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Underwriting Of Shares Interview Questions & Answers - Learning Mode
COOLINTERVIEW.COM CORPORATE ACCOUNTING INTERVIEW QUESTIONS UNDERWRITING OF SHARES INTERVIEW QUESTIONS QUESTIONS & ANSWERS - LEARNING MODE

Underwriting Of Shares Interview Questions & Answers - Learning Mode

Underwriting of Shares means the contract in which underwriter agrees to take shares which will not be subscribed by public. For getting fast minimum subscription from public of his issued shares, company has to do this type of contract. With this, headache of selling and getting minimum subscription will be of underwriter not company. For this, company gives underwriting commission to underwriter which is controlled by SEBI. Still 5% on issue of shares or actual rate which is agreed in article of association which is less, is accepted to give it to underwriter.

Try Underwriting Of Shares Interview Questions & Answers - Exam Mode

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Underwriting Of Shares Interview Questions & Answers - Learning Mode
Try Underwriting Of Shares Interview Questions & Answers - Exam Mode
Question: What are the provisions regarding underwriting?

Answer: 1. A company cannot pay any commission on the issue of shares unless permitted by its Articles.
2. Commission cannot be paid to any person for shares or debentures which are not offered to the public for subscription.
3. The amount or rate of commission should be disclosed in the prospectus. Source: CoolInterview.com
Question: What is open underwriting?

Answer: Under this type of underwriting, the underwriter agrees to take up shares or debentures only when the issue is not subscribed by the public in full.
Source: CoolInterview.com
Question: Who are underwriters?

Answer: The firms or persons who are engaged in underwriting are called underwriters.
Source: CoolInterview.com
Question: How are the number of unmarked applications calculated when the issue is fully underwritten ( with firm underwriting)?

Answer: No. of Unmarked application = Total subscription excluding firm underwriting ? Marked application excluding firm underwriting + Application under firm underwriting. Source: CoolInterview.com
Question: What is firm underwriting?

Answer: When an underwriter agrees to buy a definite number of shares or debentures in addition to the shares or debentures he has to take under the underwriting agreement, it is called firm underwriting. Even if the issue is over subscribed, underwriters are liable to take up the agreed number of shares in case of firm underwriting. Source: CoolInterview.com
Question: What are the functions of underwriters?

Answer: a) Purchase of Securities.
b) Distribution of Securities.
c) Supplying Information of Companies
d) Exchange in Securities. Source: CoolInterview.com
Question: What is an underwriting account?

Answer: This account is prepared by the underwriter to ascertain the profit or loss on underwriting. It is a nominal account and is prepared like a P/L A/c.
Source: CoolInterview.com
Question: Name the underwriting agencies in India.

Answer: a) Private Firms
b) Investment Companies and Trusts
c) Indian Commercial Banks
d) Life Insurance Corporation
e) Industrial Finance Corporation etc. Source: CoolInterview.com
Question: What is underwriting of shares?

Answer: Underwriting is an agreement where by the underwriters ensure the company that in case the shares and debentures offered to the public, are not subscribed by the public to the extent, the balance of shares and debentures will be taken up by the underwriters.
Source: CoolInterview.com
Question: How is liability of each underwriter calculated when issue is fully underwritten ( without firm underwriting)?

Answer: Liability of each underwriter is calculated as follows:
Gross liability according to the agreed
ratio xxx Less: Marked applications xxx Balance left xxx Less: Unmarked application in the ratio of gross liability xxx Net liability xxx Source: CoolInterview.com
Question: How is liability of each underwriter calculated when the issue is fully underwritten ( with firm underwriting)?

Answer: Liability of each underwriter is calculated as follows:
Gross liability according to the agreed
ratio xxx
Less: Marked applications (excluding firm underwriting) xxx
Balance left xxx Less:Unmarked application in the ratio of
gross liability xxx
Net liability xxx Source: CoolInterview.com
Question: What are unmarked applications?

Answer: The application forms which are received by the company without any name of the underwriter are called unmarked applications.
Source: CoolInterview.com
Question: Name the types of underwriting.

Answer: a) Open Underwriting (Conditional)
b) Firm Underwriting.
Source: CoolInterview.com
Question: How is marked application calculated when the issue is partially underwritten and no information is given regarding marked and unmarked applications?

Answer: Marked applications = Total No. of application received x % of underwriting
Source: CoolInterview.com
Question: How is gross liability determined when issue is fully underwritten ( without firm underwriting)?

Answer: Liability = No. of shares underwritten ? Total no. of application.
Source: CoolInterview.com
Question: What are marked applications?

Answer: Generally shares or debentures of a company are underwritten by two or more underwriters in an agreed ratio. Usually the forms are stamped with the name of the underwriters in order to distinguish the forms of one underwriter from that of others. Such stamped applications when received are called marked applications.
Source: CoolInterview.com
Question: What is underwriting commission?

Answer: The commission payable to underwriters for underwriting is known as underwriting commission.
Source: CoolInterview.com
Question: Give the journal entries in the books of the company for commission due.

Answer: Underwriting Commission A/C Dr xxx
To Underwriters A/C xxx
Source: CoolInterview.com
Question: Give the journal entries in the books of the company for payment of commission.

Answer: Underwriters A/C Dr xxx
To Bank A/C xxx
To Share Capital A/C xxx
To Debentures A/C xxx Source: CoolInterview.com
Question: What are the advantages of underwriting?

Answer: a) The company is sure of getting the value of shares issued.
b) It enhances goodwill of the company.
c) It facilitates wide distribution of securities.
d) It fulfills requirement of minimum subscription.
Source: CoolInterview.com

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