Concept:When applications for shares are more than the shares on offer, directors may reduce each applicant's allotment in proportion to their application.
Explanation:Oversubscription means the total shares applied for exceed the number of shares the company offered.
Directors are allowed to scale down the number of shares allotted to each investor.
This proportional reduction is called allotment on a pro rata basis.
It ensures that every applicant receives a fair portion of the available shares based on how many they applied for.
For example, suppose a company offered
1000 shares but received applications for
2000 shares.
The oversubscription factor is
10002000=2.
An investor who applied for
100 shares would then receive
2100=50 shares.
The excess application money is usually refunded or applied towards later calls.
This method is not selling shares at a discount, par, or premium; it simply reduces the allotment proportionally.
Answer:D. prorata