Eicher Ltd. issued 50,000 shares of ₹10 each at a premium of ₹5 per share payable as follows:

Application were received for 72,000 shares. Directors allotted 50,000 shares to the applicants applying for 65,000 shares, the remaining applications being refused. Money overpaid on application was utilised towards sum due on allotment. All the money was duly received with the exception of first call from Rahul, who applied for 2,600 shares. Due to non payment of 1^st call his share were forfeited immediately. Later on these share were re-issued at minimum issue price.

On the basis of following case study, answer the question.

Identify the amount by which bank account would be debited or credited on refund of rejected applications.

₹21,000 Credit

The correct answer is Option (2) - ₹21,000 Credit.

Application issued = 50000
Application received = 72000
Pro-rata made on = 65000
Applications rejected = 72000 - 65000
                              = 7000
Application per share = ₹3
Money refunded = 7000 x 3
                        = 21000
As amount is refunded means bank balance will gonna be reduced so it is credited. Journal entry for this will be-
Share application A/c Dr. 21000
     To Bank A/c                    ₹21000