Over subscription is a situation where applications for more shares are received than the number offered to the public for subscription. This usually happens in respect of shares issued by well-managed and financially strong companies.

In such a condition, three alternatives are available to the directors to deal with the situation: (1) they can accept some applications in full and totally reject the others; (2) they can make a pro-rata allotment to all; and (3) they can adopt a combination of the above two alternatives, which happens to be the most common course adopted in practice.

Under the first alternative, when the directors decide to fully accept some applications and totally reject the others, the application money received on rejected applications is fully refunded. For example, if a company invited applications for 20,000 shares and received applications for 25,000 shares, the directors reject applications for 5,000 shares (which are in excess of the required number) and refund their application money in full.

From the accounting point of view, the problem of over subscription is resolved with the allotment of shares. It is better to place the situation of over subscription within the total frame of application and allotment, i.e., receipt of application amount, amount due on allotment and its receipt from the shareholders. The journal entries on application and allotment are made accordingly following this pattern.