FINANCIAL ACCOUNTING V

UNIT III – UNDERWRITING OF SHARES AND DEBENTURES

Meaning 
Underwriter
Underwriting Commission: The maximum rate of commission shall not exceed 5% of issue
price in case of shares and 2.5% in case of debenture.
Types of underwriting 
1. Open or Conditional underwriting
2. Firm underwriting
3. Full underwriting
4. Partial underwriting
5. Sole underwriting
6. Joint underwriting
Mark and unmarked application 
Liabilities of underwriters
1. Gross Liabilities: It is a contract by each contractor to sell a specified number of
shares to the public. The underwriting commission is calculated on the basis of the
gross liabilities of each underwriter -irrespective of whether shares are subscribed to
the public or whether the underwriters have remaining shares.
2. Net Liability: This refers to the number of shares to be taken by each underwriter
when the public has not subscribed to the same. Firm applications are added to the
net liability of each underwriter.

Liability of underwriters  

Particulars Basis A B C Total 

A. Gross Liability (GL)  Agreed ratio ** ** ** **

B. Less marked application  Actual  (**) (**) (**) (**)

C. Balance ** ** ** **
GL
D. Less unmarked application  (**) (**) (**) (**)
 E. Balance ** ** ** **

Actual/GL 
F. Less firm underwriting  (**) (**) (**) (**)
G. Balance  ** ** ** **
Less Credit adjusted  (**) (**) (**) (**)
H. Net Liability ** ** ** **
I. Add firm underwriting  Actual 
** ** ** **

Total Liability ** ** ** **

Firm Underwriting
P- 1
Z Ltd issued 80,000 Equity shares of Rs 10 each which were underwritten as follows:
Alpha – 48,000 equity shares
Beta – 20,000 equity shares
Gamma – 12,000 equity shares
The above-mentioned underwriters made applications for firm underwriting as follows: 
Alpha –6,400 equity shares
Beta – 8,000 equity shares
Gamma – 2,400 equity shares
The total applications excluding firm underwriting but including marked applications were
for 40,000 equity shares. The marked applications were as follows:
Alpha –8,000 equity shares
Beta – 10,000 equity shares
Gamma – 4,000 equity shares
I. Calculate the liability of underwriters

P- 2
Earth Ltd issued 2,00,000 Equity shares of Rs 10 each which were underwritten as follows:
A – 1,20,000 equity shares
B – 50,000 equity shares
C – 30,000 equity shares
The above-mentioned underwriters made applications for firm underwriting as follows: 
A –16,000 equity shares
B –20,000 equity shares
C– 6,000 equity shares
The total applications excluding firm underwriting but including marked applications were
for 1,00,000 equity shares. 
The marked applications were as follows:
A –20,000 equity shares
B – 25,000 equity shares
C – 10,000 equity shares
I. Calculate the liability of underwriters

Firm underwriting & underwriting commission

P- 3
T Ltd issued 45,000 equity shares of Rs 10 each at a premium of Rs 2 per share. The
promoters took 20% of the issue and balance was offered to the public for subscription. The
issue was underwritten by X, Y and Z equally.
Each underwriter took firm underwriting of 1,000 equity shares. Subscription were received
for 31,000 equity shares with marked applications as follows:
X – 7,250 shares
Y- 8,400 shares
Z- 1,310 shares
The underwriter is eligible for a commission of 5 % on the issue price of shares. The entire
amount towards share subscription has to be paid along with application.
I. Calculate the liability of underwriters and compute the amount payable or due to
underwriters

P- 4
A Ltd issued 20,00,000 equity shares of Rs 10 each at par. 5,00,000 equity shares were issued
to the promoters and the balance were offered to the public for subscription and was
underwritten by Earth Ltd, Mars Ltd and Jupiter Ltd equally.
Excluding firm underwriting of 50,000 equity shares each, total subscription received
12,97,000 of which marked applications were as follows:
Earth Ltd – 4,25,000 shares
Mars Ltd – 4,50,000 shares
Jupiter Ltd – 3,50,000 shares
Each of the underwriters had applied for the number of shares covered by form underwriting.
The amount payable on application were Rs 2.50 and Rs 2 respectively. The agreed
commission was 5%.
I. Calculate the liability of underwriters
II. Compute the amount payable or due to underwriters

Firm underwriting and Journal entries

P- 5
Zenith Ltd had issued 12,50,000 equity shares of Rs 10 each at a premium of Rs 2 per share
which was underwritten as follows. Underwriters are entitled to get 5% commission on face
value.
A – 40%
B - 30%
C – 20%
D – 10%
Company received applications for 9,00,000 equity shares including marked applications as
below:
A – 2,85,000
B – 3,00,000
C – 1,10,000
D – 1,05,000
 I. Calculate the liability of the underwriters and show journal entries in the books of
Zenith Ltd

P- 6
Roshan Ltd has an authorised capital of 2,00,000 equity shares of Rs 10 each. The company
had issued 80% shares to the public for subscription at a premium of Re 1 per share. 
The issue was underwritten by 
A – 15%
B – 25%
C – 60%
Firm underwriting was for total 40,000 equity shares which was shared as under:
A – 20%
B – 50%
C – 30%
The company received applications for 1,00,000 equity shares which included marked
applications except firm underwriting. Marked applications were as follows:
A – 8,000 equity shares
B – 16,000 equity shares
C- 20,000 equity shares
As per the underwriting contract, underwriter will get credit for firm underwriting. The
underwriting commission to be given @ 5%
I. Calculate the liability of the underwriter
II. Show Journal entries in the books of Roshan Ltd

P-7. A company issued 1,50,000 shares of Rs. 10 each at a premium of Rs. 10. The entire
issue was underwritten as follows:
X- 90,000 shares (Firm underwriting 12,000 shares)
Y – 37,500 shares (Firm underwriting 4,500 shares)
Z- 22,500 shares (Firm underwriting 15,000 shares) Total subscription received by the
company (excluding firm underwriting and marked application s) were 22,500 shares.
The marked applications (excluding firm underwriting) were as follows:
X- 15,000 shares: Y- 30,000 shares: Z – 7,500 shares. 
Commission payable to underwriters is at 5% of the issue price. The underwriting contract
provides that credit for unmarked applications be given to the underwriters in proportion to
the shares underwritten and benefit of firm underwriting is to be given to individual
underwriters. 
i. Determine the liability of each underwriter (number of shares)
ii. Compute the amounts payable payable or due from underwriters: and 
iii. Pass Journal entries in the books of the company relating to underwriting.

P- 8
Sonam Ltd issued 90,000 equity shares of Rs 10 each. The following underwriters have taken
the responsibility:
X – 45,000 equity shares
Y – 30,000 equity shares
Z – 15,000 equity shares
They also have agreed for firm underwriting as follows:
X – 7,500 equity shares
Y – 4,500 equity shares
Z – 4,500 equity shares
The company received applications for 60,000 shares which does not include firm
underwriting. Out of which marked applications were for 45,000 shares
X – 18,000 shares
Y – 15,000 shares
Z – 12,000 shares
I. Calculate the liability of the underwriter assuming no credit is given for firm
underwriting
II. Calculate the liability of the underwriter assuming credit is given for firm
underwriting
III. Show Journal entries in the books of Sonam Ltd assuming 5% underwriting
commission to be paid to underwriters

P-9
M Ltd bought out a public issue of 1,00,000 equity shares of Rs 10 each. The entire
issue was underwritten by five underwriters as follows:
A -25%
B- 15%
C – 10%
D – 30%s
E – 20%
Applications bearing the seal of the underwriters are to be applied in the relief of
liability.
The following applications were received:
13,750 shares bearing the seal of A
10,250 shares bearing seal of B
9,250 shares bearing the seal of C
8,250 shares bearing the seal of D
8,500 shares bearing the seal of E
30,000 shares had no seal of the underwriters
Unmarked applications are to be distributed amongst the underwriters in the ratio of
their gross liability.
Calculate the liability of individual underwriters

UNIT V – LIQUIDATION OF COMPANIES

Meaning – Liquidation is the legal procedure by which the company comes to an end . 
Winding up is a means to dissolve a company and realize and use its assets in the payment of
its debt. Winding up is the starting process of liquidation. End result of winding up is
dissolution. 
Modes of Winding Up:
Compulsory winding up -Winding up by Tribunal Sec 271
Circumstances when  company goes into compulsory winding up :
a. Company itself wants to be liquidated by Tribunal.
b. Company is acting  against National interests
c. Company has conducted fraudulent activities
d. Default in filing financial Statement(FS) / Annual Return (AR) – immediately
preceding 5  consecutive years.
e. Winding up on Just and Equitable grounds in the opinion of Tribunal 

Petition  Sec 272

Petition for winding up to Tribunal can be made by:
1. The company 
2. Contributory
3. Registrar
4. Person authorized by Central or State government.

Statement of Affairs :Sec 274 (Only theory to be studied)

In case of winding up by Tribunal , Sec.272(5) of the companies Act 2013 provides that a
petition presented by the company for winding up before the Tribunal shall be admitted only
if accompanied by a statement of affairs in such a form and in manner as may be prescribed .
The company’s directors must prepare the Statement of Affairs or provide the liquidator with
all the information they need to prepare the report. As such it must contain certain
information, Details of the assets and liabilities of the company;
 Details of the assets and liabilities of the company;
 Details of the company’s creditors and their contact details; and
 Any security held over the company’s assets by its creditors and details of such
securities.
 Statement of affairs should accompany 8 list:
 List A : Full particulars of every property not specifically pledged and included in
other list .
List B: Assets fully pledged and Crditors fully or partly secured
List C : Preferential creditors for rates and taxes , salaries , wages 
List D: List of debenture holders secured by a floating charge.
List E : Unsecured Creditors
List F: List of Preference shareholders
List G List of Equity shareholders 
List H: Deficiency/Surplus Account.
 
 
Overriding Preferential Payments: Sec 326

In winding up of company the following debts should be in priority to other debts:

1. All wages , salary or any compensation payable to any workman under
the provisions of the Industrial disputes Act.
2. All accrued holiday remuneration (leave salary) payable to any
workman .
3. Any compensation or liability payable to a workman under the
Workmen’s Compensation Act, 1923 in respect of death or disability
of the workman.
4. All sums payable to a workman from a provident fund, pension fund,
gratuity fund or any fund maintained by the company for the welfare of
the workmen. 
In the event of winding up of the company, the workmen’s dues and
secured creditors shall be paid fully in priority to all debts. In case the assets
are insufficient to meet them, then they shall be compensated in equal
proportions. 
Preferential Creditors:
In a  winding up  Preferential creditors should be paid in priority to all other debts subject to
the provisions of section 326. Preferential Creditors are as follows:
1. Government taxes with  12 months before the commencement of winding up.
2. All wages and salary of any employees due for the period not exceeding 4 months
within the 12 months before the commencement of winding up, provided the dues
payable to one claimant does not exceed Rs. 20,000. 
3. All holiday remuneration becoming payable to any employee on account of winding
up.
4. All contributions payable during 12 months next under the ESI Act 1948, or any other
law for the time being in force. 
5. Any compensation or liability payable to a workman under the Workmen’s
Compensation Act, 1923.
6. All sums payable to a workman from a provident fund, pension fund, gratuity fund or
any fund maintained by the company for the welfare of the workmen. 
Liquidators’ Final statement of Account-
In case of compulsory winding up the company liquidator has to prepare a statement showing
summary of Receipts and Payments known as the Liquidators’ Final statement of Account. 
Format of Liquidators’ Final Statement of Accounts

Receipts Amt Amt Payments Amt Amt

To assets realized: By Legal Expenses **
   Cash in hand *** By Liquidation Expenses **
   Cash at bank *** By Liquidator’s remuneration  **
   Current Assets *** By Debenture holders
   Loans and  Advances *** By Creditors: **
   Fixed Assets ***   Preferential 
To Surplus from     Unsecured  **
Securities: By Preference shareholders    **
Amt realized : ***        Capital :
Less Secured Creditors ***        Unpaid dividend **
*** **
By Equity shareholders a/c (Return to
To unpaid call received  *** contributories) **
*
To Equity shareholder
(received from
contributories)
Total  ** Total  **

P1
The Balance sheet of Notsowell Co td as on 31st December ,2019 was as follows:
Liabilities Rs. Assets         Rs
Share Capital : Land and buildings 25,000
8,000 , Preference shares of Rs. 10 80,000 Other fixed Assets 2,00,000
each Stock  5,25,000
12,000 Equity shares of Rs. 10 each 1,20,000 Debtors 1,00,000
Bank Loan Profit and Loss a/c 58,000
8% Debentures 4,00,000
Interest Outstanding on Debentures 1,00,000
Creditors
8,000
2,00,000

9,08,000 9,08,000
The company went into liquidation on that date. Prepare the Liquidator’s Statement of
Account after taking into account the following:
1. Liquidation expenses and liquidator’s remuneration amounted to Rs. 3,000 and Rs.
10,000 respectively 
2. Bank loan was secured by pledge of stock.
3. Debentures and interest thereon are secured by a floating charges on all assets. Fixed
assets were realized at book value and current assets 80% of the book value. 
P2
The following are the balances of Z Ltd which is in the hands of the liquidator
Liabilities Rs
1,000 6% Preference shares of Rs 100 each 1,00,000
2,000 Equity shares of Rs 100 each fully paid 2,00,0000
2,0000 Equity shares of Rs 100 each Rs 75 paid up 1,50,0000
Loan from bank ( secured on stock) 1,00,000
Creditors 3,50,000
9,00,000
Assets
Fixed assets 2,00,000
Stock 1,20,000
Receivables 2,40,000
Cash 40,000
Profit & Loss A/c 3,00,000
9,00,000
a. Calls on partly paid shares were made but the amount due on 200 shares were found
irrecoverable
b. The assets realized the following
Fixed assets Rs 1,68,000
Stock Rs 1,10,000
Receivables Rs 2,30,000
c. Cost of liquidation Rs 5,000

Prepare Liquidator’s Final Statement of Account

P3
The summarized Balance sheet of Full stop Limited as on 31st March 2019, being the date of
winding up is as under:
Liabilities Rs
5,000 Equity shares of Rs 100 each Rs. 60 per share called and  paid up 3,00,000
5,000 Equity shares of Rs 100 each Rs. 50 per share called and  paid up

2,50,000
5,000 10% Preference shares of Rs 100 each fully paid 5,00,000
Securities premium 7,50,000
10% Debentures 2,10,000
Preferential Creditors  1,05,000
Bank overdraft 4,85,000
Payables 6,00,000
32,00,000
Assets Rs
 Land and Building 5,20,000
Plant 7,80,000
Stock 3,25,000
Receivables 10,25,000
Profit & Loss A/c 5,50,000
32,00,000
Preference dividend is in arrears for three years. By 31/3/2019, the assets realized were as
follows:
Land and Buildings 6,20,000
Stock  in trade 3,10,000
Plant 7,10,000
Receivables 6,60,000
Expenses of liquidation are Rs. 86,000. The remuneration of the liquidator is 2 % of the
realization of assets. Income tax payable on liquidation is Rs.67,000. assuming that the final
payments were made on 31/12/2019, prepare the Liquidator’s statement of Account. 

P4
X Ltd went into liquidation on 31st December, 2019
i. The assets realized were: Stock Rs 1,00,000, Plant Rs 75,000 and Cash Rs 625
ii. Liquidation expenses Rs 1,375
iii. Creditors Rs 90,000 (preferential Rs 8,000)
iv. 6% Debentures Rs 80,000. Interest paid up to 30th April, 2019
v. Liquidator’s remuneration 3% on assets realized except cash and 2% on the
distributed to unsecured creditor excluding preferential creditors

Prepare Liquidator’s Final Statement of Account

P5
Y Ltd into voluntary liquidation on 1st January, 2019. The subscribed capita; of the company
consists of:
40,000 6% Preference shares of Rs 10 each
50,000 Equity shares of Rs 10 each, Rs 6 paid up
i. Dividend on preference shares are in arrear for two years
ii. The assets realized Rs 3,50,000
iii. Liquidation expenses Rs 9,800
iv. The liquidator’s remuneration Rs 11,000 and 2.5% on the amount paid to preference
shareholders as capital and dividend
v. Unsecured creditors Rs 20,000

Prepare Liquidator’s Final Statement of Account

P6
From the data relating to a company which went into voluntary liquidation prepare
Liquidator’s Final Statement of Account
i. Cash with liquidator (after  assets realized and secured creditors and debenture
holders paid) is Rs 7,50,000
ii. Preferential creditors to be paid Rs 35,000
iii. Unsecured creditors Rs 2,30,000
iv. 5,000 10% preference shares of Rs 100 each fully paid
v. 3,000 Equity shares of Rs 100 each, Rs 75 paid up
vi. 7,000 Equity shares of Rs 100 each, Rs 60 paid up
vii. Liquidator’s remuneration is 2% on the payments to preferential and other unsecured
creditors

P7
Tetra Ltd went into voluntary liquidation on 31st March, 2019
The assets and liabilities as on date are given below:
Liabilities Rs
1,00,000 Equity shares of Rs 10 each fully paid 10,00,000
10% Preference shares of Rs 100 each fully 12,00,000
paid
Securities premium 1,00,000
5% Debentures 2,00,000
Interest on debentures 5,000
Bank overdraft 1,16,000
Payables 2,30,000
28,51,000
Assets Rs
Freehold property 11,85,000
Plant 6,03,000
Vehicles 1,15,000
Stock 3,72,000
Receivables 1,48,000
Profit & Loss A/c 4,28,000
28,51,000
Note: preference dividend are in arrear for two years
i. The company’s Articles provide that on liquidation out of the surplus assets remaining
after payment of liquidation cost and outside liabilities, it shall be applied towards
preference dividend and secondly to preference shareholders with a premium thereon
at Rs 10 per share and finally to equity shareholders.
ii. Creditors were paid less discount @ 5%
iii. Debenture holders were paid along with accrued interest upto 30th June, 2018
iv. Liquidator’s remuneration is 2% of the assets realized
v. Cost of liquidation was Rs 7,640
The assets realized as follows:
Freehold 14,25,000
property
Plant 5,05,000
Vehicles 1,18,000
Stock in trade 3,00,000
Debtors 1,20,000

Prepare Liquidator’s Final Statement of Account

P-8
A company went into liquidation on 31/3/2020 when the following Balance sheet was
prepared :
 Liabilities Rs. Assets Rs. 
Authorised Capital : Goodwill 1,70,000
40,000 shares of Rs. 10 each 4,00,000 Freehold Property 20,000
Issued Capital: Machinery 75,000
25,000 shares of Rs. 10 2,50,000 Stock  25,000
each  50,000 Debtors 35,000
Unsecured Creditors 1,20,000 Cash  500
Partly Secured Creditors 3,000 Profit and Loss a/c 98,000
Preferential Creditors 500
Bank Overdraft  4,23,500 4,23,500

The liquidator realized the assets as follows:

Freehold property was sold to pay the partly secured creditors and it fetched Rs. 15,000:
Other assets realized as Machinery Rs.50,000: Stock Rs. 20,000: Debtors Rs.25,000. The
expenses of liquidation amounted to Rs. 1,000 and the liquidator’s remuneration was agreed
at 2.5%  on the amount  realized and 2% on the amount paid to unsecured creditors. Prepare
liquidators final statement of account.