Question

A company invited applications for 75,000 equity shares of ₹ 100 each. The application money received @ ₹ 30 per share was ₹ 27,00,000. Name the kind of subscription. List the three alternatives for allotting these shares.

Answer 1

Total Money Received on Application = ₹ 27,00,000
Application money per share = ₹ 30
$\begin{array}{rcl}\mathrm{Number}\mathrm{of}\mathrm{shares}\mathrm{applied}\mathrm{by}\mathrm{the}\mathrm{public}& =& \frac{\mathrm{Total}\mathrm{Appliaction}\mathrm{money}\mathrm{Received}}{\mathrm{Application}\mathrm{money}\mathrm{per}\mathrm{share}}=\frac{27,00,000}{30}\\ & =& 90,000\mathrm{shares}\end{array}$

Share Applications invited by the company = 75,000
Since, Number of Shares applied for by the company exceeds the number of shares offered by the company by 15,000 shares (i.e. 90,000 – 75,000). Therefore, it is a case of oversubscription of shares.
The alternatives available with the company are as follows:
1. By rejecting the excess applications and allotting only 75,000 shares.
2. By making allotment to the 90,000 shares applicants on a proportionate or pro-rata basis.
3. By making allotment to some on pro-rata basis and rejecting some applicants. For e.g.: 85,000 share applicants are given 75,000 shares on pro-rata basis and the remaining 5,000 shares have been rejected.