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Sundowner Ltd called for subscriptions for 2 million shares. The issue price per share is $5.00...

Sundowner Ltd called for subscriptions for 2 million shares. The issue price per share is $5.00 to be paid in three parts: the first payment of $2.00 is to be made on application, $2.00 is to be paid within 1 month of allotment and the remaining $1.00 is to be paid within 6 months of allotment. At the end of July, when applications close, applications for 3 million shares have been received. The company allotted shares on 1 August on a pro rata basis with the excess application money to be applied against the amount due on allotment. Assume all amounts on allotment are paid by the due dates. What is the amount of excess application transferred to allotment?

$4 000 000

$3 000 000

$2 000 000

$0
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Answer #1
Called subscription = 2 million shares
issue price = $5
Application money = $2
Within 1 month of allotment = $2
Within 6 month of allotment = $1
Application recerved = 3 millions
Allotment on pro rata basis
Excess application = 3000000-2000000
1000000
Application money received on 3 million shares (2*3000000) 6000000
Application money for 2 million share (2000000*2) 4000000
Excess money to be adjusted with allotment money 2000000
Hence, excess application money transferred to allotment is $2 million
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