TYBAF Underwriting
TYBAF Underwriting
Underwriting
Buy Back of Equity Shares
Internal Reconstruction
Amalgamation
Liquidation
UNDERWRITING OF SHARES AND DEBENTURES
Companies needs funds and hence make public issues of shares/debentures
under the Companies Act, a Company can not allot securities unless it gets minimum
subscription of 90% of the issue.
To avoid such a situation, companies may opt for UNDERWRITING
UNDERWRITER : is a person engaged in the business of Underwriting
UNDERWRITING COMMISSION :
# There should be a provision in the A/A
# Commission may be paid out of Proceeds of the issue or out of Profits of the
Company.
# Maximum Amount a Company can pay as Underwriting Commission -
* In case of Shares : 5% of the issue price or Rate authorised by A/A
* In case of Deb. : 2.5% of the issue price or Rate authorised by A/A
# No Commission to be paid to Promoters
# Commission on the whole issue underwritten
# Names of Underwriters to be disclosed in the Prospectus alongwith opinion
of the Directors that Underwriter's resources are sufficient to discharge their
obligations
# Brief description of the Underwriting Agreement to be disclosed in the
Statutory Report.
# Copy of Underwriting Agreement needs to be send to Registrar of Companies
for Registration
Marked 70000
Unmarked 20000
Applications Received for 80,000 shares - not given whether marked or unmarked
hence, will be distributed in the Gross Liab. Ratio
Marked - 90% Unmarked - 10%
Appl. 80,000 72,000 8,000
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 800,000
To Share Applications 800,000
(80,000 x 10)
Allotment to Public
Share Applications Dr. 800,000
To Share Capital 800,000
Allotment to Underwriters
Underwriter's a/c Dr. 180,000
To Share Capital 180,000
Underwriting Commission due
Underwriting Commission a/c Dr. 45,000
To Underwriter 45,000
Amount Recd. From Underwriter
Bank a/c Dr. 135,000
To Underwriter 135,000
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Feviquick Ltd. Issued 1,00,000 equity shares of Rs. 10 each.
90% of the issue was underwritten by X Ltd. At a Commission of 5% of FV.
Applications received for 90,000 shares. All moneys due were received on
Applications. Account of X Ltd. Was settled.
Applications Received for 90,000 shares - not given whether marked or unmarked
hence, will be distributed in the Gross Liab. Ratio
Marked - 90% Unmarked - 10%
Appl. 90,000 81,000 9,000
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 900,000
To Share Applications 900,000
(90,000 x 10)
Allotment to Public
Share Applications Dr. 900,000
To Share Capital 900,000
Allotment to Underwriters
Underwriter's a/c Dr. 90,000
To Share Capital 90,000
Underwriting Commission due
Underwriting Commission a/c Dr. 45,000
To Underwriter 45,000
Amount Recd. From Underwriter
Bank a/c Dr. 45,000
To Underwriter 45,000
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Feviquick Ltd. Issued 1,00,000 equity shares of Rs. 10 each.
90% of the issue was underwritten by X Ltd. At a Commission of 5% of FV.
Applications received for 80,000 shares. All moneys due were received on
Applications. Account of X Ltd. Was settled.
Marked Applications - 60,000 shares and Unmarked Applications - 20,000 sh.
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 800,000
To Share Applications 800,000
(80,000 x 10)
Allotment to Public
Share Applications Dr. 800,000
To Share Capital 800,000
Allotment to Underwriters
Underwriter's a/c Dr. 200,000
To Share Capital 200,000
Underwriting Commission due
Underwriting Commission a/c Dr. 45,000
To Underwriter 45,000
Amount Recd. From Underwriter
Bank a/c Dr. 155,000
To Underwriter 155,000
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Unmarked Appl. 20,000
First benefit to Co. 10,000
Balance unmarked
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 320,000
To Share Appl. 320,000
(16,000 x 20)
Allotment to Public
Share Applications Dr. 320,000
To Share Capital 320,000
Allotment to Underwriters
Underwriter A's a/c Dr. 48,000 2400 x 20
Underwriter B's a/c Dr. 12,000 600 x 20
Underwriter C's a/c Dr. 10,000 500 x 20
To Share Capital 70,000
Underwriting Commission due
Underwriting Commission a/c Dr. 17,000
To Underwriter A 6,000
To Underwriter B 5,000
To Underwriter C 6,000
Amount Recd. From Underwriter
Bank a/c Dr. 53,000
To Underwriter A 42,000
To Underwriter B 7,000
To Underwriter C 4,000
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Tot Appl. 16,000
Less Marked
A 3,600
B 4,400
C 5,500 13,500
Unmarked (Bal.) 2,500
A Ltd. Issued 1,00,000 equity shares of Rs. 10. entire amount being payable on application.
The entire issue was underwritten as - X - 40%; Y - 30%; Z - 30%
Applications were received for 80,000 shares out of which applications for 20,000
shares had the stamp of X; 10,000 shares had stamp of Y and 20,000 had stamp of Z.
Remaining applications for 30,000 did not bear any stamp.
Show liability of underwriters and pass Journal entries.
Am
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 800,000
To Share Applications 800,000
(80,000 x 10)
Allotment to Public
Share Applications Dr. 800,000
To Share Capital 800,000
Allotment to Underwriters
Underwriter X's a/c Dr. 80,000
Underwriter Y's a/c Dr. 110,000
Underwriter Z's a/c Dr. 10,000
To Share Capital 200,000
Underwriting Commission due
Underwriting Commission a/c Dr. 50,000
To Underwriter X 20,000
To Underwriter Y 15,000
To Underwriter Z 15,000
Amount Recd. From Underwriter
Bank a/c Dr. 5,000
To Underwriter Z 5,000
Amount Paid. to Underwriter
Underwriter X's a/c Dr. 60,000
Underwriter z's a/c Dr. 95,000
To Bank 155,000
Albert Ltd. Issued 50,00,000 equity shares of 10 each. The whole issue was
underwritten by A, B & C as below -
A - 15,00,000 shares B - 25,00,000 shares C - 10,00,000 shares
Applications were received for 48,50,000 shares out of which marked applications
were as follows -
A - 12,00,000 shares B - 25,00,000 shares C - 8,50,000 shares
Show liability of underwriters and pass Journal entries.
Presumed underwriting commission is at the rate of 5% of issue price
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 48,500,000
To Share Applications 48,500,000
(48,50,000 x 10)
Allotment to Public
Share Applications Dr. 48,500,000
To Share Capital 48,500,000
Allotment to Underwriters
Underwriter A's a/c Dr. 1,200,000
Underwriter B's a/c Dr. 300,000
To Share Capital 1,500,000
Underwriting Commission due
Underwriting Commission a/c Dr. 2,500,000
To Underwriter A 750,000
To Underwriter B 1,250,000
To Underwriter C 500,000
Amount Recd. From Underwriter
Bank a/c Dr. 450,000
To Underwriter A 450,000
Amount Paid. to Underwriter
Underwriter B's a/c Dr. 1,250,000
Underwriter C's a/c Dr. 200,000
To Bank 1,450,000
C - 10,00,000 shares
C - 8,50,000 shares
4,850,000
1,200,000
2,500,000
850,000 4,550,000
300,000
15 90,000
25 150,000
10 60,000
Consider the following data pertaining to three underwriters : A, S & V
A S V
Shares Underwritten 8,000 16,000 24,000
Marked Applications 6,000 8,000 11,000
If total Applications received are for 44,800 shares, compute the final liability
of underwriters and pass Journal entries.
Issue was at Rs. 10 per share, payable on Application.
Underwriting Commission is payable at 5% of issue price
6,000
8,000
11,000 25,000
Unmarked 19,800
8/48 3,300
16/48 6,600
24/48 9,900
(1 : 2 : 3) 19,800
24,000 x 10 x 5%
Chaitanya Ltd. issues 40,000 shares. Issue is underwritten by A, B & C in the ratio of
5:3:2 respectively. Unmarked applications totalled for 2,000 shares whereas marked
aaplications are A - 16,000 shares B - 5,700 shares C - 8,300 shares
Calculate…. Unmarked applications are to be distributed in the ratio of
Gross Liability
Shares are issued at Rs. 10 per share, payable on Application,
Underwriting commission is payable at 5% of the issue price…
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 320,000
To Share Applications 320,000
(30,000 + 2,000) x 10
Allotment to Public
Share Applications Dr. 320,000
To Share Capital 320,000
Allotment to Underwriters
Underwriter A's a/c Dr. 25,630
Underwriter B's a/c Dr. 54,370
To Share Capital 80,000
Underwriting Commission due
Underwriting Commission a/c Dr. 20,000
To Underwriter A 10,000
To Underwriter B 6,000
To Underwriter C 4,000
Amount Recd. From Underwriter
Bank a/c Dr. 64,000
To Underwriter A 15,630
To Underwriter B 48,370
Amount Paid. to Underwriter
Underwriter C's a/c Dr. 4,000
To Bank 4,000
Unmarked Appl. 2,000
5/10 1,000
3/10 600
2/10 400
2,000
Surplus of C :
5/8 437.50 = 437
3/8 262.50 = 263
Skill Ltd. makes public issue of 45,000 shares, which are underwritten by A, B & C
equally. Marked applications received A - 12,000 sh.; B - 13,000 sh. & C - 7,000 sh.
Unmarked applications received for 6,000 shares.
Firm underwriting is 1,500 shares each.
Shares were issued at Rs. 10; Underwriting Commission @ 5% of issue price
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr. 380,000
To Share Applications 380,000
(38,000 x 10)
Allotment to Public
Share Applications Dr. 380,000
To Share Capital 38,000
Allotment to Underwriters
Underwriter A's a/c Dr. 15,000
Underwriter B's a/c Dr. 15,000
Underwriter C's a/c Dr. 40,000
To Share Capital/Debentures 70,000
Underwriting Commission due
Underwriting Commission a/c Dr. 22,500
To Underwriter A 7,500
To Underwriter B 7,500
To Underwriter C 7,500
Amount Recd. From Underwriter
Bank a/c Dr. 47,500
To Underwriter A 7,500
To Underwriter B 7,500
To Underwriter C 32,500
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Firm Underwriting :
Less Firm
Gross Liab. 1,500 1,500 1,500 4,500 4,500 in GL Ratio i.e.
Underwriting
Net Liab. -500 -1,500 4,500 2,500
Add Firm Und. 0
Total Liab. 0
Amount Due 0
Less U Comm. 0
Net Amt Due 0
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr.
To Share/Deb. Applications
Allotment to Public
Share/Deb. Applications Dr.
To Share Capital/Debentures
Allotment to Underwriters
Underwriter's a/c Dr.
To Share Capital/Debentures
Underwriting Commission due
Underwriting Commission a/c Dr.
To Underwriter
Amount Recd. From Underwriter
Bank a/c Dr.
To Underwriter
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
4,500 in GL Ratio i.e. equally
Gem Ltd. Issued 20,000 Debentures of Rs. 100 each; which are underwritten as -
Sam - 12,000 deb. Nish - 5,000 deb. Mac - 3,000 deb. 100% underwriting
Underwriters made applications for firm underwriting as -
Sam - 1,600 deb. Nish - 600 deb. Mac - 2,000 deb.
Total subscriptions received for 12,000 Deb.,
excluding firm underwriting but including marked applications
were : Sam - 2,000 deb.; Nish - 4,000 deb. & Mac - 1,000 deb.
Show….
Unmarked Appl.
to be distributed in the ratio of G Liab.
i.e. 12 : 05 : 03
3,000
1,250
750
20,000
Less Appl. Recd. 12,000
Firm Underwriting 4,200 16,200
3,800
Gem Ltd. Issued 20,000 Debentures which are underwritten as -
Sam - 12,000 deb. Nish - 5,000 deb. Mac - 3,000 deb.
Underwriters made applications for firm underwriting as -
Gem Ltd. Issued 20,000 Debentures of Rs. 100 each; which are underwritten as -
Sam - 12,000 deb. Nish - 5,000 deb. Mac - 3,000 deb. 100% underwriting
Underwriters made applications for firm underwriting as -
Sam - 1,600 deb. Nish - 600 deb. Mac - 2,000 deb.
Total subscriptions received for 12,000 Deb.,
excluding firm underwriting but including marked applications
were : Sam - 2,000 deb.; Nish - 4,000 deb. & Mac - 1,000 deb.
Show….
Less Firm (1,600 + Gross Liab. (12:5:3) 2,520 1,050 630 4,200
600 + 2,000 = 4,200)
4,000
1,000 7,000
20,000
Less Appl. Recd. 12,000
Firm Underwriting 4,200 16,200
3,800
Golmal Ltd. makes a public issue of 1,50,000 shares of Rs. 10 each, at 10% Premium. Issue Price = 10 + 10% =
Underwriters Aan, Ban and Shan underwrite whole issue on equal basis. Company
received total application for 1,40,000 shares, as follows -
Firm Und. Appl. Marked Total
Aan 5,000 40,000 45,000
Ban 5,000 45,000 50,000
Shan 3,000 34,000 37,000
Unmarked - - 8,000
13,000 119,000 140,000
Underwriting Commission is payable @ 5%.
Prepare….
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr.
To Share/Deb. Applications
Allotment to Public
Share/Deb. Applications Dr.
To Share Capital/Debentures
Allotment to Underwriters
Underwriter's a/c Dr.
To Share Capital/Debentures
Underwriting Commission due
Underwriting Commission a/c Dr.
To Underwriter
Amount Recd. From Underwriter
Bank a/c Dr.
To Underwriter
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Issue Price = 10 + 10% = 11
1,334
150,000
Less Appl. Recd.
119,000
8,000 127,000
Firm Underwriting 13,000 140,000
10,000
Golmal Ltd. makes a public issue of 1,50,000 shares of Rs. 10 each, at 10% Premium.
Underwriters Aan, Ban and Shan underwrite whole issue on equal basis. Company
received total application for 1,40,000 shares, as follows -
Firm Und. Appl. Marked Total
Aan 5,000 40,000 45,000
Ban 5,000 45,000 50,000
Shan 3,000 34,000 37,000
Unmarked - - 8,000
13,000 119,000 140,000
Underwriting Commission is payable @ 5%.
Prepare….
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr.
To Share/Deb. Applications
Allotment to Public
Share/Deb. Applications Dr.
To Share Capital/Debentures
Allotment to Underwriters
Underwriter's a/c Dr.
To Share Capital/Debentures
Underwriting Commission due
Underwriting Commission a/c Dr.
To Underwriter
Amount Recd. From Underwriter
Bank a/c Dr.
To Underwriter
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
On 1.1.2016 Little Champ Ltd. Was formed with authorised share capital of 2,00,000
shares of Rs. 10 each. The company issued 80% shares to public at a premium of
Re. 1 per share. Issue was uderwritten as Tanmay - 3/20; Rohan - 5/20 & Amir - 12/20
Firm underwriting was for total 40,000 shares, to be shared as
Tanmay 20%; Rohan 50% & Amir 30%.
Company received applications for 1,00,000 shares which include marked applications
except firm underwriting. Marked Applications were -
Tanmay 8,000 shares; Rohan 16,000 shares & Amir 20,000 shares
Underwriting Commission @ 5%. Show …..
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr.
To Share/Deb. Applications
Allotment to Public
Share/Deb. Applications Dr.
To Share Capital/Debentures
Allotment to Underwriters
Underwriter's a/c Dr.
To Share Capital/Debentures
Underwriting Commission due
Underwriting Commission a/c Dr.
To Underwriter
Amount Recd. From Underwriter
Bank a/c Dr.
To Underwriter
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
On 1.1.2016 Little Champ Ltd. Was formed with authorised share capital of 2,00,000
shares of Rs. 10 each. The company issued 80% shares to public at a premium of
Re. 1 per share. Issue was uderwritten as Tanmay - 3/20; Rohan - 5/20 & Amir - 12/20
Firm underwriting was for total 40,000 shares, to be shared as
Tanmay 20%; Rohan 50% & Amir 30%.
Company received applications for 1,00,000 shares which include marked applications
except firm underwriting. Marked Applications were -
Tanmay 8,000 shares; Rohan 16,000 shares & Amir 20,000 shares
Underwriting Commission @ 5%. Show …..
JOURNAL ENTRIES :
Applications by Public
Bank a/c Dr.
To Share/Deb. Applications
Allotment to Public
Share/Deb. Applications Dr.
To Share Capital/Debentures
Allotment to Underwriters
Underwriter's a/c Dr.
To Share Capital/Debentures
Underwriting Commission due
Underwriting Commission a/c Dr.
To Underwriter
Amount Recd. From Underwriter
Bank a/c Dr.
To Underwriter
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Sum. 1 : Feviquick Ltd. Issued 1,00,000 equity shares of Rs. 10 each.
90% of the issue was underwritten by X Ltd. At a Commission of 5% of FV.
Applications received for 80,000 shares. All moneys due were received on
Applications. Account of X Ltd. Was settled.
Sum. 2 : A Ltd. Issued 1,00,000 equity shares. The entire was underwritten as -
X - 40%; Y - 30%; Z - 30%
Applications were received for 80,000 shares out of which applications for 20,000
shares had the stamp of X; 10,000 shares had stamp of Y and 20,000 had stamp of Z.
Remaining applications for 30,000 did not bear any stamp.
Show liability of underwriters and pass Journal entries.
Sum. 3 : Albert Ltd. Issued 50,00,000 equity shares of 10 each. The whole issue was
underwritten by A, B & C as below -
A - 15,00,000 shares B - 25,00,000 shares C - 10,00,000 shares
Applications were received for 48,50,000 shares out of which marked applications
were as follows -
A - 12,00,000 shares B - 25,00,000 shares C - 8,50,000 shares
Show liability of underwriters and pass Journal entries.