Page 251 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Solution:
In the books of A (Underwriter)
Underwriting Account
Particulars Particulars
To Bank Account (25% of the issue 10,000 By Bank Account underwriting 1,600
taken up i.e., 1,000 shares) commission
To Bank Account (3% commission 300 By Bank Account (250 shares taken 2,500
given to C) up by C)
By Bank Account (Sale of 750 shares @ 6,000
8 per share)
By Loss 200
10,300 10,300
Working Note:

40,000 4

1. Underwriting Commission =  1600
100
2. Sub-underwriting agreement is for

40,000 25

 1,000 Shares.
100
3. Commission for C (Sub-underwriter)

10,000 3
 300
100
4. Shares taken by C (Sub-underwriter)

1,000 25

 250 Shares
100
Illustration 13

Jagdamba Limited issued 4,00,000 equity shares of 10 each. The issue was underwritten by
Hanuman for a commission of 5%. Mr. Hanuman arranges with Bhima for sub-underwriting to
the extent of 30% of shares for a commission of 4%. The shares were to be paid for as:

3.0 on Application
3.5 on Allotment
3.5 on First & Final call.

The public applied for 3,20,000 shares. Both Mr. Hanuman and Mr. Bhima fulfilled their obligations.
After the call Mr. Hanuman sold 36,000 shares at 9. At the close of the period the market value
of the shares was 9.50. Expenses of Mr. Hanuman were 13,000. Prepare the underwriting
account in the books of Mr. Hanuman.

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