Question

Assertion (A): Asian Cables Ltd. issued for subscription 2,00,000 equity shares of ₹10 each payable ₹3 on application. It received ₹5,40,000 as application money. Full allotment was made to each applicant.

Reason (R): In this case, there is undersubscription of shares. However, since minimum subscription of 90% has been received, full allotment will be made to each applicant.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

Assertion (A) is true, ₹5,40,000 received at ₹3 per share means 1,80,000 shares applied, which is less than the 2,00,000 offered.

Reason (R) is also true, Since the company received at least 90% (i.e., 1,80,000 of 2,00,000), it meets the minimum subscription requirement, so full allotment can be made.