Syllabus - FA 5

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 AGREEMENT : agreement between the Company and the

underwriter, in which, the underwriter agrees to take, whole or
part of the issue not subscribed by the public, for a consideration,
known as UNDERWRITING COMMISSION.

SUB UNDERWRITER : the principal underwriter may appoint sub

underwriter for spreading the risk of under subscription. This he
can do in his own account and shall himself be responsible for the
sub underwriter and also for paying subscription to him.

BROKER : a person taking responsibility to procure subscription for a

commission, known as 'BROKERAGE' but shall not be responsible
for under subsciption.

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

GROSS LIABILITY : number of shares/debentures, for which guarantee is given by

each underwriter individually.

MARKED APPLICATION : applications received by company with mark of an

underwriter, benefit will be given to the respective underwriter

UNMARKED/DIRECT APPLICATIONS : applications received by company without

mark of any underwriter, benefit will be given to all underwriters in the ratio
of their Gross Liability

FIRM UNDERWRITING : definite commitment to take up a specified number of

securities, irrespective of securities subscribed by public

FULL UNDERWRITING : entire issue is underwritten by one or more underwriters

PARTIAL UNDERWRITING : only part of the issue is underwritten by one or more

underwriters, for the part not underwritten - company will be deemed to be
the underwriter, benefit of unmarked application will be given to company
first - surplus if any will be distributed among other underwriters in the
ratio of their Gross Liability

SOLE UNDERWRITING : issue is underwritten by a single underwriter

JOINT UNDERWRITING : issue is underwritten by one or more underwriters - in

predecided fixed proportion

Public Issue 100000

Full Und. X 20000
 Y 50000
Z 30000
Marked 70000
X 50000
Y 10000
Z 10000
Unmarked 20000 Shortage X, Y, Z

Public Issue 100000

Underwriting X 80000 Co. 20000

Marked 70000
Unmarked 20000

Public Issue 100000

Underwriting X 80000 Co. 20000
Benefit of unmarked 5000 20000
5000
Marked 70000
Unmarked 25000
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
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.

Method - 1 : Benefit of Firm Underwriting given to Individual Underwriter

Firm underwriting considered as marked application
Particulars Ratio X Ltd. Company Total
Gross Liability Given 90,000 10,000 100,000
Less Marked App. Given 72,000 72,000
Less Unmarked to Co. first 8,000 8,000
Less Firm Und. Given
Net Liab. 18,000 2,000 20,000
Add Firm Und. 0
Total Liab. 18,000 18,000
Amount Due @ 10 180,000 180,000
(90,000 x 10) x 5%
Less U Comm. 45,000 45,000
Net Amt Due 135,000 135,000

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.

Particulars Ratio X Ltd. Company Total

Gross Liability Given 90,000 10,000 100,000
Less Marked App. Given 81,000 81,000
Less Unmarked to Co. first 9,000 9,000
Less Firm Und. Given
Net Liab. 9,000 1,000 10,000
Add Firm Und. 0
Total Liab. 9,000 9,000
Amount Due @ 10 90,000 90,000
(90,000 x 10) x 5%
Less U Comm. 45,000 45,000
Net Amt Due 45,000 45,000

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.

Particulars Ratio X Ltd. Company Total

Gross Liability Given 90,000 10,000 100,000
Less Marked App. Given 60,000 60,000
Less Unmarked to Co. first 10,000 10,000 20,000 Unmarked Appl.
Less Firm Und. Given First benefit to Co.
Net Liab. 20,000 0 20,000 Balance unmarked

Add Firm Und. 0 Appl. Benefit given

Total Liab. 20,000 0 20,000 to remaining underwriters

Amount Due @ 10 200,000 200,000

(90,000 x 10) x 5%
Less U Comm. 45,000 45,000
Net Amt Due 155,000 155,000

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. 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

Appl. Benefit given 10,000

to remaining underwriters
Priti Ltd. Issued 20,000 equity shares of Rs. 20 each. The issue was underwritten as
A - 30%; B - 25% & C - 30%. The Company received total applications for 16,000
shares of which marked applications were -
A - 3,600 shares B - 4,400 shares C - 5,500 shares
Determine the liability of each underwriter and pass Journal entries.
Underwriting Commission @ 5% of issue price

Particulars Ratio A B C Co. Total

30% 25% 30% 15% 100%
Gross Liability Given 6,000 5,000 6,000 3,000 20,000
Less Marked App. Given 3,600 4,400 5,500
Less Unmarked to the Co. first 2,500
Less Firm Und. Given
Net Liab. 2,400 600 500 500
Add Firm Und.
Total Liab. 2,400 600 500
Amount Due @ 20 48,000 12,000 10,000
Less U Comm. 6,000 5,000 6,000
Net Amt Due 42,000 7,000 4,000

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

Particulars Ratio Und. X Und. Y Und. Z Total

Gross Liability Given 40% 30% 30% 1
Gross Liability Given 40,000 30,000 30,000 100,000
Less Marked App. Given 20,000 10,000 20,000 50,000
Less Unmarked Gross Liab. 12,000 9,000 9,000 30,000
Less Firm Und. Given
Net Liab. 8,000 11,000 1,000 20,000
Add Firm Und.
Total Liab. 8,000 11,000 1,000 20,000
Amount Due 80,000 110,000 10,000 200,000
Less U Comm. 20,000 15,000 15,000 50,000
Net Amt Due 60,000 95,000 -5,000 150,000

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 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

Particulars Ratio Und. A Und. B Und. C Total

Gross Liability Given 1,500,000 2,500,000 1,000,000 5,000,000
Less Marked App. Given 1,200,000 2,500,000 850,000 4,550,000
Less Unmarked Gross Liab. 90,000 150,000 60,000 300,000
Less Firm Und. Given 0
Net Liab. 210,000 -150,000 90,000 150,000
Suplus of B distributed between A & C, in the ratio of their Gross Liab. i.e. 15 : 10
90,000 150,000 60,000
Revised Net Liab 120,000 0 30,000 150,000
Add Firm Und. 0
Total Liab. 120,000 30,000 150,000
Amount Due 1,200,000 0 300,000 1,500,000
Less U Comm. 750,000 1,250,000 500,000 2,500,000
Net Amt Due 450,000 -1,250,000 -200,000 -1,000,000

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

Particulars Ratio Und. A Und. S Und. V Total Tot. Appl

Gross Liability Given 8,000 16,000 24,000 48,000 Marked
Less Marked App. Given 6,000 8,000 11,000 25,000 A
Less Unmarked Gross Liab. 3,300 6,600 9,900 19,800 S
Less Firm Und. Given 0 V
Net Liab. -1,300 1,400 3,100 3,200 Unmarked
Suplus of A distributed between S & V, in the ratio of their Gross Liab. i.e. 16 : 24
1,300 520 780
Net Adjusted Liab. 0 880 2,320 3,200
Add Firm Und. 0 A
Total Liab. 0 880 2,320 3,200 S
Amount Due 0 8,800 23,200 32,000 V
Less U Comm. 4,000 8,000 12,000 24,000 (1 : 2 : 3)
Net Amt Due -4,000 800 11,200 8,000
Shortfall in Appl. 48,0
JOURNAL ENTRIES : Commission is always
Applications by Public Commission is to be g
Bank a/c Dr. 448,000 A
To Share Applications 448,000 S
(44,800 x 10)
Allotment to Public V
Share Applications Dr. 448,000
To Share Capital 448,000
Allotment to Underwriters
Underwriter S's a/c Dr. 8,800
Underwriter V's a/c Dr. 23,200
To Share Capital 32,000
Underwriting Commission due
Underwriting Commission a/c Dr. 24,000
To Underwriter A 4,000
To Underwriter S 8,000
To Underwriter V 12,000
Amount Recd. From Underwriter
Bank a/c Dr. 12,000
To Underwriter S 800
To Underwriter V 11,200
Amount Paid. to Underwriter
Underwriter A's a/c Dr. 4,000
To Bank 4,000
 44,800

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

Shortfall in Appl. 48,000 - 44,800 = 3,200

Commission is always on issue price, unless given otherwise..
Commission is to be given on Gross Liability
8,000 x 10 x 5%
16,000 x 10 x 5%

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…

Particulars Ratio Und. A Und. B Und. C Total Unmarked Appl.

Gross Liability Given 20,000 12,000 8,000 40,000 A
Less Marked App. Given 16,000 5,700 8,300 30,000 B
Less Unmarked Gross Liab. 1,000 600 400 2,000 C
Less Firm Und. Given 0
Net Liab. 3,000 5,700 -700 8,000
Suplus of C distributed between A & B, in the ratio of their Gross Liab. i.e. 5 : 3 Surplus of C :
437 263 700 A
Net Adjusted Liab. 2,563 5,437 0 8,000 B
Add Firm Und. 0
Total Liab. 2,563 5,437 0 8,000
Amount Due @ 10 per share 25,630 54,370 0 80,000
Less U Comm. @ 5% on Gross Liab. 10,000 6,000 4,000 20,000
Net Amt Due 15,630 48,370 -4,000 60,000

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

Method - 1 : Benefit of Firm Underwriting given to Individual Underwriter

Firm underwriting considered as marked application
Particulars Ratio Und. A Und. B Und. C Total
Gross Liability Given 15,000 15,000 15,000 45,000
Less Marked App. Given 12,000 13,000 7,000 32,000
Less Unmarked Gross Liab. 2,000 2,000 2,000 6,000
Less Firm Und. Given 1,500 1,500 1,500 4,500
Net Liab. -500 -1,500 4,500 2,500
Benefit of Suplus of A & B given to C
500 1,500 2,000
Net Adjusted Liab. 0 0 2,500 2,500
Add Firm Und. 1,500 1,500 1,500 4,500
Total Liab. 1,500 1,500 4,000 7,000
Amount Due 15,000 15,000 40,000 70,000
Less U Comm. 7,500 7,500 7,500 22,500
Net Amt Due 7,500 7,500 32,500 47,500

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 :

Benefit of Firm Underwriting will be given to

I individual underwriters i.e. Firm underwriting is
considered as Marked Applications

Benefit of Firm Underwriting will not be given to

II individual underwriters i.e. Firm underwriting is
considered as Unmarked Applications
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

Method - 2 : Benefit of Firm Underwriting not given to Individual Underwriter

Firm underwriting considered as unmarked application
Particulars Ratio Und. 1 Und. 2 Und. 3 Total
Gross Liability Given 15,000 15,000 15,000 45,000
Less Marked App. Given 12,000 13,000 7,000 32,000

Less Unmarked Gross Liab. 2,000 2,000 2,000 6,000

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….

Method - 1 : Benefit of Firm Underwriting given to Individual Underwriter

Firm underwriting considered as marked application
Particulars Ratio Und. Sam Und. Nish Und. Mac Total Total Appl.
Gross Liability Given 12,000 5,000 3,000 20,000 Less Marked
Less Marked App. Given 2,000 4,000 1,000 7,000 Sam
Less Unmarked Gross Liab. 3,000 1,250 750 5,000 Nish
Less Firm Und. Given 1,600 600 2,000 4,200 Mac
Net Liab. 5,400 -850 -750 3,800 Unmarked Appl.
Benefit of Surplus of Nish & Mac given to Sam
1,600 850 750
Net Adjusted Liab. 3,800 0 0 3,800 Unmarked Appl.
Add Firm Und. 1,600 600 2,000 4,200 to be distributed in the
Total Liab. 5,400 600 2,000 8,000 i.e. 12 : 05 : 03
Amount Due 540,000 60,000 200,000 800,000 Sam
Less U Comm. 30,000 12,500 7,500 50,000 Nish
Net Amt Due 510,000 47,500 192,500 750,000 Mac

JOURNAL ENTRIES : Issue

Applications by Public Less Appl. Recd.
Bank a/c Dr. 1,200,000 Firm Underwriting
To Deb. Applications 1,200,000
(12,000 x 100)
Allotment to Public
Deb. Applications Dr. 1,200,000
To Debentures 1,200,000
Allotment to Underwriters
Underwriter Sam's a/c Dr. 540,000
Underwriter Nish's a/c Dr. 60,000
Underwriter Mac's a/c Dr. 200,000
To Debentures 800,000
Underwriting Commission due
Underwriting Commission a/c Dr. 50,000
To Underwriter Sam 30,000
To Underwriter Nish 12,500
To Underwriter Mac 7,500
Amount Recd. From Underwriter
Bank a/c Dr. 750,000
To Underwriter Sam 510,000
To Underwriter Nish 47,500
To Underwriter Mac 192,500
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Total Appl. 12,000
Less Marked
2,000
4,000
1,000 7,000
Unmarked Appl. 5,000

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….

Method - 2 : Benefit of Firm Underwriting not given to Individual Underwriter

Firm underwriting considered as unmarked application
Particulars Ratio Und. Sam Und. Nish Und. Mac Total Total Appl.
Gross Liability Given 12,000 5,000 3,000 20,000 Less Marked
Less Marked App. Given 2,000 4,000 1,000 7,000 Sam

Less Unmarked Gross Liab. 3,000 1,250 750 5,000 Nish

Less Firm (1,600 + Gross Liab. (12:5:3) 2,520 1,050 630 4,200
600 + 2,000 = 4,200)

Net Liab. 4,480 -1,300 620 3,800 Mac

Benefit of surplus of Nish given to Sam & Mac, in Gross Liab. Ratio i.e. 12:3
1,300 in 12:3 1,040 1,300 260
Adjusted net Liab. 3,440 0 360 3,800
Add Firm Und. 1,600 600 2,000 4,200 Unmarked Appl.
Total Liab. 5,040 600 2,360 8,000
Amount Due 504,000 60,000 236,000 800,000
Less U Comm. 30,000 12,500 7,500 50,000
Net Amt Due 474,000 47,500 228,500 750,000 to be distributed in the
i.e. 12 : 05 : 03
JOURNAL ENTRIES : Sam
Applications by Public Nish
Bank a/c Dr. 120,000 Mac
To Deb. Applications 120,000
(12,000 x 100)
Allotment to Public Issue
Deb. Applications Dr. 120,000 Less Appl. Recd.
To Debentures 120,000 Firm Underwriting
Allotment to Underwriters
Underwriter Sam's a/c Dr. 504,000
Underwriter Nish's a/c Dr. 60,000
Underwriter Mac's a/c Dr. 236,000
To Debentures 800,000
Underwriting Commission due
Underwriting Commission a/c Dr. 50,000
To Underwriter Sam 30,000
To Underwriter Nish 12,500
To Underwriter Mac 7,500
Amount Recd. From Underwriter
Bank a/c Dr. 750,000
To Underwriter Sam 474,000
To Underwriter Nish 47,500
To Underwriter Mac 228,500
Amount Paid. to Underwriter
Underwriter's a/c Dr.
To Bank
Total Appl. 12,000
Less Marked
2,000

4,000

1,000 7,000

Unmarked Appl. 5,000

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
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….

Method - 1 : Benefit of Firm Underwriting given to Individual Underwriter

Firm underwriting considered as marked application
Particulars Ratio Und. Aan Und. Ban Und. Shan Total
Gross Liability Given 50,000 50,000 50,000 150,000
Less Marked App. Given 40,000 45,000 34,000 119,000
Less Unmarked Gross Liab. 2,667 2,667 2,666 8,000
Less Firm Und. Given 5,000 5,000 3,000 13,000
Net Liab. 2,333 -2,667 10,334 10,000
Benefit of surplus of Ban, given to Aan & Shan - in their G liab. Ratio i.e. equal
1,333 0 1,334
Net Adjusted Liab. 1,000 0 9,000 10,000 Issue
Add Firm Und. 5,000 5,000 5,000 15,000 Less Appl. Recd.
Total Liab. 6,000 5,000 14,000 25,000 Marked
Amount Due 0 Unmarked
Less U Comm. 0 Firm Underwriting
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
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….

Method - 2 : Benefit of Firm Underwriting not given to Individual Underwriter

Firm underwriting considered as unmarked application
Particulars Ratio Und. 1 Und. 2 Und. 3 Total
Gross Liability Given
Less Marked App. Given
Less Unmarked + Gross Liab.
Firm Und.
Net Liab.
Add Firm Und.
Total Liab.
Amount Due
Less U Comm.
Net Amt Due

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 …..

Method - 1 : Benefit of Firm Underwriting given to Individual Underwriter

Firm underwriting considered as marked application
Particulars Ratio Und. 1 Und. 2 Und. 3 Total
Gross Liability Given
Less Marked App. Given
Less Unmarked Gross Liab.
Less Firm Und. Given
Net Liab.
Add Firm Und.
Total Liab.
Amount Due
Less U Comm.
Net Amt Due

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 …..

Method - 2 : Benefit of Firm Underwriting not given to Individual Underwriter

Firm underwriting considered as unmarked application
Particulars Ratio Und. 1 Und. 2 Und. 3 Total
Gross Liability Given
Less Marked App. Given
Less Unmarked + Gross Liab.
Firm Und.
Net Liab.
Add Firm Und.
Total Liab.
Amount Due
Less U Comm.
Net Amt Due

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.