Question

Assertion :When pro-rata allotment of shares is made, the surplus application money is transferred to Share Allotment A/c. Reason: The company is not required to pay any interest on each surplus application money.

• A. Both Assertion and Reason are correct and Reason is the correct explanation for Assertion
• B. Both Assertion and Reason are correct but Reason is not the correct explanation for Assertion
• C. Assertion is correct but Reason is incorrect
• D. Assertion is incorrect but Reason is correct

Answer 1

The correct option is C Assertion is correct but Reason is incorrect

Pro-rata allotment is referred to as adjustment of excess application money towards the share allotment called up the company.

Sometimes there arises a case when the company refunds some of the excess amounts after adjusting in the payments of share allotment also. If the company in any case is unable to pay the refund amount, it has to pay the interest to shareholders on the amount to be refunded.

The assertion is that during pro-rata allotment of shares, the excess amount is transferred towards share allotment to adjust any pending amount. And the reason is that the company need not pay any interest on the amount to be refunded to the public.

Thus, the assertion is correct but the reason is incorrect because the excess money which is to be refunded is public's money and as per accounting laws, the company has to pay interest to public on their money due to any delay in payments.