Underwriting of Shares
Question No. 1 (Partial Underwriting)
A Company issued 100,000 shares of $100 each. These shares were underwritten as follows:
X—-30,000 shares and Y—– 50,000 shares.
The public applied for 70,000 shares. Determine the liability of X, Y and the Company.
Answer
Marked applications are not given in the problem. Therefore, applications be credited to underwriters including the Company on the basis of gross liability. The Company itself to be treated as an underwriter for 20,000 shares.
Statement showing Individual Underwriters’ Liability
Alternatively:
Question No. 2 (Full underwriting)
A Company incorporated on 1st January, 2019 issued a prospectus inviting applications for 500,000 Equity Shares of $10 each.
The whole issued was fully underwritten by four persons:
A ———- 200,000 shares
B ——— 150,000 shares
C ——— 100,000 shares
D ——— 50,000 shares
Applications were received for 450,000 shares of which marked applications were as follows:
A —— 220,000;
B —— 90,000;
C —— 110,000;
D —— 10,000
Find out the liabilities of individual underwriters.
Answer
Note: When the entire issue is underwritten by a single underwriter, there is no necessity to distinguish between marked and unmarked applications and the liability for the underwriter would be 50,000 shares.
Question No. 3 (Firm Underwriting)
John Limited issued 10,000 shares of $100 each. The entire issue was underwritten as follows:
A—-50%; B—–30%; C—–20%;
In addition, there was firm underwriting as follows:
A—-1,000 shares;
B—-750 shares;
C—-500 shares
The total subscription including firm underwriting was 8,000 shares and the subscription included the following marked applications:
A—–1,500
B—–2,000
C—–750
Find the liability of underwriters.
Answer
Question No. 4
The following underwriting takes place:
A—-5,000 shares
B—-3,000 shares
C—-2,000 shares
In addition there is firm underwriting:
A—-1,000 shares
B—-500 shares
C—-1,500 shares
The shares issue is 10,000 shares. Tortal subscription including firm underwriting was 8,500 shares and the forms included the following marked forms:
A—2,000 shares; B—-1,000 shares and C—-1,000 shares.
Show the allocation of liability of the underwriters.
Answer:
Question No. 4
A Company issued a prospectus inviting applications for 20,000 Equity Shares of $100 each. The whole issue was fully underwritten by three underwriters as follows:
A—-10,000 shares
B—-7,000 shares
C—-3,000 shares
Applications were received for 16,000 shares of which marked applications were as follows:
A—-7,600 shares
B—-4,040 shares
C—-3,360 shares
Show how the liability of the underwriting it to be completed.
Answer:
