Pro-rata Basis of Allotment of Shares - Corporate Accounting Lecture

Sometimes more shareholders are interested in a specific company's share and the company gets more applications than its actual no. of shares which will sell in public. This is a complex situation. Where a company has less shares and applications are more than actual no. of shares. 

You may see this in the second or third offer instead of an IPO.

Suppose, there are 100 shares and apply by 20.  and every 20 people applies 10 shares So, excess 100 is over-subscription of shares. 

Now company can not issue shares to all applicants who applies. 

Company can accept the application upto his offer shares and rejects other application but with this, rejected share holders will demotivated. 

Next is best way that is called pro-rata allotment.

Meaning of Pro-rata Basis of Allotment of Shares

Pro-rata allotment is the way to give shares in the proportion of shares applies.

In above example, we can say

every  shareholder will get 5 share instead 10 shares .

Pro-rata ratio

20 people wants 10 share each

means all wants 200 shares

but we have 100

200 : 100

2 :1 

Means 1/2 will be each demand

Excess application money will adjust allotment money and then call money. If there is any excess after this, it will refund. 

Suppose, we have Rs. 2 demanded on application

so, we have received rs. 400

total application money adjust with issue

Rs. 200

excess money

Rs. 200

Now Allotment money is Rs. 1

Rs. 100 adjust with call money

Rs. 0.50 is call money

So, we have adjust call money 

Rs. 50 

Now, excess money is Rs. 50

which will refund to shareholders.

In following 16 minutes video lecture, I have taken an example. With this example, I tried to explain the meaning of pro-rata, over-subscription and use of surplus money for adjusting the allotment and calls

  

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