CBSE 2015, Set 1

Question

Guru Ltd. invited applications for issuing 5,00,000 equity shares of Rs 10 each at a premium of Rs 5 per share. Because of favourable market conditions the issue was over-subscribed and applications for 15,00,000 shares were received. Suggest the alternatives available to the Board of Directors for the allotment of shares.

Edvaya · Accepted Answer

The correct answer is Subjective. When a share issue is **over-subscribed**, the Board of Directors has the following three alternatives: 1. **Rejection of excess applications:** Reject applications for 10,00,000 excess shares outright and allot shares only to 5,00,000 applicants. Refund application money to rejected applicants. 2. **Pro-rata allotment:** Allot shares to all 15,00,000 applicants on a **pro-rata basis** (i.e., 5,00,000 shares among 15,00,000 applicants → 1 share for every 3 applied). Excess application money is adjusted against allotment dues. 3. **Combination of both:** Reject some applications outright (e.g., reject 5,00,000 applications) and allot shares on pro-rata basis to the remaining (5,00,000 shares among 10,00,000 applicants → 1 share for every 2 applied). > **Most common approach in practice** is the combination (Option 3), as it balances refund processing with equitable allotment.

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Accountancy > Accounting For Companies > Accounting For Share Capital

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