Page 241 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Illustration 7 (Marked Application and Firm Underwriting)
The following underwriting of shares takes place: A-3,000 shares, B-1,000 shares, C-1,000 Shares.
In addition there is firm underwriting: A 100 shares, B 50 shares, C 50 shares. The issue is 5,000
shares. The total subscription including firm underwriting was 4,000 Shares and the form included
the following marked forms: A-500 shares, B-600 shares, C-200 shares. Show the allocation of
liability of underwriters assuming that the marked forms included the firms underwriting.
Solution:
Statement Showing the Liability of Underwriters in Shares

Underwriters
Particulars Total
A B C
Shares Shares Shares Shares
Gross Liability 3,000 1,000 1,000 5,000
Less: Marked Applications (excluding firm underwriting) 400 550 150 1,100
Less: Unmarked Applications 26, 00 450 850 3,900
Divided into gross liability 3:1:1 (4,000-1,300) 1,620 540 540 2,700
980 –90 310 1,200
Less: Firm Underwriting 100 -50 50 200
Less: Credit for Surplus of B divided into 880 –140 260 1000
Gross liability ratio between A & C (3:1) 105 140 35 —
Net Liability 775 Nil 225 1,000
Add: Firm Underwriting 100 50 50 200
Total liability 875 50 275 1,200

Illustration 8 (When Benefit of Firm Underwriting is given to all Underwriters)
Todi Company Limited issued prospectus inviting applications for 30,000 shares. The entire
issue is underwritten by Ajay, Vijay and Sanjay in the following manner:
Ajay –18,000 shares, Vijay – 7,500 shares and Sanjay - 4,500 shares. In addition to the above, the
underwriters signed a contract with the company for the following firm underwriting:
Ajay–2,550 shares; Vijay–900 shares and Sanjay–2,850 shares. The company received the
applications for the purchase of 21,300 shares which included the following marked applications:

A – 3,000 shares, B-6,000 shares and C-1,500 shares.
Calculate the total liability of each underwriter treating firm applications as unmarked.
Solution:
Statement Showing the Total Liability of Underwriters in Shares

Underwriters Total
Particulars Ajay Vijay Sanjay
shares share share
Gross Liability 18,000 7,500 4,500 30,000
Less: Marked Applications given Resultant Liability 3,000 6,000 1,500 10,500
Less: Unmarked Application in gross 15,000 1500 3000 19500
Liability Ratio (12:5:3) 6,480 2,700 1,620 10,800
8,520 –1,200 1,380 8,700
Less: Surplus of Vijay distributed between Ajay and Contd...

Sanjay in the gross liability ratio (12:3) –960 –1200 240 —
+
Net Liability 7,560 Nil 1,140 8,700
234 LOVELY PROFESSIONAL UNIVERSITY
Add: Firm underwriting 2,550 900 2,850 6,300
Total Liability 10,110 900 3,990 15,000