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UNDERWRITING OF SHARES AND DEBENTURES

Q.1.1 2008 - May [6] (d) (4 marks) Practical

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

Applications 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.

Q.1.2 2008 - Nov [5] (vi) (2 marks) Practical

Consider the following data pertaining to three underwriters, Ajay, Samay and Vijay:

Particulars Ajay Samay Vijay

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 Vijay.

Q.1.3 2010 - May [6] (a) (4 marks) Practical

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 2000 whereas marked applications are
as follows:

A — 16,000

B — 5,700

C — 8,300

Calculate the Net liability of each one of the underwriters.

Q.2.1 2007 - Nov [5] (v) Descriptive

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What do you understand by the term ‘Firm underwriting? (2 marks)

Answer:
Firm Underwriting: When a definite commitment by underwriters to take up specified
number of shares irrespective of the shares subscribed for by the public, is called ‘Firm
underwriting’.
In such a case, unless it has been otherwise agreed, the underwriter’s liability is
determined without taking into account the number of shares taken up ‘firm’ by him.
In nut shell, the underwriter is obliged to take up:
1. The number of shares he has applied for ‘firm’; and
2. The number of shares he is obliged to take up on the basis of the underwriting
agreement.

Q.2.2 2009 - May [5] (v) Practical

A company entered into an underwriting agreement with Mr. B for 60% of the issue of Rs.
50,00,000, 15% debentures, with a firm underwriting of Rs. 5,00,000. Marked applications
were in respect of debentures worth Rs. 35,00,000.
Compute liability of Mr. B and commission payable to him. (2 marks)

Q.2.3 2011 - May [1] {C} (b) Practical

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 and 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. (5 marks)

Q.2.4 2012 - Nov [1] {C} (b) Practical

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.

Applications were received for 2,40,000 shares excluding firm underwriting.

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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.
(5 marks)

Q.2.5 2013 - May [3] (a) (12 marks) Practical

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)
Y - 37500 shares (Firm underwriting 4500 shares)
Z - 22500 shares (Firm underwriting 15000 shares)
Total subscriptions received by the company (excluding firm underwriting and marked
applications) were 22500 shares.

The marked applications (excluding firm underwriting) were as follows:

X - 15000 shares
Y - 30000 shares
Z - 7500 shares

Commission payable to underwriters is at 5% of the issue price. The underwriting contract

provides that credit for unmarked applications be given to the underwriters in proportion to
the shares underwritten and benefit of firm underwriting is to be given to individual
underwriters.
(i) Determine the liability of each underwriter (number of shares)
(ii) Compute the amounts payable or due from underwriters; and
(iii) Pass Journal Entries in the books of the company relating to underwriting.

Q.2.6 2014-May [3] (b) (8 marks) Practical

A company made a pubic issue of 2,00,000 equity shares of Rs. 10 each at a premium of Rs.
2 per share. The entire issue was underwritten by the underwriters L, M, N and O in the
ratio of 4:3:2:1 respectively with the provision of firm underwriting of 5000, 4000, 2000 and
2000 shares respectively.
The company received application for 1,50,000 shares (excluding firm underwriting) from
public, out of which applications for 55000, 40000,

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42000 and 8000 shares were marked in favour of L, M, N and O respectively.

Calculate 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 the individual underwriter.

Q.2.7 2015-Nov [3] (b) Practical

Saurav Flour Mills Pvt. Ltd. floated a public issue of 1,50,000 Equity shares having face
value of Rs. 10 each at par. A, B and C has taken underwriting of the issue in equal share
with firm underwriting of 25000, 20000 and 20000 shares respectively. Applications were
received for 146000 shares out of which the marked applications were as under:
A-24600 B-20000 C-15000
Credit of unmarked applications is to be given to underwriters equally.
The agreed underwriting commission was 5%. Total amount payable on application and
allotment was Rs. 5 and balance in calls.
Compute the following:
(i) Liability of each underwriter (In shares as well as in amount).
(ii) Commission due to underwriters
(iii) Net Cash paid/ received from underwriters
Also pass Journal Entries for above. (8 marks)

Q.2.8 2017-May [3] (a) (8 marks) Practical

Paper Limited comes out with a public issue of share capital on 01-01- 2016 of 30,00,000
equity shares of Rs. 10 each at a premium of 5%.
Rs. 2.50 is payable on application (on or before 31-01 -2016) and
Rs. 3 on allotment (31-3-2016) including premium.
This issue was underwritten by two underwriters namely White and Black, equally, the
commission being 4% ot the issue price.
Each of the underwriters underwrites 60,000 shares firm.
Subscriptions including firm underwriting came for 28,80,000 shares, the distribution of
forms being White: 15,60,000; Black: 10,80,000 and Unmarked 2,40,000.
One of the allottees (using forms marked with name of White) for 6000 shares fails to pay
the amount due to allotment, all the other money due being received in full including any
due from the shares devolving upon the underwriters.
The commission due was paid separately.
6000 shares of one allottee who failed to pay the allotment money were finally forfeited by
30-6-2016 and were re-allotted for payment in cash of Rs. 4 per share.
You are required to prepare each underwriter’s liability (in shares) in statement form and
to pass necessary journal entries to record the above events and transactions (including
cash).

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Q.2.9 2018-May [2] (b) (10 marks) Practical

Fast Ltd. came up with public issue of 6,00,000 equity shares of Rs. 10 each at par. The
entire issue was underwritten by A, B and C as follows:
A - 3,60,000 shares B - 1,50,000 shares C - 90,000 shares
A, B and C also agreed on firm underwriting of 48,000; 18,000 and 60,000 shares
respectively.

Total subscription received by the company (excluding firm underwriting and marked
applications) were 90,000 shares.

The market application (excluding firm underwriting) were as follows:

A - 1,18,500 shares B - 58,000 shares C - 33,500 shares
The underwriting contract provides that credit for unmarked application be given to
underwriters in proportion to the shares underwritten and benefit of firm underwriting is
to be given to individual underwriters.
The agreed commission was 4% of the issue price.

You are required to:

(i) Calculate the liability of each underwriter (number of shares).
(ii) Compute the amounts payable or due from underwriters.
(iii) Pass Journal Entries in the books of the company relating to underwriting.

Q.2.10 RTP Practical

XYZ Ltd. with a Capital of Rs. 10 Lakhs divided into Equity Shares of Rs. 10 each places its
entire issue on the market and the whole issue has been underwritten as follows:

Name of Underwriter A B C D E F

Number of Shares 30,000 35,000 10,000 15,000 2,000 8,000

All Marked Forms are to go in relief of the Liabilities of the Underwriter whose name they
bear. The Shares underwritten “Firm” are also to be set off against the Liabilities of the
Underwriters.
The application received in Marked Forms are as follows:

Name of Underwriter A B C D E F

Number of Shares 25,000 23,500 5,500 1,000 1,000 2,000

Applications for 20,000 Equity Shares are received on Unmarked Forms.

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In addition, there is a Firm Underwriting by the Underwriters as under:

Name of Underwriter A B C D E F

Number of Shares 500 1,500 7,000 3,000 1,000 4,000

Calculate the liability of the Individual Underwriters.

Q.2.11 RTP Practical

XYZ Ltd. came up with an issue of 20,00,000 Equity Shares of Rs. 10 each, at par.
5,00,000 Equity Shares were issued to the Promoters and the balance offered to public was
underwritten by 3 Underwriters - A, B and C - equally.
Excluding Firm Underwriting of 50,000 Shares each, subscriptions totaled 12,97,000
Shares including Marked Forms, which were as under: A- 4,25,000 Shares, B-4,50,000
Shares, and C-3,50,000 Shares.
Each of the Underwriters had applied for the number of Shares covered by Firm
Underwriting.
The amount payable on Application and Allotment were Rs. 2.50 and Rs. 2 respectively.
The agreed commission was 5%.

Pass Summary Journal Entries for :

(1) Allotment of Shares to the Underwriters,
(2) Commission due to each of them, and
{3} Net Cash Paid and/or Received.

(Unmarked Application is to be credited to the Underwriters equally.)

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