When applications are received, the company collects application money from all applicants, regardless of how many will actually be allotted shares.
Applications were received for 40,000 shares.
Application money per share = Rs. 40
Total application money received = 40,000 shares × Rs. 40 = Rs. 16,00,000
Journal Entry:
Bank A/c Dr. 16,00,000
To Share Application A/c 16,00,000
(Being application money received on 40,000 shares @ Rs. 40 per share)
The crucial point here is that the company receives application money from 40,000 applicants at this stage, even though only 30,000 shares will ultimately be allotted. The adjustment for excess applications (through refund or adjustment towards allotment) happens at the time of allotment entry, not at the application stage.
Correct Option: 1