Prof. Bhambwani’s
RELIABLE CLASSES / I.P.C.C - II / A/C / UNDERWRITING
When the issue is underwritten by more than one underwriter.
Q1. Sam Ltd invited applications from public for 1,00,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The entire issue was underwritten by the underwriters A,B,C and D to the extent of 30%, 30%, 20% and 20% respectively with the provision of firm underwriting of 3000, 2000, 1000, 1000 shares respectively. The underwriters were entitled to the maximum commission permitted by law.
The company received applications for 70,000 shares from public out of which applications for 19,000, 10,000, 21,000 and 8,000 shares were marked in favour of A,B,C and D respectively.
Calculate the liability of each one of the underwriters. Also ascertain the underwriting commission payable to the different underwriters.
(June 1997).
Q2. Export Ltd. incorporated on 1st January, 1997 issued a prospectus inviting applications for 5,00,000 Equity shares of Rs.10 each at a premium of 10 per cent.
The whole issue was fully underwritten by Kapoor, Bhora, Dalal and Mehta as follows:
Kapoor 2,00,000 shares
Bhora 1,50,000 shares
Dalal 1,00,000 shares
Mehta 50,000 shares
Application were received for 4,50,000 shares of which marked application were as follows:
Kapoor 2,20,000 shares
Bhora 90,000 shares
Dalal 1,10,000 shares
Mehta 10,000 shares
It was agreed that underwriters be paid commission at 5% on the issue price. You are required
(a) to find out the liabilities of individual underwriters, and
(b) to give necessary journal entries including for cash transactions. [May, 1977]
Q3. Janta Ltd issued 40,000 shares which were underwritten as follows:
A - 24,000 shares B- 10,000 shares and C-6,000 shares.
The underwriters made applications for firm underwriting as under:
A - 3,200 shares B -1,200 shares and C - 4,000 shares.
The total subscription excluding firm underwriting but including marked.
applications were for 20,000 shares. The marked applications were as follows:
A- 4,000 shares B- 8,000 shares and C - 2,000 shares.
Show the allocation of liability of underwriters. (Dec 1990)
Q4. TT Ltd issued 50,000 equity shares of Rs 10 each at par. The entire issue was underwritten as follows:
A- 30,000 shares (firm underwriting 4,000 shares).
B- 15,000 shares (firm underwriting 5,000 shares).
C- 5,000 shares (firm underwriting 1,000 shares).
The total applications including firm underwriting were for 40,000 shares. The marked applications were as follows.
A - 10,000 shares.
B - 7,000 shares.
C - 3,000 shares.
The underwriting contract provides that credit for unmarked applications be given to the underwriters in proportion to the shares underwritten.
Determine the liability of each underwriter and amount of commission payable to them, assuming the rate to be the maximum allowed by law. (June 1991)
Q5. Meenu Ltd has authorised capital of Rs 50,00,000 divided into 1,00,000 equity shares of Rs 50 each. The company issued for subscription 50,000 shares at a premium of Rs 10 each. The entire issue was underwritten as follows :
A - 30,000 shares ( firm underwriting - 5,000 shares )
B - 15,000 shares ( firm underwriting - 2,000 shares )
C - 5,000 shares ( firm underwriting - 500 shares)
Out of the total issue, 45,000 shares including firm underwriting were subscribed.
The following were the marked forms:
A - 16,000 shares.
B - 10,000 shares.
C - 4,000 shares.
Calculate the liability of each underwriter. (Dec-96)
Q6. A company made a public issue of 1,25,000 equity shares of Rs 100 each, Rs 50 payable on application. The entire issue was underwritten by four parties A,B,C and D in proportion of 30%, 25%, 25% and 20%. respectively.
Under the terms agreed upon, a commission of 2% was payable on the amount underwritten.
A,B,C and D had also agreed on "firm" underwriting of 4,000, 6,000, NIL and 15,000 shares respectively. The total subscription excluding firm underwriting including, marked applications were for 90,000 shares. Marked applications received were as under :-
A 24,000 C 12,000 B 20,000 D 24,000
Ascertain the liability of the individual underwriter and also show the journal entries that you would make in the books of company. All working should form part of your answer. (Nov 1987)
Q7. Sardar Ltd issued to public 1,50,000 equity shares of Rs100 at par Rs 60 per share was payable along with application and the balance on allotment. The issue was underwritten Equally by Ali Bali and Charlie for a commission of 5%. Application for 1,40,000 shares were received as per details below :
Underwriter Firm Marked Total
Application Application
Ali 5,000 40,000 45,000
Bali 5,000 46,000 51,000
Charlie 3,000 34,000 37,000
Unmarked Applications 7,000
Total 1,40,000
It was agreed to credit the unmarked applications equally to Ali and Charlie. Sardar ltd accordingly made the allotment and received the amounts due from public. The underwriters settled their accounts.
You are required to:
i) Prepare a statement showing the liability of the underwriters and
ii) Journalise the above transactions (including cash) in the books of Sardar Ltd. (May 1990)
Q8. Libra Ltd. came up with an issue of 20,00,000 equity shares of Rs.10 each. at par 5,00,000 shares were issued to promoters and the balance offered to the public was underwritten by three underwriters - Anand Vijay and Ashok - equally with firm underwriting of 50,000 shares each. Subscription totaled 12,97,000 shares including the marked forms which were :
Anand 4,25,000 shares
Vijay 4,50,000 "
Ashok 3,50,000 "
The underwriters had applied for the number of shares covered by firm under writing. The amounts payable on application and allotment were Rs 2.50 and Rs 2 respectively. The agreed commission was 5%.
Pass summary journal entries for:
a) the allotment of shares to the underwriters.
b) the commission due to each of them and
c) the net cash paid and \ or received.
Note : Unmarked applications are to be credited to the underwriters equally. (May 1984)
Q9. X Ltd. issued 10,000 shares of Rs 100 each. at a premium of Rs 15 each. Ninety per cent of the issue was underwritten by M/s Broker and Co. at a commission of 1% on the nominal face value. Applications were received for 8,000 shares and allotment was fully made. All the money due from allotees was received in one installment. The accounts with Broker & Co. were settled. Show the Journal entries to record the transactions.(Nov 1986)
Q10. A entered into an underwriting agreement with B Ltd. for 60% of the issue of 15% Rs. 50,00,000 debentures with a firm underwriting of Rs 5,00,000. Marked applications were for Rs. 35,00,000 debentures.
Calculate the liability of the underwriter and the commission payable to him. (June 1992).
Home work
Q1. A joint stock company resolved to issue 10 lakh equity shares of Rs.10 each at a premium of Re.1 per share. One lakh of these shares were taken up by the directors of the company, their relatives, associates and friends, the entire amount being received forthwith. The remaining shares were offered to the public, the entire amount being asked for with applications.
The issue was underwritten by X, Y and Z for a commission @2% of the issue price, 65% of the issue was underwritten by X, while Y’s and Z’s shares were 25% and 10% respectively. Their firm underwriting was as follows:
X 30,000 shares, Y 20,000 shares and Z 10,000 shares. The underwriters were to submit unmarked applications for shares underwritten firm with full application money along with members of the general public.
Marked applications were as follows:
X 1,19,500 shares, Y 57,500 shares and Z 10,500 shares.
Unmarked applications totaled 7,00,000 shares.
Accounts with the underwriters were promptly settled.
You are required to:
(i) Prepare a statement calculating underwriter’s liability for shares other than shares underwritten firm.
(ii) Pass Journal entries for all the transactions including cash transactions. (May 01)
Q2. Scorpio Ltd. came out with an issue of 45,00,000 equity shares of Rs.10 each at a premium of Rs.2 per share. The promoters took 20% of the issue and the balance was offered to the public. The issue was equally underwritten by A & Co; B & Co. and C & Co.
Each underwriter took firm underwriting of 1,00,000 shares each. Subscriptions for 31,00,000 equity shares were received with marked forms for the underwriters as given below:
A & Co. 7,25,000 shares
B & Co. 8,40,000 shares
C & Co. 13,10,000 shares
Total 28,75,000 shares
The underwriters are eligible for a commission of 5% on face value of shares. The entire amount to wards shares subscription has to be paid along with application.
You are required to:
(a) Compute the underwriters liability (number of shares)
(b) Compute the amounts payable or due to underwriters; and
(c) Pass necessary Journal entries in the books of Scorpio Ltd. relating to underwriting. (Nov 05)
Q3. Albert Ltd. issued 50,00,000 Equity shares of Rs.10 each. The Whole issue was underwritten by A, B and C as below:
A 15,00,000 shares
B 25,00,000 shares
C 10,00,000 shares
Application were received for 48,50,000 shares of which the marked applications were as follows:
A 12,00,000 shares
B 25,00,000 shares
C 8,50,000 shares
Calculate the number of shares to be taken up by the underwriters.
Q4. Consider the following data pertaining to three underwriters, Ajay, Samay and Vijay:
Particulars / Ajay / Samay / VijayShare underwritten / 8,000 / 16,000 / 24,000
Marked application / 6,000 / 8,000 / 11,000
If total application received are for 44,800 shares, compute the final liability of Vijay.
Q5. Gemini Ltd. came up with public issue of 30,00,000 Equity shares of Rs.10 each at Rs.15 per share. A, B and C took underwriting of the issue in 3:2:1 ratio
Application were received for 27,00,000 shares.
The Market application were received as under:
A 8,00,000 shares
B 7,00,000 shares
C 6,00,000 shares
Commission payable to underwriters is at 5% on the face value of shares.
(i) Compute the liability of each underwriter as regards the number of shares to be taken up.
(ii) Pass journal entries in the books of Gemini Ltd. to record the transactions relating to underwriters.
Q6. Chaitanya Limited issues 40,000 shares. Issue is underwritten by A,B and C in the ratio of 5:3:2 respectively. Unmarked applications totalled 2,000 whereas marked applications are as follows:
Underwriters / Application (Number of debentures)A / 16,000
B / 5,700
C / 8,300
Calculate the net liability of each one of the underwriters.
Q7. Delta Ltd. Issue 25,00,000 equity shares of Rs.10 each at par.7,00,000 shares were issued to the promoters and the balance offered to the public was underwritten by three underwriters P, Q & R in the ratio of 2:3:4 with firm underwriting of 50,000, 60,000 and 70,000 shares each respectively. Total subscription received 13,88,000 shares including marked application and excluding firm underwriting were as:
P 3,00,000
Q 3,50,000
R 4,50,000
Unmarked and surplus applications to be distributed in Gross liability ratio.
Ascertain the liability of each underwriter.
Q8. J Ltd issued 20,000 shares which were underwritten as follows:
A-12,000 shares B 5,000 shares and C-3,000 shares.
The underwriters made applications for firm underwriting as under:
A- 1,600 shares, B 600 shares and C 2,000 shares. The total subscription excluding firm underwriting but including marked applications were for 10,000 shares. The marked applications were as under.
A -2,000 shares B- 4,000 shares, and C- 1,000 shares.
You are required to show the allocation or liability of the underwriters.
Q9. Chaitanya Chemicals Ltd planned to set up a unit for manufacture of bulk drugs. For the purpose of financing the unit, the Board of Directors have issued 15,00,000 equity shares of Rs 10 each. 30% of the issue was reserved for promoters and the balance was offered to the public. Aditya, Diwan and Anoop have come forward to underwrite the public issue in the ratio of 3:1:1 and also agreed for firm undertaking of 30,000, 20,000 and 10,000 shares respectively. The underwriting commission was fixed at 4% The amount payable on application was Rs 2.50 per share. The details of subscription are:
Marked forms of Aditya 5,50,000 Shares
Marked forms of Diwan 2,00,000 "
Marked forms of Anoop 1,50,000 "
Unmarked forms 50,000 "
a) You are required to show the allocation of liability among underwriters with workings.
b) Pass journal entries in the books of Chaitanya Chemicals Ltd.
i) For underwriters net liability and the receipt of cash to or from underwriters.
ii) Determine the liability towards the payment of commission to the underwriters.
Q10. M/s. ABC Limited has gone into liquidation on 25th June, 2011. Certain creditors could not receive payments out of realization of assets and contribution from A list contributories. The following are the details transfers which took place in the year ended 31st March,2011:
Shareholders / No. of shares transferred / Date of ceasing to be a member / Creditors remaining unpaid and outstanding on the date of transfer (Rs.)P / 4,000 / 10-5-2010 / 9,000
Q / 3,000 / 22-7-2010 / 12,000
R / 2,400 / 15-9-2010 / 13,500
S / 1,600 / 14-12-2010 / 14,000
T / 1,000 / 09-03-2011 / 14,200
All the shares are of Rs,10 each, Rs.8 per share paid up. Show the amount to be realized from the person listed above. Ignore remuneration to liquidator and other expenses.
Q11. ABC Ltd. Came up with public issue of 3,00,000 Equity Shares of Rs.10 each at Rs.15 per share. P,Q and R took underwriting of the issue in ratio of 3:2:1 with the provisions of firm underwriting of 20,000, 14,000 and 10,000 shares respectively. (Nov 12)
Applications were received for 2,40,000 shares excluding firm underwriting. The marked applications from public were received as under.
P – 60,000
Q – 50,000
R – 60,000
Compute the liability of each underwriter as regards the number of shares to be taken up assuming that the benefit of firm underwriting is not given to individual underwriters.
Q12. A company issued 1,50,000 shares of Rs.10 each at a premium of Rs.10. The entire issue was underwritten as follows:
X – 90000 shares (Firm underwriting 12000 shares)