Accountancy Part AAccounting for Shares

In case of oversubscription of shares, which of the following alterna…

In case of oversubscription of shares, which of the following alternative is not used by the company?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → No allotment to anyone (total rejection to all)

Over-subscription means applications are received for more shares than the company offered. The company still wants to raise its capital, so it chooses how to allot the shares it has; it does not turn everyone away. Rejecting every application would leave the company with no capital at all, so it is the one alternative not used.

Option (1) Accept some applications in full and totally reject the others — An alternative used. Some applicants get all the shares they asked for and the rest get none.

Option (2) Pro-rata allotment to all; — An alternative used. Every applicant gets shares in proportion to the number applied for.

Option (3) Accepting some application in full, some rejection and pro-rata allotment to some — An alternative used. This mix of the first two is the course most often followed in practice.

NCERT (2026-27 edition):
Over Subscription – “… In such a condition, three alternatives are available to the directors to deal with the situation: (1) they can accept some applications in full and totally reject the others; (2) they can make a pro-rata allotment to all; and (3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.”