Page 258 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 10: Underwriting of Shares

10.13 Review Questions Notes

1. What do you understand by underwriting commission?
2. What are the objectives of underwriting?

3. Give the different types of underwriting.
4. Explain marked and unmarked applications.
5. What do you understand by firm underwriting?
6. Explain the meaning of sub-underwriting.
7. What restrictions are imposed by the Companies Act, on the payment of underwriting
commission?
8. What do you mean by underwriting of shares and debentures? What are the various
provisions in the Companies Act regarding underwriting commission? Mention accounting
problems regarding underwriting.

9. What do you understand by underwriting, sub-underwriting and firm underwriting?
What are the duties of the directors with regard to underwriting contracts?
10. What are the provisions regarding payment of underwriting commission on issue of
share and debentures? Explain.
11. Write short notes on–
(i) Underwriting account

(ii) Sub-underwriting
(iii) Overriding commission
(iv) Marked and Unmarked Application
(v) Firm underwriting.
Practical Questions:

1. Meerut Ltd. was formed with a capital of ` 1,00,000 divided into 10,000 shares of ` 10 each.
All these shares were offered for subscription by prospectus to the public. The shares were
underwritten as follows:
A B C
40% 30% 30%
Marked applications were received in favour of A for 1,600 shares, B for 2,800 shares C for
1,600 shares. Applications for 1,000 shares were unmarked.
Prepare a statement showing the net liability of each underwriter.
Ans: A-1,943 shares, B-nil, C-1,057 shares.

2. Chhotey Co. Limited issued 25,000 equity shares of ` 100 each at par and 1,250 debentures
of ` 1,000 each at ` 950. The whole of the issue has been underwritten by Kashi & Co. for a
consideration of 4% on shares and 2% on debentures (nominal value). The whole of the
shares were applied for but applications for 1,000 debentures were received. All the
applications were accepted. Give journal entries to record the above transactions and
prepare the balance sheet at this stage assuming that all amounts due have been received.
Ans: Total of Balance Sheet ` 37,50,000.

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