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Unit 10: Underwriting of Shares

Rate of Commission 5% Notes
Amount of Commission = ` 2,06,250 = ` 35,625

Journal Entries
Date Particulars L.F. ` `
Bank Account Dr. 44,00,000
To Equity Share Capital Account 40,00,000
To Share Premium Account 4,00,000
(Being allotment of 4,00,000 shares of ` 10 each at 10% premium)
Bank Account Dr. 7,12,500
Discount on Issue of Debentures Account Dr. 37,500
To 12% Debentures Account 7,50,000
(Being allotment of 12% Debentures of ` 100 each at ` 95)
Apex & Company Dr. 8,25,000
To Equity Share Capital Account 7,50,000
To Share Premium Account 75,000
(Being net liability of 75,000 shares taken over by underwriter as
per agreement)
Apex % Company Dr. 2,85,000
Discount on Issue of Debentures Account Dr. 15,000
To 12% Debentures Account 3,00,000
(Being net liability of 3,000 debentures taken over by the underwriter)
Underwriting Commission on Shares A/c Dr. 206,250
Underwriting Commission on Debentures A/c Dr. 35,625
To Apex & Co. 2,41,875
(Being commission due to underwriter)
Bank Account Dr. 8,68,175
To Apex & Company 8,68,175
(Being receipt of the balance from Apex & Company)

Receipt of balance of amount = ` 8,25,00 + ` 2,85,000 - ` 2,41,825
= ` 8,68,175.

Notes In the case of undersubscription, to determine the liability of underwriters, the
benefit of firm underwriting can be given to all underwriters if firm underwriting is
included in the unmarked application or if the benefit of firm underwriting is to be given
this to individual underwriters, firm underwriting should be included in marked
applications.

10.7.2 When Partial Issue is underwritten by More than One Underwriter

In this case too, only a part of the entire issue is underwritten by a number of underwriters and
the rest of the issue is treated as underwritten by the company itself. The unmarked applications
are treated as marked by the company and the net liability of the underwriters is determined by
the same method as explained in the case of partial underwriting by one underwriter only.

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