Q.Discuss the process of allotment of shares of a company in case of 'Over-subscription'.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →On over-subscription, a company must restrict allotment to the number of shares actually offered, using some combination of rejection, pro-rata allotment, and full allotment, then adjust or refund the excess application money.
Over-subscription occurs when the number of shares applied for by the public is more than the number of shares offered by the company. Since a company cannot allot more shares than it has offered (doing so would amount to an irregular allotment), it must deal with the excess applications. In practice, a combination of the following methods is used:
1. Rejecting excess applications:
Applications for some categories of applicants may be rejected altogether, and the application money received on those is fully refunded. This is common where a company decides certain applicants will get no shares at all.
2. Partial/pro-rata allotment:
For the remaining applicants, shares are allotted to all of them, but in a lower proportion than applied for (e.g., 4 shares allotted for every 5 applied), so that the total allotted does not exceed the number offered. The excess application money received from these applicants (because they applied for more shares than they were allotted) is not refunded in cash — instead, it is adjusted against the amount due from them on allotment (and, if still more than required, carried forward and adjusted against calls).
3. Full allotment to some, nil/pro-rata to others:
A company often uses a combination — full allotment to a few categories of applicants, and pro-rata allotment (or rejection) to the rest — commonly used when there are different categories of applicants (e.g., marketable lots).
Accounting treatment of excess application money:
- Where the excess is adjusted against sums due on allotment (most common case): Share Application A/c Dr. (amount adjusted) To Share Allotment A/c …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.