Reference no: EM132571328
Also the question is in the Nigerian currency. (N stands for naira and K stands for kobo. and 100Kobo makes 1 naira)
1. The practice of periodically revaluing assets is often used by accountants to make statement of financial position values more up to date. Discuss the reasons why this practice may not achieve the intended objective.
2. Udo Ltd made an issue to the public of 5,000,000 ordinary N1 shares, payable 40k on application on 31st July and 65k on allotment on August 31st . It arranged with Marvellous Merchant Bank Ltd to underwrite the entire issue for a commission of 2% including an over-riding commission of 1/2%.
Marvellous Merchant Bank arranged with two sub-underwriters to each underwrite 30% of the issue after taking into account the fact that Marvellous Merchant Bank would apply firm for 500,000shares.
The public applied for and were allotted 3,500,000shares. The merchant bank had deposited with Udo Ltd its cheque for the application money on the shares underwritten by it and the two sub-underwriters also paid the merchant bank the application monies on the shares sub-underwritten. These cheques were not cleared until the result of the issue became known.
All the transactions were completed on 31st July, 2016 when the shares were allotted.
On 11th August, 2016, Marvellous Merchant Bank sold 200,000shares for 75k per share.
Marvellous Merchant Bank closes its book on September 30th , every year. On 30th September, 2016, the market value of Udo Ltd share was 121k. All calculations to the nearest thousand naira.
Question 1: You are required to write up the underwriting account in Marvellous Merchant Bank's books.