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Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The issue was oversubscribed by 5 times. What is this situation called?
- a)Under Subscription
- b)Full Subscription
- c)Over Subscription
- d)Pro-rata Allotment
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 eac...
When a company receives more applications for the debentures than the actual debentures offered for the subscription, it is known as over subscription.
Most Upvoted Answer
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 eac...
Over Subscription
The situation described in the question, where the number of applications for debentures exceeds the number of debentures available, is called over subscription. In this case, Vinod Limited invited applications for 2,000 debentures, but the number of applications received was five times higher than the number of debentures available.
Explanation:
1. Invitation for Debentures
- Vinod Limited invited applications for 2,000 debentures.
- The face value of each debenture is Rs. 100.
2. Oversubscription
- The number of applications received for the debentures was five times higher than the number of debentures available.
- This means that Vinod Limited received applications for 10,000 debentures (2,000 debentures * 5).
3. Consequences of Oversubscription
- When an issue is oversubscribed, it indicates a high demand for the debentures.
- However, since the company can only issue a limited number of debentures, it needs to decide how to allocate them among the applicants.
4. Pro-rata Allotment
- In a situation of oversubscription, the company may utilize pro-rata allotment to allocate the debentures among the applicants.
- Pro-rata allotment means that each applicant will receive a proportionate allocation of the debentures based on the number of debentures they applied for and the total number of debentures available.
- For example, if an applicant applied for 100 debentures and the total number of debentures available is 2,000, they would receive a pro-rata allotment of 10 debentures (100 debentures / 2,000 debentures * 2,000 debentures).
- The pro-rata allotment ensures fairness in the allocation process and distributes the available debentures among all the applicants.
Conclusion
The situation described in the question, where the number of applications for debentures exceeds the number of debentures available, is called over subscription. In such cases, the company may use pro-rata allotment to allocate the debentures among the applicants based on their proportional share.
The situation described in the question, where the number of applications for debentures exceeds the number of debentures available, is called over subscription. In this case, Vinod Limited invited applications for 2,000 debentures, but the number of applications received was five times higher than the number of debentures available.
Explanation:
1. Invitation for Debentures
- Vinod Limited invited applications for 2,000 debentures.
- The face value of each debenture is Rs. 100.
2. Oversubscription
- The number of applications received for the debentures was five times higher than the number of debentures available.
- This means that Vinod Limited received applications for 10,000 debentures (2,000 debentures * 5).
3. Consequences of Oversubscription
- When an issue is oversubscribed, it indicates a high demand for the debentures.
- However, since the company can only issue a limited number of debentures, it needs to decide how to allocate them among the applicants.
4. Pro-rata Allotment
- In a situation of oversubscription, the company may utilize pro-rata allotment to allocate the debentures among the applicants.
- Pro-rata allotment means that each applicant will receive a proportionate allocation of the debentures based on the number of debentures they applied for and the total number of debentures available.
- For example, if an applicant applied for 100 debentures and the total number of debentures available is 2,000, they would receive a pro-rata allotment of 10 debentures (100 debentures / 2,000 debentures * 2,000 debentures).
- The pro-rata allotment ensures fairness in the allocation process and distributes the available debentures among all the applicants.
Conclusion
The situation described in the question, where the number of applications for debentures exceeds the number of debentures available, is called over subscription. In such cases, the company may use pro-rata allotment to allocate the debentures among the applicants based on their proportional share.
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Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The issue was oversubscribed by 5 times. What is this situation called?a)Under Subscriptionb)Full Subscriptionc)Over Subscriptiond)Pro-rata AllotmentCorrect answer is option 'C'. Can you explain this answer?
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