Under Subscription:

Under Subscription is a situation where the number of shares or debentures applied for by investors is less than the number of shares or debentures available for subscription. In other words, it refers to when the demand for securities is lower than the supply.

Explanation:

Vinod Limited invited applications for 2,000 debentures at a face value of 100 each, carrying an interest rate of 11%. However, the company received applications only for 1900 debentures. This means that the investors' demand for debentures was less than the number of debentures available for subscription.

Key Points:

- Vinod Limited invited applications for 2,000 debentures.
- The face value of each debenture is 100.
- The interest rate on the debentures is 11%.
- The company received applications for only 1900 debentures.
- The number of debentures applied for is less than the number of debentures available for subscription.
- This situation is called Under Subscription.

Impact of Under Subscription:

Under Subscription can have several implications for the company:

1. Lower Funds Raised: With under subscription, the company will receive less funds than expected. In this case, Vinod Limited will only be able to raise funds for 1900 debentures instead of the targeted 2000 debentures.

2. Unsold Securities: The remaining 100 debentures that were not subscribed for will remain unsold. This can be a potential loss for the company as it will not be able to utilize the funds from these unsold debentures.

3. Cash Flow Implications: The company's cash flow projections may need to be adjusted due to the lower funds raised. This can impact the company's ability to finance its operations and meet its financial obligations.

4. Interest Payments: Since the company received applications for 1900 debentures, it will only need to make interest payments on those debentures. The remaining 100 debentures will not generate any interest expense for the company.

Conclusion:

In this case, Vinod Limited experienced under subscription as the number of debentures applied for was less than the number of debentures available for subscription. This situation can have various implications for the company, including lower funds raised and potential cash flow challenges.