X Ltd. decided to issue 75,000 equity shares of Rs. 10 each at a premium of 50%. The whole amount was payable on application. Applications for 2,00,000 shares were received. Applications for 5,000 shares were rejected and shares were allotted to the remaining applicants on pro-rata basis. Pass necessary Journal entries for the above transactions in the books of the company.

Explanation

There may be some applicants who are not allotted any shares. The application money received from these applicants is returned to them. Following entry is passed for this purpose :
Share Application A/c `" Dr."`
To Bank A/c
(Application money returned)
When some applicants are allotted smaller number of shares, the excess amount received on applications is utilised towards the amount due on allotment. Following entry is passed :
Share Application A/c `" Dr."`
To Shar Allotment A/c
(Excess Application money utilized for Allotment)
Sometimes the excess application money exceeds even the money due on allotment. Such amount has to be returned. However, it can be retained by the Company for its utilization towards future calls if the Articles so authorise. Usually the prospectus contains a clause to this effect. If the amount is retained, it must be transferred to calls in Advance A/c by passing the following entry :
Share Application A/c `" Dr."`
To Share Allotment A/c
To Calls in Advance A/c
(Excess Application money utilized for Allotment and Calls).