Step 1: Understanding the Concept:
In the corporate accounting of share issues, the term "Over-subscription" describes a situation where the number of shares applied for by the general public is significantly higher than the total number of shares offered by the company for subscription.
This is a common occurrence for companies with high market reputation or strong financial backing.
When a company is faced with an over-subscription scenario, the Board of Directors has several strategies to manage the distribution of shares, as they cannot issue more than the authorized or offered capital.
One primary method is the "Full Rejection" of excess applications, where the company simply returns the money to the applicants who were not selected.
Another method is "Pro-rata Allotment," which is a proportionate distribution where shares are allotted to all applicants in a specific group based on the ratio of total shares available to total shares applied for by that group.
A "Hybrid Allotment" involves categorizing applicants: some may receive a full allotment, some a pro-rata allotment, and some may be rejected entirely.
The phrase "refused outright" refers to those specific applications that were completely rejected by the company and were not included in any allotment category (either full or pro-rata).
In such cases, the company issues a "Letter of Regret" and must refund the application money to the bank accounts of those unsuccessful applicants within the legally stipulated timeframe (usually 15 days from the closure of the issue).
Step 2: Key Formula or Approach:
To calculate the number of shares refused outright, we must segregate the total applications received into the different categories defined by the company's allotment policy.
The logic is:
\[ \text{Total Applications Received} = \text{Applications accepted for Pro-rata} + \text{Applications accepted for Full Allotment} + \text{Applications Refused Outright} \]
Therefore:
\[ \text{Applications Refused Outright} = \text{Total Applications Received} - (\text{Applications for Full Allotment} + \text{Applications for Pro-rata}) \]
Step 3: Detailed Explanation:
Let us analyze the specific numerical data provided in the question to solve for the missing variable.
1. The company offered 1,00,000 shares to the public.
2. The total response from the public was for 1,50,000 shares, which indicates an over-subscription of 50,000 shares.
3. The problem provides a specific grouping: "Shares were allotted on a pro-rata basis to applicants of 1,20,000 shares."
4. This statement means that the company selected a group of people who had applied for 1,20,000 shares and gave them all the available 1,00,000 shares in proportion to their application (a ratio of 1.2:1 or 6:5).
5. Any applicant who was not part of this 1,20,000-share group must have been rejected because the entire supply of 1,00,000 shares has already been exhausted by this group.
6. Calculation:
Total Applications Received = 1,50,000 shares.
Applications considered for Pro-rata Allotment = 1,20,000 shares.
Shares Refused Outright = Total Applications - Applications in Pro-rata group.
\[ \text{Shares Refused Outright} = 1,50,000 - 1,20,000 = 30,000 \text{ shares.} \]
7. Consequently, the company will refund the application money for 30,000 shares to the respective applicants.
8. These 30,000 applications are "refused outright" because they did not receive even a single share in the allotment process.
Step 4: Final Answer:
The number of shares refused outright is 30,000. This is because out of the total 1,50,000 applications, only 1,20,000 were accommodated in the pro-rata pool to receive the 1,00,000 available shares.