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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.
Solution
Total Money Received on Application = ₹ 27,00,000
Application money per share = ₹ 30
Number of shares applied by the public =
`"Total application money received"/"Application money per share" = 2700000/30 = 90000 "Shares"`
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.
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