Question

S Ltd. issued 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share to the public. Full amount payable at the time of application. Application was received for 1,20,000 shares. Excess application monies were refunded. Amount to be credited to share capital account should be____.

• A. Rs. 12,00,000
• B. Rs. 10,00,000
• C. Rs. 14,40,000
• D. Rs. 10,40,000

Answer 1

Answer: (B)

Rs. 10,00,000

The total amount of equity share issued to public here is Rs 10,00,000 (Rs 1,00,000*10). Application for shares is 1,20,000 which takes the amount needed to be issued to Rs. 12,00,000. But here premium on the issue of shares is Rs 2 per share which means selling price is more than nominal value i.e. Rs 10. So selling price here is Rs 12 per share. This makes total amount of share issued as Rs 12,00,000. Application money Rs 1,20,000*12 i.e. Rs. 14,40,000. This situation is termed as Over-subscription where allotment can be made only to the number of shares that are issued. The Company cannot allot more shares than the issued even if there is demand for the shares. Hence, here excess application to be credited to share capital account should be Rs. 10,00,000 and other Rs 2,00,000 will go to securities premium account.