refund as a receipt instead of a payment.
Fix: Credit Bank for the refund in the same entry that transfers application money out of Share Application A/c.

Worked examples

Example 1

A company issued 10,000 equity shares of ₹10 each at par. Payable: ₹3 on application, ₹4 on allotment and ₹3 on first and final call. Applications were received for 15,000 shares. Shares were allotted pro rata to all applicants and the excess application money was adjusted towards allotment. All money due was received. Pass journal entries.

Show the solution

Ratio: applied 15,000 : allotted 10,000 = 3 : 2. Each applicant gets two-thirds of the shares applied for.
Application money received = 15,000 × ₹3 = ₹45,000.
Application money on allotted shares = 10,000 × ₹3 = ₹30,000.
Excess = ₹45,000 − ₹30,000 = ₹15,000. There is no refund, so all of it is adjusted to allotment.
Allotment due = 10,000 × ₹4 = ₹40,000. Cash to receive = ₹40,000 − ₹15,000 = ₹25,000.
Call due = 10,000 × ₹3 = ₹30,000.
Entry 1: Bank A/c Dr ₹45,000, To Share Application A/c ₹45,000.
Entry 2: Share Application A/c Dr ₹45,000, To Share Capital A/c ₹30,000, To Share Allotment A/c ₹15,000.
Entry 3: Share Allotment A/c Dr ₹40,000, To Share Capital A/c ₹40,000.
Entry 4: Bank A/c Dr ₹25,000, To Share Allotment A/c ₹25,000.
Entry 5: Share First and Final Call A/c Dr ₹30,000, To Share Capital A/c ₹30,000.
Entry 6: Bank A/c Dr ₹30,000, To Share First and Final Call A/c ₹30,000.
Check: Share Capital = ₹30,000 + ₹40,000 + ₹30,000 = ₹1,00,000 = 10,000 × ₹10.

Answer: Excess application money of ₹15,000 is adjusted to allotment. Cash received on allotment is ₹25,000 and share capital credited is ₹1,00,000.

Example 2

A company offered 20,000 equity shares of ₹10 each at par, payable ₹2 on application, ₹3 on allotment and ₹5 on call. Applications were received for 28,000 shares. Applications for 4,000 shares were rejected and the money was refunded. The remaining applicants were allotted 20,000 shares pro rata. Excess application money was adjusted towards allotment. A shareholder with 300 shares failed to pay the call. Pass entries up to the receipt of the call money and find the amount of calls in arrears.

Show the solution

Application money received = 28,000 × ₹2 = ₹56,000.
Refund to rejected applicants = 4,000 × ₹2 = ₹8,000.
Remaining applicants = 28,000 − 4,000 = 24,000 shares. Allotted 20,000, so ratio 24,000 : 20,000 = 6 : 5.
Application money on allotted shares = 20,000 × ₹2 = ₹40,000.
Excess adjusted = ₹56,000 − ₹40,000 − ₹8,000 = ₹8,000.
Allotment due = 20,000 × ₹3 = ₹60,000. Cash to receive = ₹60,000 − ₹8,000 = ₹52,000.
Call due = 20,000 × ₹5 = ₹1,00,000. Calls in arrears = 300 × ₹5 = ₹1,500. Cash received on call = ₹98,500.
Entry 1: Bank A/c Dr ₹56,000, To Share Application A/c ₹56,000.
Entry 2: Share Application A/c Dr ₹56,000, To Share Capital A/c ₹40,000, To Share Allotment A/c ₹8,000, To Bank A/c ₹8,000.
Entry 3: Share Allotment A/c Dr ₹60,000, To Share Capital A/c ₹60,000.
Entry 4: Bank A/c Dr ₹52,000, To Share Allotment A/c ₹52,000.
Entry 5: Share Call A/c Dr ₹1,00,000, To Share Capital A/c ₹1,00,000.
Entry 6: Bank A/c Dr ₹98,500, Calls in Arrears A/c Dr ₹1,500, To Share Call A/c ₹1,00,000.
Check: Share Capital = ₹40,000 + ₹60,000 + ₹1,00,000 = ₹2,00,000 = 20,000 × ₹10.

Answer: Refund is ₹8,000, excess adjusted to allotment is ₹8,000, cash received on allotment is ₹52,000 and calls in arrears are ₹1,500.

Exam tips

Always write the pro rata ratio and the application-money working first. Even if the entries have a slip, you can still earn marks for correct workings.
Read carefully whether the question says excess is refunded, adjusted to allotment, or adjusted to allotment and calls. The entries change with each instruction.
If the question gives a premium, handle it in the same entries. Premium due on allotment is credited to Securities Premium, not Share Capital.
Keep the Bank figures consistent. Receipts minus the refund paid should match the total cash that stays in the business.
Add a short narration under each journal entry. It helps the examiner follow you and protects your marks.

Practice questions from Company Accounts

Over-subscription and Under-subscription of Shares: frequently asked questions

What is the difference between over-subscription and under-subscription of shares?

Over-subscription means applications are for more shares than the company offered. The company rejects some applications or allots pro rata. Under-subscription means applications are for fewer shares than offered, so every applicant gets all the shares applied for.

How do you adjust excess application money on allotment?

Work out the application money on shares allotted and the refund. The balance is excess. Debit Share Application A/c and credit Share Allotment A/c with that amount. The applicant then pays only the allotment due minus this excess.

What is pro rata allotment?

It means shares are allotted in the same proportion to all applicants in a group. If 6 shares are applied for and 5 allotted, the ratio is 6 : 5. An applicant for 600 shares gets 500 shares.

What is the difference between calls in arrears and calls in advance?

Calls in arrears is money that was called and is due but not paid. It is a debit balance. Calls in advance is money received before it is called. It is a credit balance until the call is made.