CMA Intermediate · Corporate Accounting and Auditing · Underwriting of Securities
Sagar Ltd issued 1,00,000 equity shares of ₹10 each at par and the issue was fully underwritten by one underwriter for commission of 3% on the issue price. Applications were received for the full issue, all on forms marked with the underwriter's stamp. Commission payable is:
Commission is ₹30,000, being 3% of the total underwritten issue of ₹10,00,000. Underwriting commission is earned on the entire amount underwritten, irrespective of whether the underwriter has to take up any shares.
- A₹30,000Correct
- B₹15,000
- C₹3,000
- DNil, since no shares were taken up by the underwriter
Explanation
Commission is payable on the total issue underwritten, whether or not the underwriter subscribes for any shares. Issue = 1,00,000 × 10 = ₹10,00,000; 3% = ₹30,000. Option 4 wrongly links commission to shares actually taken up.
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