Page 254 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 10: Underwriting of Shares

2. Calculation for cost price of shares. Notes
`
Amount paid for 62,500 shares 6,25,000
Amount paid for 50,000 shares 5,00,000

Amount paid for (commission) 10,000 shares Nil
Expenses 1,22,500 shares 3,000
11,28,000
Less: Underwriting Commission Received 1,25,000

Cost of 1,22,500 shares 10,03,000
10,03,000
Cost of one share = = ` 8.188
1,22,500

Market value is 10 – 2 = ` 8.

10.10.3 Miscellaneous Illustrations

Illustration 15
The Hopeful Ltd. issued 20,000 shares which were underwritten by three different persons as
follows:

A– 1,000 shares, B-6,000 shares, C-1,500 shares. In addition, there was firm underwriting by:
A –1,000 shares, B-500 shares, C-1500 shares.
The company received application for 15,200 shares including firm applications and number of
marked forms were as below:
A-3,000 shares, B-4,500 shares, C-1,700 shares. Show the allocation of liability of the underwriters
assuming that the underwriting agreement did not provide any relief for firm application.

Solution:
Statement Showing Underwriters’ Liability in Shares
Underwriters
Particulars Total
A B C
Gross Liability 10,000 6,000 4,000 20,000
Less: Marked Applications 3,000 4,500 1,700 9,200
7,000 1,500 2,300 10,800
Less: Unmarked Applications Including firm applications
(divided in the ratio of Gross Liability) 5:3:2 4,500 2,700 1,800 9,000

Less: Surplus of ‘B’ distributed between A & C in the ratio
of gross liability 5:2 2,500 –1,200 500 1,800
Net Liability 857 +1200 343 –
1,643 Nil 157 1,800
Add: Firm underwriting 1,000 500 1,500 3,000
Total Liability (in Shares) 2,643 500 1,657 4,800

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