Underwriting help

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.

Ok . . .