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CA Foundation · Accounting · Company Accounts

Asha Ltd. invited applications for 50,000 equity shares of ₹10 each and received applications for 60,000 shares. The directors rejected applications for 10,000 shares outright and allotted the remaining 50,000 shares in full to the other applicants. How should the application money received on the 10,000 rejected shares be treated?

The application money on rejected applications must be refunded to the applicants. Since no shares are allotted to them, the company has no right to retain their money. Adjustment against allotment arises only when applicants receive fewer shares than applied for under pro-rata allotment.

  1. ATransferred to Securities Premium Account
  2. BRefunded to the applicants whose applications were rejectedCorrect
  3. CAdjusted against the allotment money due from the accepted applicants
  4. DCredited to Capital Reserve

Explanation

Applications for 10,000 shares were rejected outright, so no shares are allotted to those applicants. Their application money has no claim to be retained and must be refunded. Adjusting it against allotment applies only to pro-rata allotment, not to outright rejection.

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