Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ

Going through the Underwriting of Shares & Debentures – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Underwriting of Shares & Debentures – Corporate and Management Accounting MCQs

Question 1.
A person who undertake to take up the whole or a portion of the offered shares or debentures as may not be subscribed for by the public is called -……..
(A) Writer
(B) Share writer
(C) Broker
(D) Underwriter
Answer:
(D) Underwriter

Question 2.
Underwriting is a contract of -……….
(A) Indemnity
(B) Bailment
(C) Guarantee
(D) Pledge
Answer:
(C) Guarantee

Question 3.
As per the SEBI Regulations, the subscription list for public issues should be kept open for at least ………. and not more
than ………… as disclosed in the prospectus.
(A) 5 working days; 8 working days
(B) 3 working days; 10 working days
(C) 3 working days; 7 working days
(D) 5 working days; 10 working days
Answer:
(B) 3 working days; 10 working days

Question 4.
As per SEBI Regulations, the minimum subscription has been fixed at of the issued amount.
(A) 60%
(B) 70%
(C) 80%
(D) 90%
Answer:
(D) 90%

Question 5.
As per Section 39(2), the amount payable on applications is fixed by the directors but it cannot be less than …… of the shares.
(A) 25% of the issue price
(B) 5% of the nominal value
(C) 25% of the nominal value
(D) 5% of the issue price
Answer:
(B) 5% of the nominal value

Question 6.
As per the SEBI Regulations the minimum application money to be paid shall not be less than -………….
(A) 25% of the issue price
(B) 5% of the nominal value
(C) 25% of the nominal value
(D) 5% of the issue price
Answer:
(A) 25% of the issue price

Question 7.
Section 40(6) of the Companies Act, 2013 provides that a company pay …………. to any person in connection with issue of securities subject to prescribed conditions.
(A) Salary
(B) Remuneration
(C) Commission
(D) Incentive
Answer:
(C) Commission

Question 8.
Which of the following is essential condition for payment of underwriting commission
(A) The payment of commission shall be authorized by the company’s articles of association.
(B) There shall not be paid commission to any underwriter on securities which are not offered to the public for subscription.
(C) A copy of the contract for the payment of commission is delivered to the Registrar at the time of delivery of the prospectus for registration.
(D) All of the above
Answer:
(D) All of the above

Question 9.
The underwriting commission may be paid out of:
(A) Proceeds of the issue
(B) Profit of the company
(C) Securities Premium
(D) All of the above
Answer:
(D) All of the above

Question 10.
In the event of non receipt of minimum subscription all applications moneys received should be refunded within period stated below:
(a) For non-underwritten issues: Within of the closure of the issue.
(b) For underwritten issues: Within of the closure of the issue.
Select the correct answer from the options given below.
(A) 7 days; 15 days
(B) 10 days; 15 days
(C) 15 days; 10 days
(D) 15 days; 7 days
Answer:
(D) 15 days; 7 days

Question 11.
In case of issue of shares, underwriting commission shall not exceed –
(A) 5% of the issue price
(B) 5% of the nominal value
(C) 10% of the market price
(D) 10% of the nominal value
Answer:
(A) 5% of the issue price

Question 12.
In case of issue of debentures, underwriting commission shall not exceed
(A) 2.5% of the nominal value
(B) 2.5% of the issue price
(C) 2.5% of the market price
(D) 3.5% of the face value
Answer:
(B) 2.5% of the issue price

Question 13.
In case of issue of shares, the rate of underwriting commission paid or agreed to be paid shall not exceed:
(A) 5% of the issue price
(B) A rate authorized by the articles
(C) 5% of the issue price or a rate authorized by the articles, whichever is more.
(D) 5% of the issue price or a rate authorized by the articles, whichever is less.
Answer:
(D) 5% of the issue price or a rate authorized by the articles, whichever is less.

Question 14.
In case of issue of debentures, the rate of underwriting commission paid or agreed to be paid shall not exceed:
(A) 2.5% of the issue price
(B) A rate authorized by the articles
(G) 2.5% of the issue price or a rate authorized by the articles, whichever is more.
(D) 2.5% of the issue price or a rate authorized by the articles, whichever is less.
Answer:
(D) 2.5% of the issue price or a rate authorized by the articles, whichever is less.

Question 15.
A definite commitment by the underwriter to take up a specified number of shares or debentures of a company irrespective of the number shares or debentures subscribed for by the public is known as -………………
(A) Definite underwriting
(B) Pakka underwriting
(C) Marked underwriting
(D) Firm underwriting
Answer:
(D) Firm underwriting

Question 16.
Unmarked application has to be distributed to underwriters in the ratio of –
(A) Gross Liability Ratio
(B) Last Agreed Ratio
(C) Net Liability Ratio
(D) Equal ratio
Answer:
(A) Gross Liability Ratio

Question 17.
Applications bearing the stamp of the respective underwriter are called as:…………..
(A) Firm applications
(B) Stamped applications
(C) Underwritten application
(D) Marked applications
Answer:
(D) Marked applications

Question 18.
A broker -…….
(A) Undertakes to find buyers who are willing to buy shares and debentures
(B) Does not guarantees the sale of shares and debentures
(C) Both (A) and (B)
(D) (B) only not (A)
Answer:
(C) Both (A) and (B)

Question 19.
An underwriter –
(A) Guarantees that if the public do not take up all shares the underwriters will purchase the remaining shares.
(B) Agrees to receive an underwriting commission at prescribed percentage allowed as per law.
(C) Both (A) and (B)
(D) (A) only not (B)
Answer:
(C) Both (A) and (B)

Question 20.
Who of the following generally acts as underwriter-…….
(A) Financial institutions
(B) Banks
(C) Merchant bankers
(D) All of the above
Answer:
(D) All of the above

Question 21.
As per SEBI Regulations, the merchant banker shall underwrite at least itself or jointly with other merchant bankers associated with the issue.
(A) 15% of issue size
(B) 10% of issue size
(C) 25% of issue size
(D) 5% of issue size
Answer:
(A) 15% of issue size

Question 22.
As per SEBI Regulations, the capital adequacy requirement for underwriter is net worth of
(A) ₹ 10 lakhs
(B) ₹ 20 lakhs
(C) ₹ 50 lakhs
(D) ₹ 100 lakhs
Answer:
(B) ₹ 20 lakhs

Question 23.
LPG Ltd. issued 32,000 shares which were underwritten as follows:
A: 19,200 shares, B: 8,000 shares & C: 4,800 shares.
The underwriters made applications for firm underwriting as –
A: 2,560 shares, B: 960 shares & C: 3,200 shares.
Details of marked application are –
A: 3,200 shares, B: 6,400 shares and C: 1,600 shares.
Unmarked applications are for 11,520 shares. Find out the net liability of individual underwriters.
(A) 10,624; 960; 4,416 respectively
(B) 10,642; 906; 4,461 respectively
(C) 10,264; 940; 4,146 respectively
(D) 10,462; 940; 4,641 respectively
Answer:
(A) 10,624; 960; 4,416 respectively
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 8

Question 24.
Cybertech Ltd. issued 1,00,000 shares for public subscription and these were underwritten by A, B and C in the ratio of 25%, 30% and 45% respectively. Applications were received for 80,000 shares and of these applications for 16,000 shares had the stamp of A, those for 20,000 shares had the stamp of B and those of 24,000 shares had the stamp of C. The remaining applications did not bear any stamp. Net liability of underwriters in shares is:
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 1
Answer:
(C)
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 9

Question 25.
NZ Ltd. issued 34,000 shares of ₹ 100 at a premium of ₹ 15 each. 90% of the issue was underwritten by M/s Broker & Co. Applications were received for 27,200 shares and allotment was fully made. Net liability of underwriter for shares =?
(A) 30,600 shares
(B) 24,480 shares
(C) 8,840 shares
(D) 6,120 shares
Answer:
(D) 6,120 shares
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 10

Question 26.
XM Ltd. issued 25,000 shares of ₹ 100 at a premium of ₹ 15 each. 90% of the issue was underwritten by M/s UWB & Co. at a maximum commission allowed under the Companies Act, 2013. Applications were received for 8,000 shares. Commission = ?
(A) ₹ 1,92,725
(B) ₹ 1,29,375
(C) ₹ 97,750
(D) ₹ 62,450
Answer:
(B) ₹ 1,29,375
Maximum commission allowed under the Companies Act, 2013 is 5% of issue price.
Commission is payable on ‘gross liability’ and not on ‘net liability’.
Hence, net liability need not be calculated.
Commission = 25,000 × 90% × 115 × 5%= 1,29,375

Question 27.
LG Ltd. issued 10,000 shares of ₹ 100 at a premium of ₹ 15 each. 90% of the issue was underwritten by M/s X & Co. at a 1 commission of 1% on the nominal value. Applications were received for 8,000 shares and allotment was fully made. All money Was received in one instalment. Net amount to be received from underwriter at the time of allotment of shares is -…………..
(A) ₹ 2,07,000
(B) ₹ 1,98,000
(C) ₹ 2,16,000
(D) ₹ 1,42,000
Answer:
(B) ₹ 1,98,000
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 11
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 12

Question 28.
Z Ltd. entered into an underwriting agreement with B Ltd. for commission of 2.5% for 6096 of the issue of ₹ 35,00,000, 1596 Debentures with a firm underwriting of ₹ 3,50,000. Marked application were for ₹ 24,50,000 debentures. Calculate the commission payable to under writer.
(A) ₹ 75,000
(B) ₹ 87,500
(C) ₹ 64,750
(D) ₹ 52,500
Answer:
(D) ₹ 52,500
Gross liability = 35,00,000 × 60% = 21,00,000
Commission = 21,00,000 × 2.5% = 52,500.

Question 29.
X Ltd. entered into an underwriting agreement with Y Ltd. for commission of 2.596 for 60% of the issue of ₹ 50,00,000, 15% Debenture with a firm underwriting of ₹ 5,00,000. Marked application were for ₹ 35,00,000 debenture. Net liability of underwriter = -…….
(A) Nil
(B) ₹ 6,00,000
(C) ₹ 5,00,000
(D) ₹ 8,00,000
Answer:
(C) ₹ 5,00,000
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 13

Question 30.
MM W Ltd. made an issue of47,000,10% mortgage debentures of ₹ 100 each at par. The whole of the issue was underwritten by Y & Co. 39,950 debentures were applied for and allotted to the public. Net liability of underwriter to take number of debenture will be -…….
(A) 39,950 debentures
(B) 47,000 debentures
(C) 7,050 debentures
(D) 8,370 debentures
Answer:
(C) 7,050 debentures
47,000 – 39,950 = 7,050

Question 31.
Biggie Ltd. made an issue of 10,000,10% mortgage debentures of ₹ 100 each at ₹ 96. The whole of the issue was underwritten by Smart Bulls. 8,500 debentures were applied for and allotted to the public. The underwriters discharged their liability and were paid commission at the rate of 2% on the nominal value of the debentures. Which of the following statement is correct
(A) Net amount to receivable from underwriter is ₹ 1,22,000
(B) Net amount payable to underwriter is ₹ 12,000
(C) Net amount to receivable from underwriter is ₹ 1,24,000
(D) Net amount payable to underwriter is ₹ 14,000
Answer:
(C) Net amount to receivable from underwriter is ₹ 1,24,000
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 14

Question 32.
Abrol Ltd. offered to the public 5,000, 9% mortgage debentures of ₹ 100 each at ₹ 105 and 80% of the issue was underwritten by Smart Bulls for commission @ 2.5%. Applications were received from public for 4,000 debentures which were allotted. Balance Sheet will tally at -……………..
(A) ₹ 5,03,500
(B) ₹ 4,93,500
(C) ₹ 4,63,500
(D) ₹ 5,23,500
Answer:
(B) ₹ 4,93,500
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 16
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 17

Question 33.
Sampada Ltd. was formed with a capital of 2,00,000 equity shares of ₹ 10 each. All shares were issued to public for subscription. Issue was underwritten as follows:
Ajay: 80,000 shares, Bijo: 60,000 shares and Rajat: 60,000 shares.
Marked applications were received in favour of Ajay for 32,000 shares, Bijo for 58,000 shares and Rajat for 42,000 shares. Applications for 30,000 shares were not marked.
Net liability of underwriters in shares is:
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 2
Answer:
(C)
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 18
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 19

Question 34.
K Ltd. issued for subscription 25,000 shares at a premium of ₹ 10 each. The issue was underwritten as follows:
A: 15,000 shares; B: 7,500 shares & C: 2,500 shares.
Firm application is as follows:
A: 2,500 shares; B: 1,000 shares & C: 500 shares.
Out of the total issue, 22,500 shares including firm underwriting were subscribed. Marked forms details:
A: 8,000 shares; B: 5,000 shares & C: 2,500 shares.
If firm underwriting shares are treated as unmarked application then net liability of each underwriter in shares will be –
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 3
Answer:
(A)
Data given in problem can be arranged as follows:
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 20

Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 21
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 22

Question 35.
Take the data of above question. If firm underwriting shares are treated as marked application then net liability of each underwriter in shares will be –
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 4
Answer:
(B)
Data given in problem can be arranged as follows:
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 20
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 21
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 22

Question 36.
Sun Ltd. issued 1,00,000 equity shares. Whole of the issue was underwritten as follows:
M: 3596; L: 2596; T: 3096; P: 1096
Applications for 80,000 shares were received in all; out of which applications for 20,000 shares had the stamp of M; 15,000 that of L; 22,000 that of T and 8,000 of P. Remaining 15,000 applications did not beiar any stamp. Determine the liability of each underwriter.
(A) 4,875; 3,125; 1,750 & 250 shares respectively for M, L, T & P.
(B) 9,750; 6,250; 3,500 & 500 shares respectively for M, L, T & P.
(C) 13,650; 8,750; 4,900 & 700 shares respectively for M, L, T & P.
(D) 11,700; 7,500; 4,200 & 600 shares respectively for M, L, T & P.
Answer:
(B) 9,750; 6,250; 3,500 & 500 shares respectively for M, L, T & P.
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 23

Question 37.
S Ltd. issued 1,50,000 equity shares of ₹ 100 each at par. This issue was underwritten equally by A, B and C. Applications for 1,40,000 shares were received as per details given below:
If firm underwriting shares are treated as unmarked application then net liability of each underwriter in shares will be –
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 5
Unmarked applications are of 7,000 shares. It was agreed to credit the unmarked applications to A and C.

If firm underwriting shares are treated as unmarked application then net liability of each underwriter in shares will be –
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 6
Answer:
(C)
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 24
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 25

Question 38.
Take the data of above question. If firm underwriting shares are treated as marked application then net liability of each underwriter in shares will be –
Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 7
Answer:
(B)

Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 24
Authors Note: Generally, credit for unmarked application is given to all the underwriters in their gross liability ratio. However, credit is given only to A & C as stated in problem.

Underwriting of Shares & Debentures – Corporate and Management Accounting MCQ 25