When the directors opt to make a proportionate allotment to all applicants, the excess application money received is normally adjusted towards the amount due on allotment. In case, the excess application money received is more than the amount due on allotment of shares, such excess amount may either be:
When the directors opt to make a proportionate allotment to all applicants, the excess application money received is normally adjusted towards the amount due on allotment. In case, the excess application money received is more than the amount due on allotment of shares, such excess amount may either be:
Solution
When proportionate allotment is made, the application money received exceeds what is needed for the actual shares allotted.
First adjustment: The excess application money is adjusted towards the amount due on allotment.
When excess still remains: If the excess application money is more than the allotment amount, the remaining balance needs to be dealt with.
The company has two options for this remaining excess:
- Refund the excess amount to the applicants
- Credit it to Calls in Advance Account - This means the company retains the money and treats it as advance payment for future calls (First Call, Final Call, etc.)
The choice between refunding or keeping as calls in advance depends on the company's policy and what is stated in the prospectus.
Example scenario: If an applicant applied for 1,000 shares paying ₹5 per share (₹5,000) but was allotted only 400 shares proportionately:
- Application money for 400 shares = ₹2,000
- Excess = ₹3,000
If allotment due is ₹2 per share = ₹800:
- ₹800 is adjusted towards allotment
- Remaining ₹2,200 can be either refunded or kept as calls in advance
Why not Calls in Arrears? Calls in Arrears represents unpaid amounts by shareholders, not excess money received. Hence, it is incorrect in this context.
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2022: 16 July Shift 2