Read the following passage carefully and answer the questions.
X Itd. Issued 30,000 shares to the public having Face value ₹100 at 10% premium. Money is receivable as follows:
Application = ₹40 (including premium)
Allotment = ₹45
First and Final call = Remaining amount
The public applied for 50,000 shares. The company rejected application for 10,000 shares and made a pro rata allotment to the rest of the applicants. A shareholder applying for 400 shares, didn't pay the allotment and call money and his allotted shares were forfeited by the company. Later, the forfeited shares were reissued at ₹80 each as fully paid.
What type of subscription took place?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Over subscription.
Over subscription took place.
Shares Issued: 30,000
Shares Applied For: 50,000
Since the number of shares applied for exceeded the number of shares issued, this situation is known as Over Subscription.
Oversubscription is a situation where number of shares applied by the applicants is more than the number of shares issued. For e.g. company issued 50000 shares of ₹10 each but receives applications for 75000 shares.
In a case of oversubscription, 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.