CHAPTER -1 UNDER WRITING OF SHARES MEANIN :- underwriting of shares or debentures. an agreement entered into by a company with ‘one or more persons or institutions, called underwriter who undertake to take up the whole or a Certain portion of such of the offered shares as are not subscribed for by the public in consideration of acertain remuneration called underwriting commission. Underwriting is a contract between a company and underwriters, whereby in the event of shares not being subscribed by the public, the underwriters agree to take up the balance. UNDERWRITER:- underwriters are those who undertake } underwrite the shares or debentures issued by companies. UNDERWRITING COMMISSION:- The consideration payable tothe underwriters by a company for underwriting the shares is called underwriting commission, \ . The rate of commission must not exceed, 5% ofthe issue price the Pee Awhich the shares are issued)OR the amount of rate authorised by the articles, Whichever is less) HoweveRSEBL has allowed underwriting commission at the rate of 2.5% of issue pric@of shares. NOTE: the commissions adjusted againstthBami@unt due bythe > to the company on the shares required to be taken up by them. TYPES OF UNDERWRITING X 1, COMPLETE UNDERWRITING (5) yg 2, PARTIAL UNDERWRITING (5) 3, FIRM UNDERWRITING (\S¢") COPMLETE UNDERWRITING:= complete underwriting is an arrangement under which the whole of the issue shares of a company is Underwitth by the underwriter I the entire issbe of shares complete underwriting. Underwritten by one or more underwriters then it is called as a Ifthe underwriting is ‘more than one underwriter then the gross liability is based on the agreed ratio... The net liability of each underwriter in such a case is calculated as under Gross liability according to the agreed ratio Less unmarked applications in the ratio of gross liability Balance Less marked applications Net liabiliPARTIAL UNDERWRITING: a partial underwriting is one in which a part ofthe issue of shares is underwritten by one underwriter or a no of underwriters. in such a case the balance of the issue is considered to the underwritten by the company itself FIRM UNDERWRITING:- when an underwriters agrees to buy a definite number of shares in addition to the shares underwritten by him its called firm underwriting In sucha case.t the underwriters get priority over the general publicif shares are over ~subscribed. 2, the underwriter are committed to take up the agreed number of shares in addition to the liability they assume under pure underwriting, Pure underwriting, is the one in which underwriter takes up the shares Which are not subscribed by the public Jit is calculated as under. Gross liability sees Less: unmarked application seed Balance ase Less marked applications “Se Net liability Add firm underwriting Total liability as MARKED AND UNMARKED APPLICATION MARKED APPLICATION When the sharés are underwritten by more than one underwrite the forms are stamped with the ‘name of the underwriters in order to distinguish the forms of one underwriter from that of other. Such applications thatibear the stamp of the underwriters are called marked application. UNMARKED APPLICATION ‘Those applications forms which are received by the company without any name of the underwriter are called unmarked applications.PROBLEMS Problems on complete underwriting PROBLEM- e ee et Vanes ey ssued 100000 equity shares the whole of he issue was underwritten 3s, lows: » ¥-30%, Z-30%. The application for 80,000 shares were received out of which 20,000 shares had the stam P Of X those for 10, omy une, 10,000 shares that of Y and 20,000 shares that of Z. show the Papatec (2005) A company issued 19/00,000 shares of Rs 10each. The whole issue was_ enwritten by A,B,C and D as follows:A-40,000, B-30,000,C-10,000 and D-20,000.the company had received applications for 90,000 shares of which marked applications were as follows: A-44,000,8- 22,000,C-2000,D-18,000. Determine the liability of each underwriter. PROBLEM-3 [2001]Y Co.Ltd was incorporated on 1" jan 2016\itissued shares inviting the applications for 5 lakhs shares of RS 10 each. ‘The whole issue was fully underwritten by A,B,C, as follows: :2,00,000, B:1,50,000, C:1,00,000 ,0:50,000 Applications were received for 4,50,000 andifatked applications were a folows :2,20,000, B:1,10,000,¢-90,000,0:10,000,_ You ate required to find out ables Of undenites. PROBLEM-4 [2007]. Ramya Ltd issued 50,000 equity shares of Rs100 each which were underwritten as follows; savitha-20000 shar@pgeetha -15,000 shares, chetha-10,000 shares and mamtha-5000 shares.:the company received applications for 44000 shares of which marked forms ‘were as under .savitha-24000 shares, geetha-8.000 shares, chetha-6000 shares, and mamtha-3000 shares .determine the liability of each underriter. PROBLEM-5 Creative itd made a public issue of 40,000 shares of Rs 10 each, the entire issue was underwritten as follows; A-25%,B-15% ,C-10%,D-30% and E-20% applications bearing the stamp of the underwriters are as flows: A-5500 shafes.b-+100 shares, C-3700 shares, D-3200 shares and E- 3400 shares, Appicatons that are received Rol bearing any stamp 12000. Calculate the labilly of individual underyriter. PROBLEM-<6 [C.A]\geetha Lid incorporated on 1™ Jan 2015 issued a prospectus invitaing applications for 20, 000\equity shares of RS 10 each .the whole issue was fully underwritten by A.B and C as follows. ‘A-10,000 shares ,B-6,000 shares, C-4000 shares. Applications were received for 16,000 shares, marked applications were as follows: A-8000 shares, 2S shares, ©4150 shores you are required to find out the liabiltes of the individual underwriters. PROBLEM.-7 [Tumkur University] A company issued a prospectus inviting applications for 3,50,000 equity shares of Rs 10 each. The whole issue was fully underwritten by A,B and C as follows: ‘A-1,40,000 shares, -1,05,000 shares, C-70,000 shares and D-35,000 shares. Applications were received for 3,15,000 shares of which marked applications were ‘A-1,54,000 shares,B-77,000 shares, C-63,000 shares and-D-7000 shares calculate the liability of underwriters.PROBLEMS ON PARTIAL UNDERWRITING PROBLEMS ON PARTIAL UNDERWRITING PROBLEMS X Itd issued 20,000 shares of Rs 10 each. the issue was underwritten as follows: %-30%, Y-30%, Z-20% However the company received applications for 16,000 shares only. calculate the liability of underwriter and company. PROBLEML9 R company issued 1,00.000 shares of Rs 10 each. These shares were underwritten as, {cllows X-30,000 shares , Y-50,000 shares. The public applied for 70,000 shares determine the liability of X and Y. 0 PROBLEM -10 Aishwarya Ltd issued 10,000 shares of Rad each at a premium of 10%. these shares ‘were underwritten by J&K to the extent of 5,000 shares &3000 shares respectively. Total applications received by the company 8,000 of which marked applications were: J4200 &K-0300 PROBLEM-11 [2008] Manasa Ltd issued 20,000 equity shares of R8,100 each the issue was underwritten as follows. 4-30%,B-30% and C-20% .applications for 15000 shares wele received by the compariyinall determine the liability of underwriter. PROBLEM-12 Z Ltd issued 20,000 shares6f RS JO.each.the public subscription issue was underwritten: A:25%,B;-30%, C-.25% ‘Company received a total of 14,000 applications of which marked applications were as follows: ‘A-4,000,B-3,000,C-4,000 calculate liabilities of the linderwriters. PROBLEM-13 [2006] Deepak pande Ltd issued 80,000 Shares of Rs 10each at a premium of 20%.Mr ‘A.underwriters 80% Of the issue the company receives applications for 75% of the issue of which 40000 applications bear the rubber stamp of Mr.A. underwriting commission is 4% of the issue price determine the liability of Mr,A caléulate the Underwriting commission PROBLEM-14 [2010] WYZ'¢0 ltd issued 20,000 shares of rs 10each ,these shares were undervatg as follows’ X -10,000 shares, ¥-61000 sharesa The public applied for 16,000 shares which included © Kec marked applications as follows. X-2400 and ¥"-600 shares prepare a statement of underwriters liability PROBLEM-15 [2007] A company issued 40,000 shares of rs 10each for public subscription. UNDERWRITER | Nojof shares under written Marked applications P 25% of shares, ‘5000 shares a 30% of shares, ‘6000 shares: R 40% of issues ‘4000 shares ‘The company received applications for 30,000 shares ascertain the net [abily of each ofthe , undermine Ag. ML RISA Qala rece Coapaty = Tota PROBLEM-16 [Tumkur university] Anjali Co.Ltd issued 60,000 shares of rs 10each.these shares were underwritten as follows .Siddu 30,000 and Ganga 18000 shares .the public applied for 48,000 ‘shares which included marked appliucations as follows , siddu 7,200 and Ganga 1800 shares. Prepare a statement of underwmiters labily., flys yy) 5-595, O. L075 Grpiny 0PROBLEMS ON FIRM UNDERWRITTEN PROBLEM-17 [2000] B com pany issued 30,000 shares of rs 10 each .these shares were underwritten as follows X-18, ,000 shares, Y-7,500 shares, Z-4,500 shares. fal ony Tisafeg UN | addition there was a firm underwriting as follows; X-2,400 shares, Y-900 shares, Z-3,000 shares x2 Tho, Y= 4 The total subscription received by the company ( excluding firm underwriting and marked applications) were 4,500 shares. Marked applications X-3,000, Y-6,000, 2-1500 .determine the liability of the underwriters. PROBLEM. 18 [2011] C Apoorva Ltd ,issued 5,00,000 equity shares Ofts 10 each at a premium of 20% .the sale of the issue is underwritten by Apoorva , Bhumika, and Chaitra as under ‘Apoorva -2,50,000 shares(F/ underwriting 25,000 shares) Bhumika-2,50,000 shares(tiunderwriting 15,000 shares) Chaitra-1,00,000 shares(tiunderwriting 10,000 shares) The underwriting commission is 5% on the isSUeiprice and the company agreed tO)treat firm underwriting applications as marked forms. The company received applications for 4,00,000 equity shares ( excluding firm underwriting) of which marked forms were’as Under Apoorva-1,15,000 shares, Bhumika-1,25,000 shares, Chaitra-1,30,000 shares. You r required to show. x 41, Net liability of underiters in terms)of number of shares 2, Commission due to each underwriters 3, Net amountdue from ea@h heerwriter to theespany PROBLEM-19 [2008] Bangalore)Ltd issued 1,00,000 equity shares of R's 100 each. At a premium of Rs 5 per share. The entire issue wa underwritten for a consideration of commission at 21/2% as follows; oo P-40,000 shares( F/underwriting4,000 shares) { -30,000 shares(F/underwriting 3,000 shares) a a Teak Veils, sets 2 ae Ry R-20,000 shares(F/underwnting 2,000 shares) 3 2 30m '$-10,000 shares( F/ underwriting 3,000 shares) wy 2400? a . The total applications excluding firm underwriting-but including marked forms were for 60,000 shares ‘of which marked applications were as follows.... P-10,000 shares, Q-6,000 shares, R-8,000 shares and S -16,000 shares. Determine the liability of underwriters and also the commission payable by the company. PROBLEM-20[2009] A company issued 30,000 shares of Rs 10each. These shares were underwritten as follows; X-18,000 shares, Y-7,500 shares,Z-4,500 shares’. In addition there was affirm underwriting as follows: X-2,400 shares, Y-900 shares, and Z-3,000 shares. 7 —— llTotal subscriptions received by the company ( excluding firm underwriting and marked applications) were 4,500 shares. Marked applications wereX-3000 shares, Y-6000 shares and Z-1,500 shares determine the liability of underwriters. PROBLEM-21 [2006] Suma Ltd issued 2,50,000 shares of Rs 10 each which was underwritten as follows, A-75,000 shares (fim underwriting 8000 shares) B-62,00 shares( firm underwriting 12,000 shares) -62,500 shares( firm underwriting Nil) -50,000 shares( firm underwriting 30,000 shares) @ The total application excluding firm underwriting but including ote es were 1,80,000 shares. Marked applications were, A-40,000, 8-36,000, C-24,0003D-48,000 Calculate the liability ..1, Fim underwriting as marked applications Din underwriting as unmarked applications. 2 PROBLEM.22B [2001] X td, has authorised capital of Rs/25,00,000 di dividend) into 50, 000 uty shares of Rs 50each the entire issue was underwritten as follows X-30,000 shares‘ firm underwriting 5,000’shares) Y-15,000 shares( firm underwriting:2\000 shares) Z- 5,000 shares( firm underwriting 1,000 shares) outof total the issu Was 45,000 shares including firm underwriting were subscribed, the following were marked application. X-16,000 ,Y-10,000, 2°4,000 calculate th lability of each Underwriter PROBELM-23B [2000] Ragini Ltd ,a new company went in public issue of 1,00,000 shares of Rs 100 each .the entire shares issued was underwriten by gp ‘and C follows, ay ‘60,000 shares, BL90,000 shares, C-20,000 shares, in ad follows, e ion there was firm underwriting as ‘A-10,000 shates, B-7,500 shares, C-7,500 shares .the total subscription includes firm underwriting 80,000 shares which includes marked application as follows. A-15,000, B-20.000 ,C-7,500. PROBLEM-24 (2000 inodaya Ltd issued 2,00,000 shares of Rs 10each .the entire issue was underwritten as me ‘Arun-1,00,000 shares( firm underwriting 20,000 shares) Bharat-60,000 shares( firm underwriting 10,000 shares) and Uday 40,000 shares( firm underwriting 10,000 shares) shares applied for were 1,80,000 the following being the marked forms including firm underwriting which are also regarded as marked forms.Arun70,000 shares,bharat28,000 shares & Uday32,000 shares calculate the liability of each underwriter...