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CA Foundation · Accounting · Company Accounts

Under-subscription: Lotus Ltd. offered 1,00,000 equity shares of ₹10 each and received applications for only 90,000 shares, all of which were allotted. Which statement is correct?

Allotment can proceed only if the minimum subscription stated in the prospectus has been received. If the issue is under-subscribed but still meets that minimum, shares applied for are allotted in full and the unsubscribed shares remain unissued. If not, application money must be refunded.

  1. AThe issue can proceed only if the minimum subscription stated in the prospectus has been receivedCorrect
  2. BThe company must refund all application money because the issue was not fully subscribed
  3. CThe remaining 10,000 shares are automatically treated as allotted to the directors
  4. DThe company must reduce each allottee's shares pro rata

Explanation

Where an issue is under-subscribed, the company can allot shares to those who applied provided the minimum subscription specified in the prospectus is met. Otherwise money must be refunded. Pro rata reduction applies to over-subscription, not under-subscription, and unsubscribed shares are simply not issued.

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