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CMA Intermediate · Corporate Accounting and Auditing · Underwriting of Securities

Surya Ltd offers 1,00,000 equity shares of Rs 10 each at par. The entire issue is underwritten by A (60,000 shares) and B (40,000 shares), with no firm underwriting. Applications received total 80,000 shares, of which marked applications are A: 30,000 and B: 20,000, and the balance 30,000 are unmarked. Using the standard method, how many shares must A take up?

A must take up 12,000 shares. A's liability of 60,000 is reduced by 30,000 marked applications and by 18,000 unmarked applications, which are shared 3:2. B takes up 8,000, and together they take up the 20,000 shares the public did not subscribe.

  1. A12,000Correct
  2. B18,000
  3. C6,000
  4. D30,000

Explanation

Gross liability: A 60,000, B 40,000. Less marked applications: A 30,000 and B 20,000. Unmarked 30,000 are shared in the ratio 3:2 giving A 18,000 and B 12,000. A: 60,000 - 30,000 - 18,000 = 12,000. B: 40,000 - 20,000 - 12,000 = 8,000. Total taken up = 20,000, matching 1,00,000 - 80,000. The distractor 18,000 is A's share of unmarked applications only.

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