What is Oversubscription?
When the number of debentures that are applied for exceeds the number of debentures offered to the public, the issue is known to be oversubscribed. An enterprise, however, cannot allocate more debentures than it has insisted for a subscription. The surplus money received on oversubscription might, however, be kept for adjustment towards allotment and the calls to be made. However, the money received from applicants to whom no debentures have been allocated would be returned to them.
Accounting Treatment of Over-Subscription :
The enterprise may treat the surplus applications received in 1 or more of the following ways :
- Rejection of applications: Often, the applications of shares are not allocated even a single share. In such a scenario, the application money received from such candidates or applicants is given back to them.
- Acceptance of application partially: A few times, the applicants are not allocated the number of shares that they have applied for and directors obtain the application partially. In such a scenario, the applicants are allocated less number of shares than they have applied for. In such a scenario, the surplus money on application partially accepted will be transferred to share allotment account.
The journal entry for using the excess application money received towards the amount due on the allotment is as follows :
Share application a/c
To Share allotment a/c
The above mentioned is the concept, that is elucidated in detail about the Over-Subscription for the Class 12 Commerce students. To know more, stay tuned to BYJU’S.