Question

From the following extracts of the Balance Sheets of Sulphur Ltd. and the additional information given, you are required to calculate for the year ending 31^st March, 2021:

• The underwriting commission paid by the company.
• Cash from Financing Activities.

Particulars	31.3.2021 (₹)	31.3.2020 (₹)
Equity Share Capital	10,00,000	8,00,000
Securities Premium	1,20,000	1,00,000
10% Debentures	6,00,000	3,00,000
Bank Overdraft	40,000	10,000
Unclaimed Dividend	20,000	-

Additional Information:

1. In the year 2020-21:
   1. Debentures were issued at par on 1^st April, 2020.
   2. Interest of ₹ 5,000 was paid on Bank Overdraft.
   3. Equity Shares of ₹ 10 each were issued at a premium of ₹ 3 per share.
   4. The company had retained underwriters to issue its shares. The underwriting commission was paid in cash and was written off at the end of the year.
2. Dividends proposed for the years 2019-20 and 2020-21 were ₹ 80,000 and ₹ 70,000, respectively.

Answer 1

(i) Calculation of underwriting commission paid:

Dr.	Securities Premium A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Underwriting Commission (Balancing Figure)	40,000	By Balance b/d	1,00,000
To Balance c/d	1,20,000	By Share Application & Allotment A/c (20,000 Shares × ₹ 3 each)	60,000
	1,60,000		1,60,000

(ii) Calculation of Cash from Financing Activities:

Particulars	Amount (₹)
Issue of Equity Share Capital	2,00,000
Securities Premium Received	60,000
Issue of Debentures	3,00,000
Interest on Debentures Paid	(60,000)
Bank Overdraft Taken	30,000
Interest on Bank Overdraft Paid	(5,000)
Underwriting Commission Paid	(40,000)
Dividend Paid (₹ 80,000 less unclaimed ₹ 20,000)	(60,000)
Cash Flow from Financing Activities	4,25,000

Answer 2

Cash flow from financing Activities

Particulars	Amount (₹)	Amount (₹)
Issue of Equity Share Capital (2,00,000 + 60,000 − 40,000)	2,20,000
Issue of Debentures	3,00,000
Interest paid on debentures	(60,000)
Bank Overdraft	30,000	4,90,000
Interest paid on Bank Overdraft	(5,000)
Proposed Dividend [80,000 − 20,000 (unclaimed Dividend)]	(60,000)	(65,000)
Cash flow from Financing Activities
		4,25,000

Working Note:

Premium on Issue of Equity shares = `2,00,000 xx 3/10`

= ₹ 60,000

Now, Account to this premium, the balance of Securities Premium Reserve should be increased from ₹ 1,00,000 in 2020 to ₹ 1,60,000 in 2021. But, Securities Premium Reserve has increased by ₹ 20,000 only. That means Underwriting Commission of ₹ 40,000 has been written off from it.