Illustration 2.2
Model: Issue of both shares and debentures underwritten by one underwriter Veer Ltd. issued 5,000 equity shares of 100 each and 5,000 10% debentures of 100 each. The debentures were issued at a discount of 8%. The whole of the issue was underwritten by M/s Durai & Co. for a commission of 2.5% on the issue price of shares and 2.5% on the issue price of debentures. The public applied for 4,500 equity shares and 4,200 debentures. These were immediately paid for. The underwriters fulfilled their obligations. You are required to prepare journal ledger accounts and show the balance sheet of Veer Ltd.
Solution:
NOTE: The issue of debentures has been discussed in detail in the chapter “Issue and Redemption of Debentures”. Students may refer it for clear understanding.
(i) For debentures subscribed by the public:
Number of debentures subscribed = 4,200
Value = 4,200 × 100 = 4,20,000 Discount @ 8% = 8% on 4,20,000
= 33,600 ∴ Payment received = 4,20,000 – 33,600 = 3,86,400
(ii) Number of debentures not applied for by the public:
(5,000 – 4,200) = 800 debentures
Value = 800 × 100 = 80,000
Discount @8% = 6,400
∴ Underwriter’s A/c = (80,000 – 6,400) = 73,600
(iii) Commission on debentures:
Issue value of debentures = (Face value – Discount)
= (5,00,000 – 8% on 5,00,000) = 5,00,000 – 40,000 = 4,60,000
Commission @ 2 _1 2 % on debentures = ` 4,60,000 × 5
2 × 100 = 11,500
(iv) For shares, the calculation is similar to that of Illustration 2.1
Reference: Pearson Book