Corporate Accounting and Financial Management · Accounting for Share Capital

Over-subscription and Under-subscription of Shares: Entries and Problems

Updated 11 October 2026 · Fact-checked

Over-subscription means applications exceed the shares offered. You refund rejected applications, allot the rest in full or pro rata, and adjust excess application money against allotment or calls. Under-subscription means applications are fewer than the shares offered. You allot what was applied for, provided the minimum subscription is met.

Understand Over-subscription and Under-subscription

A company offers a fixed number of shares to the public. Investors apply and pay application money. The number of shares applied for may be more than, equal to, or less than the number offered.

Over-subscription means applications are more than the shares offered. The company cannot allot more than it offered. It has three choices: reject some applications fully, allot to everyone pro rata (a fixed proportion), or combine both. Money received on rejected applications is refunded. Money received on shares not allotted to an accepted applicant is the excess application money. The company either refunds it or keeps it and adjusts it against the allotment amount, or against later calls, due from that applicant.

Under-subscription means applications are fewer than the shares offered. The company allots shares to all applicants for the number they applied for. The issued capital is then lower than the offered capital. Under section 39(1) of the Companies Act, 2013, no allotment can be made on a public offer unless the minimum amount stated in the prospectus has been subscribed and the application sums have been received. If that minimum is not reached, there is no allotment, and the money is returned. Section 39(3) says the money must be returned if the minimum is not subscribed and the application sum is not received within thirty days of the date of the prospectus (or any other period set by SEBI).

Section 39(2) also says the amount payable on application must not be less than five per cent of the nominal amount of the security, or such other percentage or amount as SEBI specifies. So application money in your problem is normally a reasonable part of the face value.

Accounting is simple once you split every applicant's money into three parts: money kept for shares allotted, money adjusted to allotment, and money refunded. Any premium due is credited to Securities Premium as section 52(1) requires, usually when it falls due, which is often at allotment.

Key rules to remember

Pro-rata ratio: Ratio = Shares allotted ÷ Shares applied for (on the accepted applications); Shares allotted to an applicant = Shares applied for × ratio. Example: 3 for 4 means an applicant for 400 shares gets 300.
Total application money received: Shares applied for × Application money per share; This is the amount debited to Bank, including money on rejected applications.
Application money transferred to capital: Shares allotted × Application money per share; Credited to Share Capital from the Share Application account.
Excess application money: (Shares applied for on accepted applications − Shares allotted) × Application money per share; Adjusted against allotment or calls, or refunded.
Refund on rejected applications: Shares applied for on rejected applications × Application money per share; Paid back to applicants in cash. Never adjust it against allotment.
Allotment money still to be received: Allotment due − Excess application money adjusted; Allotment due = Shares allotted × Allotment per share (include any premium due at allotment). If this is negative, the surplus is adjusted to calls or refunded.
Check total: Money received = Capital credited + Premium credited + Refund; Use this check to confirm your Share Application account closes to nil.

How to solve Over-subscription and Under-subscription questions

Use the same sequence for any over-subscription or under-subscription problem. Work in shares first, then in rupees.

1Note the shares offered, face value, premium, and the instalments (application, allotment, calls). Check that the instalments add up to face value plus premium.
2Find the shares applied for and decide who gets what: any applications rejected in full, any pro-rata ratio for the rest, and whether any applicants get full allotment.
3Calculate the total application money received and pass the entry: Bank A/c Dr, To Share Application A/c.
4Calculate the application money transferred to capital (shares allotted × application per share), the refund on rejected applications, and the excess adjusted to allotment.
5Pass the entries: Share Application A/c Dr, To Share Capital A/c, To Share Allotment A/c (excess adjusted), To Bank A/c (refund). This should close the Share Application account to nil.
6Pass the allotment due entry: Share Allotment A/c Dr, To Share Capital A/c, To Securities Premium A/c (if premium is due). Then record cash actually received: Bank A/c Dr, To Share Allotment A/c, for allotment due less the excess adjusted.
7Record calls in the usual way, on shares actually allotted only. If an applicant's excess exceeds allotment due, carry the balance to the call or refund it as the question states.
8Verify: money received = capital + premium + refund, and the Share Application account is nil.

Quickest way: Rupee-split table for each applicant group

When to use it: Use it when the question has several groups of applicants, such as full allotment, pro rata and rejection, or asks for the allotment money received from one applicant.

Make a small table with one row for each group of applicants and columns: shares applied, shares allotted, application money received, kept for capital, excess, refund.
Fill in the shares columns first. Then multiply by the application money per share to fill the rupee columns.
Total each column. Totals give the three journal entries directly: bank receipt, transfer from application and allotment due.
Cross-check that kept + excess + refund = money received for each row and in total.
For an individual applicant, allotment payable = shares allotted × allotment per share − excess held. Do this without journals if only the cash is asked.

Common mistakes in Over-subscription and Under-subscription

Calculating application money on shares allotted instead of shares applied for.
Students focus on the shares offered and forget that the bank receipt includes money on all applications.
Fix: Debit Bank with shares applied for × application money. Only the transfer to capital uses shares allotted.
Adjusting the refund on rejected applications against allotment.
Students treat all surplus application money alike.
Fix: Money on applications rejected in full is refunded in cash. Only the excess of an accepted applicant is adjusted to allotment.
Applying the pro-rata ratio to rejected applications too.
The ratio is read as an overall ratio of applied to offered shares.
Fix: Remove the fully rejected applications first. Then work out the ratio on the remaining applications.
Forgetting that premium is credited to Securities Premium, not Share Capital.
Allotment due is credited entirely to Share Capital to save time.
Fix: Split the allotment due into face value part and premium part. Credit the premium to Securities Premium, as required by section 52(1).
Treating under-subscription as a problem that needs a pro-rata ratio or a refund.
Students mix up the two cases after practising several over-subscription problems.
Fix: If applications are fewer than the shares offered, allot in full. Only the minimum subscription condition in section 39(1) can stop allotment.
Leaving the Share Application account with a balance.
One of the three parts (capital, adjustment, refund) is missed.
Fix: Always check that capital + adjustment + refund = total received before moving on.

Worked examples

Example 1

Ananya Textiles Ltd. issued 10,000 equity shares of ₹10 each at a premium of ₹2 per share. The amount is payable as: application ₹3; allotment ₹5 (including premium); first and final call ₹4. Applications were received for 15,000 shares. Shares were allotted to all applicants pro rata. Excess application money was adjusted against allotment. All money was received. Pass journal entries.

Show the solution

Check: 3 + 5 + 4 = ₹12 = face value ₹10 + premium ₹2. Pro-rata ratio = 10,000 ÷ 15,000 = 2 for 3.
Application money received = 15,000 × ₹3 = ₹45,000. Entry: Bank A/c Dr ₹45,000, To Share Application A/c ₹45,000.
Transfer to capital = 10,000 × ₹3 = ₹30,000. Excess = 5,000 × ₹3 = ₹15,000, adjusted to allotment. Entry: Share Application A/c Dr ₹45,000, To Equity Share Capital A/c ₹30,000, To Share Allotment A/c ₹15,000.
Allotment due = 10,000 × ₹5 = ₹50,000. Of this, premium = 10,000 × ₹2 = ₹20,000 and capital = ₹30,000. Entry: Share Allotment A/c Dr ₹50,000, To Equity Share Capital A/c ₹30,000, To Securities Premium A/c ₹20,000.
Cash received on allotment = ₹50,000 − ₹15,000 = ₹35,000. Entry: Bank A/c Dr ₹35,000, To Share Allotment A/c ₹35,000.
Call due = 10,000 × ₹4 = ₹40,000. Entry: Share First and Final Call A/c Dr ₹40,000, To Equity Share Capital A/c ₹40,000. Then Bank A/c Dr ₹40,000, To Share First and Final Call A/c ₹40,000.
Check: total cash = ₹45,000 + ₹35,000 + ₹40,000 = ₹1,20,000 = 10,000 × ₹12.

Answer: Equity Share Capital ₹1,00,000 (30,000 + 30,000 + 40,000) and Securities Premium ₹20,000 are credited. Total cash received is ₹1,20,000. The Share Application and Share Allotment accounts close to nil.

Example 2

Meera Foods Ltd. offered 6,000 equity shares of ₹10 each at par. The amount is payable: application ₹2; allotment ₹3; call ₹5. Applications were received for 10,000 shares. Applications for 2,000 shares were rejected in full and the money was refunded. The remaining applicants (8,000 shares) were allotted 6,000 shares pro rata. Excess application money was adjusted against allotment. (a) Pass journal entries up to allotment. (b) How much must Rahul pay on allotment if he applied for 400 shares?

Show the solution

Pro-rata ratio on accepted applications = 6,000 ÷ 8,000 = 3 for 4.
Application money received = 10,000 × ₹2 = ₹20,000. Entry: Bank A/c Dr ₹20,000, To Share Application A/c ₹20,000.
Refund on rejected applications = 2,000 × ₹2 = ₹4,000. Transfer to capital = 6,000 × ₹2 = ₹12,000. Excess on accepted applications = (8,000 − 6,000) × ₹2 = ₹4,000, adjusted to allotment.
Check: ₹12,000 + ₹4,000 + ₹4,000 = ₹20,000. Entry: Share Application A/c Dr ₹20,000, To Equity Share Capital A/c ₹12,000, To Share Allotment A/c ₹4,000, To Bank A/c ₹4,000.
Allotment due = 6,000 × ₹3 = ₹18,000. Entry: Share Allotment A/c Dr ₹18,000, To Equity Share Capital A/c ₹18,000.
Cash received on allotment = ₹18,000 − ₹4,000 = ₹14,000. Entry: Bank A/c Dr ₹14,000, To Share Allotment A/c ₹14,000.
Rahul: allotted shares = 400 × 3/4 = 300. Allotment due = 300 × ₹3 = ₹900. Application money paid = 400 × ₹2 = ₹800. Kept = 300 × ₹2 = ₹600, so excess = ₹200. Pays on allotment = ₹900 − ₹200 = ₹700.

Answer: Equity Share Capital credited up to allotment = ₹30,000 (12,000 + 18,000). Refund paid ₹4,000. Cash received on allotment ₹14,000. Rahul pays ₹700 on allotment.

Exam tips

Start every answer with a one-line working note: ratio, shares allotted, application money received, refund and excess. Examiners give marks for these figures even if a journal is wrong.
Read how the excess is to be treated. If the question says refund, do not adjust. If it says adjust against allotment and calls, carry any balance to the next call.
Write narrations for each journal. Use account names exactly as given: Share Application A/c, Share Allotment A/c, Securities Premium A/c.
For under-subscription, state in one line that shares are allotted in full to all applicants and mention the minimum subscription condition under section 39(1) if the question hints at it.
Always do the closing check: capital + premium + refund = total cash received. It takes thirty seconds and catches most errors.

Practice questions from Accounting for Share Capital

Over-subscription and Under-subscription: frequently asked questions

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

Over-subscription means applications received are more than the shares offered, so some are rejected or allotted pro rata. Under-subscription means applications are fewer than the shares offered, so all applicants get what they applied for. In both cases, the company must meet the minimum subscription stated in the prospectus before allotting.

How do you treat excess application money?

Excess application money is the money received on shares not allotted to an accepted applicant. The company either refunds it or adjusts it against the amount due on allotment or later calls. Follow the instruction in the question. Money on applications rejected in full is refunded in cash.

How is pro-rata allotment calculated?

Divide the shares allotted by the shares applied for on the accepted applications to get the ratio. Multiply each applicant's shares applied for by this ratio to get shares allotted. For example, a ratio of 3 for 4 gives 300 shares to an applicant for 400 shares.

Is premium received on application or allotment?

It depends on the terms in the question. Whenever premium is received, an amount equal to it is transferred to the Securities Premium account under section 52(1) of the Companies Act, 2013. In most problems the premium is called with the allotment money.