Page 253 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Illustration 14 (When More Than one Account are Maintained by the Underwriter)
Shubham Limited was registered with an authorized capital of 25, 00,000 divided into 2, 50,000
shares of 10 each. It issued a prospectus inviting applications for 25, 00,000 shares. The whole
issue was fully underwritten by Naranya Company Limited. The rate of underwriting
commission was settled at 5% which was payable as to 80% in fully paid shares and 20% in cash.
In addition to underwriting these shares Naranya Co. Ltd. made a firm application in the
ordinary course for a further 50,000 shares.

The issue was not fully subscribed by the public and the underwriter was obliged to take up 25%
of the issue underwritten. His expenses were 3,000. The shares in Shubham Limited were
subsequently quoted at a discount of 20%.
Prepare Underwriting Commission Account, Underwriting Account, Shubham Ltd. Account
and Bank Account in the books of Naranya Co. Ltd.

Solution:
In the books of Naranya Co. Ltd.
Underwriting Commission Account
Particulars Particulars
To Underwriting Account (Transfer) 1,25,000 By Shubham Limited (5% on 25,00,000) 1,25,000
1,25,000 1,25,000
Underwriting Account

Particulars Particulars
To Shubham Ltd. (10,000 shares 1,00,000 By Underwriting Commission A/c 1,25,000
received in commission)
To Shubham Ltd. (25% shares taken 6,25,000 By Profit and Loss Account 1,23,000
under agreement 62,500 shares)
To Shubham Ltd. (firm underwriting 5,00,000 By Balance c/d (market price 8) 9,80,000
50,000 shares)
To Bank Account (Exps.) 3,000
12,28,000 12,28,000

Shubham Ltd.’s Account
Particulars Particulars
To Underwriting Commission 1,25,000 By Underwriting Account. 1,00,000
To Bank Account 11,00,000 By Underwriting Account. 6,25,000
By Underwriting Account. 5,00,000
12,25,000 12,25,000
Bank Account

Particulars Particulars
To Shubham Ltd. 25,000 By Underwriting Account. 3,000
By Shubham Ltd. 11,00,000
Working Note:

1. Total no. of shares required to take up under agreement (25% of the issue) 62,500
Firm underwriting 50,000

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