Underwriting Account

Underwriting account is important account which is made by underwriter for calculating the net profit or loss from underwriting business. In this account’s debit side, he shows all his expenses relating to underwriting and in the credit side of this account, he shows his underwriting and sub underwriting commission and any other profit from underwriting business. Net difference between debit and credit of underwriting account will be his profit or loss which will be shown as balancing figure.

We are making this account with following example solution.

A enters into a contract with B ltd. to underwrite its 5000 shares of Rs. 10 each in consideration of 5% commission. He also enters into an agreement with C to sub underwrite 1000 shares of B ltd. at a commission of 3%. The public subscribes for 2000 shares only and subsequently shares were taken up by A who sold his shares @ Rs. 9 per share. The shares taken up by C were sold @ Rs. 10 per share. Expenses of underwriting amounts to Rs. 600. Prepare underwriting account in the books of A.

Books of A

Underwriting Account

Debit Side of Account

Bank account for expenses Rs. 600

Bank account for 3000 shares taken up Rs 30,000

Bank account for commission to sub underwriter C 1000 X 3 /100 = Rs. 300
Total of Debit Side Rs. 30900

Credit side of Account

Bank account for commission = 5000 X 10 X 5% = 2500

Bank account for transfer shares to sub underwriter = 1000 - 2000 X 1000/ 5000 = 600 shares and its amount = 600 X 10 = Rs. 6000

Bank account for selling of taken up shares = 2400 shares X 9 = 21600

Net Loss from underwriting transferred to Profit and loss account Rs. 800 (balancing figure)

Total of Credit Side Rs. 30900

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Accounting Education: Underwriting Account
Underwriting Account
Accounting Education
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