CMA Intermediate · Corporate Accounting and Auditing · Underwriting of Securities
Meru Ltd issued 50,000 debentures of Rs 100 each, fully underwritten, and the public subscribed 45,000 debentures. Underwriting commission is 2% of the issue price of the debentures underwritten. What is the total commission payable?
The commission is Rs 1,00,000. It is charged at 2% on the full amount underwritten, Rs 50,00,000, regardless of how many debentures the public actually subscribed. Using only the Rs 45,00,000 subscribed would give Rs 90,000, which is wrong.
- ARs 90,000
- BRs 1,00,000Correct
- CRs 10,000
- DRs 1,10,000
Explanation
Commission is on the amount underwritten: 50,000 x Rs 100 = Rs 50,00,000; 2% gives Rs 1,00,000. Rs 90,000 wrongly uses only the public-subscribed 45,000 debentures (Rs 45,00,000 x 2%).
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