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Underwriting help
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Issue Value = 25,000*10 = 2,50,000
Commission = 2,50,000*10/100 = 25,000
75 % in terms of shares = 25,000 * 75/100 = 18,750 , Cash Payment = 25,000 - 18,750 = 6,250
However the maximum commission payable is 5 % i.e 25,000*5/100 = 1,250
Therefore commission in terms of shares = 1,250 * 75/100 = 937.50 , Cash Payment = 312.50
Total subscripttion by the underwriter = 25,000*40/100 + 3,000 = 10,000 + 3,000 = 13,000 shares
In the books of company, you will pass following journal entries.
1. When company gets money from public for selling shares under the contract of underwriting.
Bank account Dr.
Share capital Account Cr.
2. When underwriter takes the liability of unsold shares
Underwriter's account Dr.
Share Capital Account Cr.
3. When underwriting commission will due
Underwriting Commission Account Dr.
Underwriter's Account Cr.
4. When Underwriter deduct his commission and send net amount of takeover shares
Bank Account Dr.
Underwriter Account ( Total receivable amount on takeover shares by underwriter - Underwriter's commission) Cr.
1. When company gets money from public for selling shares under the contract of underwriting.
Bank account Dr.
Share capital Account Cr.
2. When underwriter takes the liability of unsold shares
Underwriter's account Dr.
Share Capital Account Cr.
3. When underwriting commission will due
Underwriting Commission Account Dr.
Underwriter's Account Cr.
4. When Underwriter deduct his commission and send net amount of takeover shares
Bank Account Dr.
Underwriter Account ( Total receivable amount on takeover shares by underwriter - Underwriter's commission) Cr.
Ok . . .
sir where is underwriting defined under law ?? any act any notification ???
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