UNDERWRITING OF

SHARES AND
DEBENTURES
MEANING OF UNDERWRITING
 MEANING OF
UNDERWRITING
 NOTE….

It may be paid in cash or in fully paid-up shares or debentures or a

combination of all these.
Companies Act, 2013 provides that payment of commission should
be authorized by Articles of Association and the maximum
commission payable will be as under:
In case of shares 5% of the issue price of the shares
In case of debentures 2 .5 % of the issue price of the debentures
Underwriting commission is not payable on the amounts taken up by
the promoters, employees, directors, their friends and business
associates.
Commission is calculated on issue price unless otherwise mentioned.
TYPES OF SHARE APPLICATIONS
 UNDERWRITING - WHOLE ISSUE

Shares issued – 10000 shares (Whole issue underwritten)

Total applications – 8,000 shares
Marked applications – 6,000 shares
Unmarked applications – 2000 shares

Gross Liability – 10,000 shares

Marked applications - (6,000) shares
4,000 shares
Unmarked applications (2,000) shares
Net liability of the underwriter 2,000 shares
 UNDERWRITING - PARTIAL ISSUE

Shares issued – 10000 shares

Liability of the underwriter – 8,000 shares(80%)
Total applications received – 8,000 shares
Marked applications – 6,400 shares
Unmarked applications – 1600 shares

Underwriter
Gross Liability – 8,000 shares
Marked applications - (6,400) shares
Unmarked applications
Net liability 1600 shares
 MULTIPLE UNDERWRITERS

Shares issued – 100000 shares

Underwriters are A, B and C, liability – 5:3:2 (fully underwritten)
Total marked applications received – A - 30,000; B – 20,000; C – 18,000
Unmarked applications – 12,000
Calculate net liability of the underwriters

A B C
Gross Liability – 50000 30000 20000
Marked applications - (30000) (20000) (18000)
Unmarked applications(5:3:2) (6000) (3600) (2400)
14000 6400 (400)
Surplus of C transferred ( 5:3) (250) (150) 400
Net liability 13750 6250 -
T Ltd made a public issue of 4,80,000 equity shares of ₹ 10 each, ₹ 5 payable on
application and the balance on allotment. The entire issue was underwritten by A,B,C
and D in the proportion of 2:2:1:1 respectively at the maximum rate of commission
permissible as per SEBI guidelines. The total subscription received were for 4,20,000
shares.
Prepare the statement showing the liability of the individual underwriter in each of
the following alternative cases:
Case (a) If no other information is given
Statement showing the liability of underwriters
Underwriters A B C D Total
Gross liability(2:2:1:1) 1,60,000 1,60,000 80,000 80,000 4,80,000

Less: Credit for application received(2:2:1:1) (140,000) (140,000) (70000) (70000) (420,000)

Net liability 20000 20000 10000 10000 60,000

 T Ltd made a public issue of 4,80,000 equity shares of ₹ 10 each, ₹ 5 payable on application and
the balance on allotment. The entire issue was underwritten by A,B,C and D in the proportion of
2:2:1:1 respectively at the maximum rate of commission permissible as per SEBI guidelines. The
total subscription received were for 4,20,000 shares.
Prepare the statement showing the liability of the individual underwriter in each of the following
alternative cases:
Case (b) If marked applications received were as under:
A 60,000, B 112000, C 68,000, D 120000
The credit for unmarked applications is to be given to underwriter, in proportion to their gross
liability

Statement showing the liability of underwriters

Underwriters A B C D Total
Gross liability(2:2:1:1) 1,60,000 1,60,000 80,000 80,000 4,80,000
Less: Marked applications (60,000) (112,000) (68000) (120000) (360,000)

Less: Unmarked applications(420000- (20,000) (20,000) (10,000) (10,000) (60000)

360000)
Balance 80,000 28,000 2000 (50000)
Credit for D’s surplus (2:2:1) (20000) (20000) (10000) 50000
Balance 60000 8000 (8000) -

Credit for C’s surplus (2:2) (4000) (4000) 8000 -

Net liability 56000 4000 - - 60000
 T Ltd made a public issue of 4,80,000 equity shares of ₹ 10 each, ₹ 5 payable on application and
the balance on allotment. The entire issue was underwritten by A,B,C and D in the proportion of
2:2:1:1 respectively at the maximum rate of commission permissible as per SEBI guidelines. The
total subscription received were for 4,20,000 shares.
Prepare the statement showing the liability of the individual underwriter in each of the following
alternative cases:
Case (c) If marked applications received were as under:
A 60,000, B 112000, C 68,000, D 120000
The credit for unmarked applications is to be given in the ratio of liability after giving credit for
marked applications.

Statement showing the liability of underwriters

Underwriters A B C D Total
Gross liability(2:2:1:1) 1,60,000 1,60,000 80,000 80,000 4,80,000
Less: Marked applications (60,000) (112,000) (68000) (120000) (360,000)

Less: Unmarked applications(420000-360000) (37,500) (18,000) (4,500) - (60000)

(100:48:12)
Balance 62500 30,000 7500 (40000)
Credit for D’s surplus (100:48:12) (25000) (12000) (3000) 40000

Net liability 37500 18000 4500 - 60000

 T Ltd made a public issue of 4,80,000 equity shares of ₹ 10 each, ₹ 5 payable on application and the balance on
allotment. The entire issue was underwritten by A,B,C and D in the proportion of 2:2:1:1 respectively at the
maximum rate of commission permissible as per SEBI guidelines. The total subscription received were for 4,20,000
shares.
Prepare the statement showing the liability of the individual underwriter in each of the following alternative cases:
Case (d) If marked applications received were as under:
A 60,000, B 112000, C 68,000, D 120000
A, B,C and D also agreed on firm underwriting of 3,600, 2000, 1200 and 10000 shares respectively. The benefit of
firm underwriting is to be given to individual underwriter.

Statement showing the liability of underwriters

Underwriters A B C D Total
Gross liability(2:2:1:1) 1,60,000 1,60,000 80,000 80,000 4,80,000
Less: Marked applications (60,000) (112,000) (68000) (120000) (360,000)
Less: Unmarked applications(2:2:1:1) (20,000) (20,000) (10,000) (10,000) (60000)
Less: Firm underwriting (3600) (2000) (1200) (10000) (16800)
Balance 76400 26000 800 (60000) 43200
Credit for D’s surplus (2:2:1) (24000) (24000) (12000) 60000
Balance 52400 2000 (11200) - 43200
Credit for C’s surplus (2:2) (5600) (5600) 11200 -
Balance 46800 (3600) - - 43200
Credit for B’s surplus (3600) 3600 - -
Balance 43200 - - - 43200
Add: Firm Underwriting 3600 2000 1200 10000 16800
Total liability including firm underwriting 46800 2000 1200 10000 60000
 T Ltd made a public issue of 4,80,000 equity shares of ₹ 10 each, ₹ 5 payable on application and the balance on
allotment. The entire issue was underwritten by A,B,C and D in the proportion of 2:2:1:1 respectively at the
maximum rate of commission permissible as per SEBI guidelines. The total subscription received were for 4,20,000
shares.
Prepare the statement showing the liability of the individual underwriter in each of the following alternative cases:
Case (e) If marked applications received were as under:
A 60,000, B 112000, C 68,000, D 120000
A, B,C and D also agreed on firm underwriting of 3,600, 2000, 1200 and 10000 shares respectively. The benefit of
firm underwriting is not to be given to individual underwriter.

Statement showing the liability of underwriters

Underwriters A B C D Total
Gross liability(2:2:1:1) 1,60,000 1,60,000 80,000 80,000 4,80,000
Less: Marked applications (60,000) (112,000) (68000) (120000) (360,000)

Less: Unmarked applications(2:2:1:1) (20,000) (20,000) (10,000) (10,000) (60000)

Less: Firm underwriting(2:2:1:1) (5600) (5600) (2800) (2800) (16800)
Balance 74400 22400 (800) (52800) 43200
Credit for C & D’s surplus (2:2) (26800) (26800) 800 52800
Balance 47600 (4400) - - 43200
Credit for B’s surplus (4400) 4400 - -
Balance 43200 - - - 43200
Add: Firm Underwriting 3600 2000 1200 10000 16800
Total liability including firm underwriting 46800 2000 1200 10000 60000
 Statement showing the liability of underwriters
Underwriters Priyanka Preeti Prachi
Gross liability 30000 25,000 25,000
Less: Marked applications 15,000 20,000 20,000
Net liability 15,000 5,000 5,000
STATEMENT SHOWING THE NET
AMOUNT DUE FROM/TO
UNDERWRITERS
 ACCOUNTING ENTRIES
No Particulars Debit Credit

1. Application Money received towards firmUnderwriting

Bank A/c Dr.
To Underwriter’s Personal A/c

2. Underwriter’s Liability [Application +Allotment

money]
Dr.
Underwriter’s Personal A/c
To Equity Share Capital A/c
To Share premium A/c

3. Commission due
Underwriting Commission A/c Dr.
To Underwriter’s Personal A/c

4. Settlement of Account
(a) Receipt of money due from underwriters
Bank A/c Dr.
To Underwriter’s Personal A/c
(b) Payment to underwriters Dr.
Underwriter’s Personal A/c
To Bank A/c
UNDERWRITING COMMISSION
 K Ltd came out with an issue of 20,00,000 equity shares of ₹ 10 each at par. 5,00,000 shares were issued to the
promoters and the balance offered to the public was underwritten by three underwriters – Anand, Vijay and Ashok –
equally with firm underwriting of 50,000 shares each. Subscriptions totalled 12,97,000 shares including the marked
forms which were:
Anand – 425000 shares; Vijay -450000 shares and Ashok – 350000 shares. The underwriters had applied for the no
shares covered by firm underwriting . The amounts payable on application and allotment were ₹ 2.50 and ₹ 2
respectively. The agreed commission was 5%. Pass journal entries for (a) the allotment of shares to the
underwriters;(b) the commission due to each of them and (c) the net cash paid and/or received
Note: Unmarked applications are to be credited to the underwriters equally. Benefit of firm underwriting is not to be
given to individual underwriters

Statement showing the liability of underwriters

Underwriters Anand Vijay Prakash Total
Gross liability 5,00,000 5,00,000 5,00,000 15,00,000
Less: Marked applications excluding firm underwriting (4,25,000) (4,50,000) (3,50,000)
Less: Unmarked applications(1297000-1225000) + 150000; (74,000) (74,000) (74,000) (222000)
equally
Balance 1,000 (24,000) 76000
Credit for Vijay’s surplus (1:1) (12000) 24000 (12000)
Balance (11000) - 64000
Credit for Anand’s surplus 11000 - (11000)
Balance - - 53000
Add: Firm Underwriting 50000 50000 50000
Total liability including firm underwriting 50000 50000 103000 203000
K Ltd came out with an issue of 20,00,000 equity shares of ₹ 10 each at par. 5,00,000 shares were issued to the
promoters and the balance offered to the public was underwritten by three underwriters – Anand, Vijay and Ashok –
equally with firm underwriting of 50,000 shares each. Subscriptions totalled 12,97,000 shares including the marked
forms which were:
Anand – 425000 shares; Vijay -450000 shares and Ashok – 350000 shares. The underwriters had applied for the no
shares covered by firm underwriting . The amounts payable on application and allotment were ₹ 2.50 and ₹ 2
respectively. The agreed commission was 5%. Pass journal entries for (a) the allotment of shares to the
underwriters;(b) the commission due to each of them and (c) the net cash paid and/or received
Note: Unmarked applications are to be credited to the underwriters equally. Benefit of firm underwriting is not to be
given to individual underwriters

Particulars Anand Vijay Ashok

Total liability(no of shares to be subscribed) 50000 50000 103000

Amount payable@₹ 4.50 per share 225000 225000 463500

Amount paid on firm application (50000 shares
@₹ 2.50) (125000) (125000) (125000)
Balance payable by underwriters 100000 100000 338500
Underwriting commission@5% payable to
underwriters 250000 250000 250000

Amount payable by the company 150000 150000

Amount receivable by the company 88500
 K Ltd came out with an issue of 20,00,000 equity shares of ₹ 10 each at par. 5,00,000 shares were issued to the
promoters and the balance offered to the public was underwritten by three underwriters – Anand, Vijay and Ashok –
equally with firm underwriting of 50,000 shares each. Subscriptions totalled 12,97,000 shares including the marked
forms which were:
Anand – 425000 shares; Vijay -450000 shares and Ashok – 350000 shares. The underwriters had applied for the no
shares covered by firm underwriting . The amounts payable on application and allotment were ₹ 2.50 and ₹ 2
respectively. The agreed commission was 5%. Pass journal entries for (a) the allotment of shares to the
underwriters;(b) the commission due to each of them and (c) the net cash paid and/or received
Note: Unmarked applications are to be credited to the underwriters equally. Benefit of firm underwriting is not to be
given to individual underwriters

Dr. Cr.
` `
Bank A/c Dr. 3,75,000
To Share Application A/c 3,75,000
(Application money received on firm applications for 50,000 each @ ₹
2.50 per share from Anand, Vijay & Ashok)
Anand Dr. 1,00,000

Vijay Dr. 1,00,000

Ashok Dr. (50000*₹2 + 53000*₹4.50) 3,38,500

Share Application A/c Dr. 3,75,000
To Share Capital A/c 9,13,500
(Allotment of shares to underwriters 50,000 to Anand; 50,000 to Vijay and
1,03,000 to Ashok; application and allotment money credited to share
capital)
K Ltd came out with an issue of 20,00,000 equity shares of ₹ 10 each at par. 5,00,000 shares were issued to the
promoters and the balance offered to the public was underwritten by three underwriters – Anand, Vijay and Ashok –
equally with firm underwriting of 50,000 shares each. Subscriptions totalled 12,97,000 shares including the marked
forms which were:
Anand – 425000 shares; Vijay -450000 shares and Ashok – 350000 shares. The underwriters had applied for the no
shares covered by firm underwriting . The amounts payable on application and allotment were ₹ 2.50 and ₹ 2
respectively. The agreed commission was 5%. Pass journal entries for (a) the allotment of shares to the
underwriters;(b) the commission due to each of them and (c) the net cash paid and/or received
Note: Unmarked applications are to be credited to the underwriters equally. Benefit of firm underwriting is not to be
given to individual underwriters

Underwriting Commission A/c Dr. 7,50,000

To Anand 2,50,000
To Vijay 2,50,000
To Ashok 2,50,000
(Amount of underwriting commission payable to Anand, Vijay and Ashok @ 5% on
the amount of sharesunderwritten.)

Bank A/c Dr. 88,500

To Ashok 88,500
(Amount received from Ashok on shares allotted lessunderwriting commission)

Anand Dr. 1,50,000

Vijay Dr. 1,50,000

To Bank A/c
(Amount paid to Anand & Vijay in final settlement of underwriting commission due less
amount payable on shares allotted payable to him.)