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CMA Intermediate · Corporate Accounting and Auditing · Underwriting of Securities

Kaveri Ltd offered 1,00,000 shares of Rs 10 each at par. A underwrote the entire issue. Public applications were for 70,000 shares, all unmarked. Commission is 3% on the issue price of shares underwritten. What is the net amount A pays to the company on the shares taken up, after setting off commission?

A pays Rs 2,70,000. A takes up the 30,000 unsubscribed shares worth Rs 3,00,000, and the commission of 3% on the full Rs 10,00,000 underwritten, Rs 30,000, is set off against this amount, leaving a net payment of Rs 2,70,000.

  1. ARs 2,70,000Correct
  2. BRs 3,00,000
  3. CRs 3,30,000
  4. DRs 2,10,000

Explanation

A takes up 1,00,000 - 70,000 = 30,000 shares, costing Rs 3,00,000. Commission is 3% x Rs 10,00,000 = Rs 30,000. Net payment is Rs 3,00,000 - Rs 30,000 = Rs 2,70,000. Rs 3,30,000 adds the commission instead of deducting it.

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