Shareholders’ Equity

Podcast #2 - Oversubscription of Shares Worked Example

Worked Example – Oversubscription of
Shares
In July 2019, Mooloolaba Ltd calls for public subscriptions for 10 million
shares.
The issue price per share is $1.20, to be paid in three parts, these being
$0.50 on application, $0.40 within one month of the shares being
allotted and $0.30 within two months of the first and final call, with the
call for final payment being payable on 1 September 2019.
By the end of July, when applications close, applications have been
received for 12 million shares; that is, two million in excess of the
amount to be allotted.
Solution
NOTES:

Shares available for subscription 10000000 #

Share capital $ 12000000 Date Account Dr Cr Workings
1-31 Jul Bank trust 6000000
Price per share 1.20 Application 6000000 12m x $0.50
Application 0.50
0.40 Within one month 1-Aug Application 5000000
0.30 1-Sep-19 Share capital 5000000 10m x $0.50

Allotment 4000000 10m x $0.40

Call 3000000 10m shares x $0.30
Shares available for subscription 10000000 # Share capital 70000000 12m - 5m
Applications were received 12000000
Oversubscription of number of shares 2000000 Application 1000000 Balance = 0
Allotment 1000000 Balance = 3m
Oversubscription ($ value) 1,000,000
Cash at bank 6000000
Bank trust 6000000 Balance = 0

30-Aug Cash at bank 3000000

Allotment 3000000 Balance = 0

1-Sep Cash at bank 3000000

Call 3000000 Balance = 0

Assets Liabilities Owner's equity

Cash at bank = 12,000,000 Share capital = 12,000,000
Solution
1–31 July 2019
Dr Bank trust 6 000 000
Cr Application 6 000 000
Solution (continued)
We will assume that the excess funds are used to offset the amount due on allotment ($0.40 per share), and that all subscribers will receive an allotment of
shares on a pro rata basis.

1 August 2019
Dr Application 5 000 000
Cr Share capital 5 000 000
(to allot the shares as partly paid to $0.50)

Dr Allotment 4 000 000

Dr Call 3 000 000
Cr Share capital 7 000 000

Dr Application 1 000 000

Cr Allotment 1 000 000

Dr Cash at bank 6 000 000

Cr Bank trust 6 000 000
Solution (continued)
30 August 2019
Dr Cash at bank 3 000 000
Cr Allotment 3 000 000
(to recognise the receipt of amounts due on allotment)

It is assumed that all amounts due on allotment are paid.

1 September 2019
Dr Cash at bank 3 000 000
Cr Call 3 000 000