T.S. Grewal Class 12 Vol 2 Chapter 1 Q.20 - Share Capital

Question 20

Faber Ltd. invited applications for 70,000 equity shares of ₹100 each. The application money received @ ₹30 per share was ₹27,00,000. Name the kind of subscription, and list the three alternatives for allotting these shares.

Solution

Number of shares applied for = Total application money received ÷ application money per share = 27,00,000 ÷ 30 = 90,000 shares.

Shares offered by the company = 70,000. Since the number of shares applied for (90,000) exceeds the number offered (70,000) by 20,000 shares, this is a case of oversubscription.

The alternatives available to the company are:

1. Reject the excess applications and allot only 70,000 shares (full allotment to some, nil to the rest).
2. Make allotment to all 90,000 applicants on a proportionate (pro-rata) basis.
3. Make allotment to some applicants on a pro-rata basis and reject the rest — e.g. 85,000 applicants are given 70,000 shares on a pro-rata basis, and the remaining 5,000 shares’ applications are rejected.