Pro-rata Allotment of Share
24th January 2021A company may receive applications for shares more than the number of shares it has offered to the public. This is known as over-subscription of shares. Usually, the companies that are financially strong, have a good reputation in the market or have profitable future prospects, receive over-subscription of shares. Thus, Pro Rata Allotment becomes necessary.
If the promoters of a company are reputed for their successful promotional successes, the applications are received for more than shares offered under prospectus (over-subscription). They may allot full shares to some of applicants refuse allotment to others, accord partial allotment to someone. This way of allotting shares shows favour to someone and disfavour to others.
Pro Rata Allotment
In the case of over-subscription, it is not possible for the company to allot shares to every applicant in the number that he desires. The company needs to allot the shares in a proper manner. The company has the following three alternatives:
- Accept some applications in full and reject the others totally.
- Make Pro-Rata Allotment.
- Adopt a combination of the above two.
Usually, the company does not consider the multiple applications from the same person. Also, generally a company takes the third course of action. The problem of accounting of over-subscription is usually resolved at the time of allotment of shares.
Pro-rata allotment refers to the allotment of shares in proportion of the shares applied for. When a company makes pro-rata allotment, it adjusts the excess money received at the time of application firstly, towards the allotment and then towards calls.
It refunds any surplus left after adjusting the amount towards allotment and calls to the applicants. The company advertises the allotment procedure in the leading newspapers.
Journal Entries in various cases
1. When a company decides to accept some applications in full and reject the other totally
| Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
| 1. On receipt of Application money | Bank A/c (total application amount) | Dr. | xxx | |
| To Share Application A/c | xxx | |||
| (Being application money received for…shares@ ₹…each) | ||||
| 2. Transfer of application money to Share Capital A/c and refund of excess | Share Application A/c | Dr. | xxx | |
| To Share Capital A/c (application amount) | xxx | |||
| To Bank A/c (refund) | xxx | |||
| (Being share application money on …..shares @ ₹…each, transferred to share capital and money on …..shares @ ₹…each, refunded) | ||||
| 3. On Share Allotment due | Share Allotment A/c (amount due on allotment) | Dr. | xxx | |
| To Share Capital A/c | xxx | |||
| (Being share allotment due on …..shares @ ₹…each,) | ||||
| 4. Share Allotment money received | Bank A/c (actual amount received) | Dr. | xxx | |
| To Share Allotment A/c | xxx | |||
| (Being share allotment money received) | ||||
| 5. On Share call due | Share Call A/c | Dr. | xxx | |
| To Share Capital A/c | xxx | |||
| (Being money on share call due on …..shares @ ₹…each,) | ||||
| 6. Share call amount received | Bank A/c | Dr. | xxx | |
| To Share Call A/c | xxx | |||
| (Being share call amount received) |
2. When a company makes pro-rata allotment
| Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
| 1. On receipt of Application money | Bank A/c (total application amount) | Dr. | xxx | |
| To Share Application A/c | xxx | |||
| (Being application money received for…shares@ ₹…each) | ||||
| 2. Transfer of application money to Share Capital A/c | Share Application A/c | Dr. | xxx | |
| To Share Capital A/c (application amount) | xxx | |||
| To Share Allotment A/c (excess) | xxx | |||
| To Share Call A/c (balance, if any) | xxx | |||
| (Being share application money on …..shares @ ₹…each, transferred to share capital and money on …..shares @ ₹…each, utilizes towards allotment and call) | ||||
| 3. On Share Allotment due | Share Allotment A/c (amount due on allotment) | Dr. | xxx | |
| To Share Capital A/c | xxx | |||
| (Being share allotment due on …..shares @ ₹…each,) | ||||
| 4. Share Allotment money received | Bank A/c (actual amount received) | Dr. | xxx | |
| To Share Allotment A/c | xxx | |||
| (Being share allotment money received) | ||||
| 5. On Share call due | Share Call A/c | Dr. | xxx | |
| To Share Capital A/c | xxx | |||
| (Being money on share call due on …..shares @ ₹…each,) | ||||
| 6. Share call amount received | Bank A/c | Dr. | xxx | |
| To Share Call A/c | xxx | |||
| (Being share call amount received) |
3. When the company adopts a combination of the above two.
In this case, all entries except at the time of transferring the application amount being due are same. The entry at the time of allotment will be:
| Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
| At the time of transfer of the application money | Share Application A/c | Dr. | xxx | |
| To Share Capital A/c (application amount) | xxx | |||
| To Bank A/c (refund) | xxx | |||
| To Share Allotment A/c (excess) | xxx | |||
| To Share Call A/c (balance, if any) | ||||
| (Being share application money on …..shares @ ₹…each, transferred to share capital, money on …..shares @ ₹…each, refunded and money on …..shares @ ₹…each, utilizes towards allotment and call) |