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INVESTMENT IN VARIABLE INCOME BEARING SECURITIES

SUBSEQUENT MEASUREMENT ON ENTITLEMENT OF BONUS SHARE

THE CARRYING AMOUNT SHALL BE AS MENTIONED EARLIER SHALL BE

LOWER OF COST OR FAIR VALUE ; AND WHILE CALCULATING WEIGHTED
AVERAGE COST THE NUMBER HELD SHALL BE INCREASED BY NO OF BONUS
SHARE OR THE NOMINAL VALUE OF BONUS SHARE .

SUBSEQUENT MEASURE MENT ON ENTITLEMENT OF RIGHT SHARE

i. When right shares offered are subscribed for,

THE Cost of the Right shares is added to the Carrying Amount of the original holding.
ii. If rights are not subscribed for but are sold in the market
THE Sale proceeds are taken to the Profit and Loss statement.
iii. However, where SHARES are acquired on Cum-Right basis and the market value of
Investments immediately after their becoming Ex-right is lower than the Cost for which
they were acquired,
IT may be appropriate to apply the Sale proceeds of Rights to reduce the Carrying amount
of such Investments to the Market Value

--
Q3

On 1.6.2018 X Ltd. acquired 3,000 equity shares of 10 each in ABC Ltd for 70,000: ABC
Ltd Declared: 3:1 Bonus Share on 1.7.2018. AS ON 31.12.2018 X LTD SOLD 50% OF ITS
SHARE HOLDING AT 15 EACH. CALCULATE THE CARRYING AMOUNT OF
SHARES AS ON 31.12.2018.
CALCULATION OF CARRYING AMOUNT
NO NOMVALUE WAC SALE PROFIT FAIR VALUE CARRYING
OR
LOSS₹ AMOUNT
3000 30000 70,000

1000 10000 -
[BONUS
ISSUE]

4000 40,000 70000

(2000) (20,000) (35000) 30000 (5000)
2000 20000 35000 [CP] [MP]30000 30,000

SINCE THE MARKET VALUE IS LOWER THAN COST

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Q4

On 1.6.2018 X Ltd. acquired 3,000 equity shares of 10 each in ABC Ltd for 60,000 on
cum-right basis: ABC Ltd declared: 1:4right share on 1.9.2018 @ 20.
X Ltd:
I. Took up half the rights issue.
II. sold the remaining rights for 8 per share; CALCULATE THE CARRYING AMOUNT
OF SHARES AS ON 31.12.2018. THE MARKET PRICE IS BROUGHT DOWN AT
15 EACH AFTER THE SHRE BECOMING EX-RIGHT. ALSO GIVE THE JOURNAL
ENTRY
CALCULATION OF CARRYING AMOUNT
NO NV WACP SALE MV CA

3000 30000 60,000

RIGHTISSUE:3000/4x1/2]
SUBSCRIBED=375 7,500
3750

3375 33,750 67,500

SALE PROCEEDS FROM RIGHT ENTITLEMENT 375x 8 3000
DECLINE IN MARKET PRICE 3375x [20-15] = ( 16,875)
UNCOVERED LOSS [ 16,875-₹3000]13,875

33750 67500 50,625 50,625

INVESTMENT IN SHARE A/C ₹60,000 ₹
TO BANK 60000
INVESTMENT IN SHARE A/C 7500
TO BANK[RIGHT ISSUE SUBSCRIBED] 7500
BANK A/C 3000
TO INVESTMENT IN SHARE 3000
P/L DR 13875
13875
TO INVESTMENT IN SHARE

Q5. On 1.6.2018 X Ltd. acquired 3,000 Equity shares of 10 each in ABC Ltd for 60,000 on
cum-right basis:

ABC Ltd declared:

(a) One for three bonus issue on 1.7.2018; and
(b) One for four rights issue on 1.9.2018 at 20% premium.
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X Ltd:
I. Took up half the rights issue;
II. Sold the remaining rights for 8 per share;
III. Sold half of its total shareholdings on 31.12.2018 for 37,000.
You are required to prepare the Investment Account for the year ended 31.12.2018.
SOLUTION TO Q5

WORKING NOTES

1. BONUS ISSUE 1.7.2018

NO OF BONUS SHARE: 1/3 x3, 000 =1,000

NOMINAL VALUE OF BONUS SHARE [1,000 x 10 ] = 10,000

2. RIGHT ISSUE 1.9.2018

NO OF RIGHT SHARE: 1/4 [3,000 + 1,000 =4000;EXISTING NUMBER ON THE DATE OF RIGHT
ISSUE] = 1000

NOMINAL VALUE OF RIGHT SHARE [1,000 x 10 ] = 10,000

RIGHT RENOUNCED : 1,000 x 1/2 =500; SALE PROCEEDS AGAINST RENOUNCEMENT

= 500 x ₹ 8= 4,000

NO RIGHT SUBSCRIBED : 1,000 x 1/2 =500

COST OF SUBSCRIPTION: 500 x 12 = 6,000[NOMINAL VALUE [500 x 10 ] = 5000

SALE OF RIGHT ENTITLEMENT CAN BE TREATED IN TWO WAYS:

1. IF SHARES ARE ACQUIRED ON CUM RIGHT BASIS THEN SUCH SALES PROCEEDS IS
CREDITED TO INVESTMENT ACCOUNT
2. IF SHARES ARE NOT ACQUIRED ON CUM RIGHT BASIS THEN SUCH SALES PROCEEDS IS
CREDITED TO P/L ACCOUNT
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3. VALUATION OF STOCK AND CALCULATION OF PROFIT OR LOSS ON SALE ON THJE BASIS OF

WEIGHTED AVERAGE COST

DATE TRANSACTION NOMINAL ECP PROPORTIONATE ESP PROFIT OR

ECP LOSS

1.6 PURCHASES 30,000 60,000

1.7 BONUS 10,000

1.9 RIGHT
SUBSCRIBED 5,000 6,000

RIGHT
1.9 RENOUNCED (4,000)
Holding 45,000 62,000
31.12 SALES (22,500) (31,000) 62000/45000x22500 37,000 6,000
31.12 CLOSING 22,500 31,000
BALANCE

INVESTMENT IN SHARE ACCOUNT

DATE PARTICULARS NOMINAL ECP DIVIDEND DATE PARTICULARS NOMINA ESP DIVIDEND
L

1.6 BANK 30,000 60,00 1.9 BANK 4,000

1.7 BONUS 10,000 0 31.12 BANK 22,500 37,000
1.9 BANK 5,000 31.12 BALANCE 22,500 31,000
31.1 P/L 6,000
2 6,000

45,000 72,00 45,000 72,000

0

Q6. On April 1, 2018 Singh had 20,000 equity shares in X Ltd. The face value of the shares was
10 each but their book value was 16 per share. On June 1, 2018 Singh purchased 5,000
more Equity shares in the company at a premium of 4 per shares [CP ₹ 14]. On June 30, 2018
the directors of X Ltd. announced a bonus and rights issue. Bonus was declared at the rate of
one equity shares for every five shares held, and these shares were received on August 2, 2018.
The terms of the rights issue were:
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a. Rights shares to be issued to the existing holders on August 10, 2018.

b. Rights issue would entitle the holders to subscribe to additional equity shares in the
company at the rate of one share for every three shares held at 15 per share – the
whole sum being payable on September 30, 2018.
c. Existing shareholders may, to the extent of their entitlement, either wholly or in part,
transfer their rights to outsiders.
d. Singh exercised his option of 50 % of his entitlements, under the issue and the balance
of rights he sold to A for a consideration of 1.50 per share.
Dividends for the year ended March 31,2018 @ of 15% were declared by the company and
received by Singh on October 20,2018.On November 1, 2018 Singh sold 20,000 Equity shares at
a premium of 3 per share.[SP₹ 13]

Show the Investment Account as it would appear in Singh’s books as on December 31, 2018 and
the value of shares held (average basis) on that date assuming the accounting year is April 1 to
March 31.

WORKING NOTES

1. BONUS ISSUE

NO OF BONUS SHARE: 1/5 [20,000 + 5,000= EXISTING NUMBER ON THE DATE OF RIGHT ISSUE]
= 5,000; NOMINAL VALUE [5,000 x 10] = 50,000

2. RIGHT ISSUE

NO OF RIGHT SHARE: 1/3 [20,000 + 5,000 + 5,000 = EXISTING NUMBER ON THE DATE OF RIGHT
ISSUE] = 10,000 .NOMINAL VALUE [10,000 x 10 ] = 1,00,000

RIGHT RENOUNCED : 10,000 x 1/2 =5,000; SALE PROCEEDS AGAINST RENOUNCEMENT

= 5,000 x 1.5= 7,500

RIGHT SUBSCRIBED :10,000 x 1/2 =5,000

COST OF SUBSCRIPTION: 5,000 x 15 = 75,000[NOMINAL VALUE [5,000 x 10] = 50,000

3.DIVIDEN DRECEIVED FOR THE YEAR ENDED 31.03.2018

AS ON 1.4.2018 20,000 SHARES WERE HELD WHICH MEANS THE SHARES WERE EXISTING IN
THE YEAR FOR WHICH DIVIDEND IS DECLARED i.e. 31.03.2018. THE DIVIDEND RECEIVED
AGAINST THE SAME WILL BE REVENUE INCOME. 5000 SHARES ARE ACQUIRED DURING THE
CURRENT YEAR WHICH MEANS THE DIVIDEND FOR THE YEAR 31.03.2018 WILL BE CAPITAL
INCOME OR PRE-ACQUISITION INCOME OR RECOVERY OF COST.
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DIVIDENDRECEIVED TREATED AS REVENUE INCOME: 20,000 x 10 x 15% = 30,000

DIVIDENDRECEIVED TREATED AS CAPITAL INCOME OR PRE-ACQUISITION INCOME OR

RECOVERY OF COST: 5,000 x 10 x 15% = 7,500

4. VALUATION OF STOCK AND CALCULATION OF PROFIT OR LOSS ON SALE ON THE BASIS OF

WEIGHTED AVERAGE COST

DATE TRANSACTION NOMINA ECP PROPORTIONATE ESP PROFIT

L ECP OR LOSS

1.4 BALANCE 2,00,000 3,20,000

1.6 PURCHASES 50,000 70,000

2,50,000 3,90,000

2.8 BONUS 50,000

10.8 RIGHT 50,000 75,000
3,50,000 4,65,000
PRE
ACQUISITION
20.10 DIVIDEND (7,500)
3,50,000 4,57,500
4,57,500/3,50,000 20000x₹13
X 2,00,000
1.11 SALES 2,00,000 (261,429) 2,60,000 (1429)
31.12 CLOSING [₹13.07] [₹13]
BALANCE 1,50,000 1,96,071 15000x ₹13=
₹195,000
INVESTMENT IN SHARE ACCOUNT

DATE PARTICULAR NOMINA ECP DIVIDEN DATE PARTICULAR NOMINA ESP DIVIDEN
S L D S L D

1.4 BALANCE 2,00,000 3,20,00 20.1 BANK 7,500 30,000

1.6 BANK 50,000 0 0 BANK 2,00,000 2,60,00
2.8 BONUS 50,000 70,000 1.11 P/L 0
10.8 BANK 50,000 31.1 P/L 1429
31.1 P/L 75,000 30,000 2 [DECLINE]
2 31.1 BALANCE 1,50,000 1071
2 195,000

31.1
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3,50,000 4,65,00 30,000 3,50,000 4,65,00 30,000

0 0

Q7.R carried out the following transaction in connection with his Investments during the year
ended 31.03.2019.

15.04.18 Purchased 4,00,000 12% Convertible Debentures in S Ltd at 125.50 each

th th
(cum interest). Interest is payable on 15 September &15 March every year.
01.06.18. Purchased 10,00,000 12% Debentures of K Ltd at 11,00,000 (cum interest). Interest
is payable on 1st October & 1st April every year.

15.06.18 Converted Debentures of S Ltd to Equity shares of S ltd @ 20 of Debentures to 10 of

Equity shares. All accrued interest till date is paid

25.08.18. Dividend received on shares @ 20%. S Ltd made a right issue as 1: 20 @ 16 each.

10.01.19 Entitlement on right shares are sold @ 4 each.

10.01.19 Sold 4000 shares @ 25 each.

Prepare Investment Accounts

WORKING NOTES

12%DEBENTURES IN S LTD

1.CUM INTEREST PURCHASE AS ON 15.4.18 MARCH [PREVIOUS DATE OF INTEREST 15TH

MAR]

NOMINAL VALUE 4,00,000 [4000 x 100]

EFFECTIVE COST PRICE [ECP]

TOTAL COST [4000 x 125.5] 5,02,000

ACCRUED INTEREST INCLUDED FOR 1 MONTH [SINCE THE TRANSACTION IS CUM INTEREST]

[ 4,00,000 x 12% x 1/12] 4,000

4,98,000

2. INTEREST RECEIVED ON 15THJUNE BEFORE CONVERSION FROM [15.03.2018 -15.06.2018]

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[ 4,00,000 x 12% x 3/12] 12,000

3.CONVERSION TO EQUITY SHARES ON 15THJUNE.

NOMINAL VALUE OF DEBENTURE CONVERTED 4,00,000 WHEREAS THE ECP OF SUCH

DEBENTURES IS 4,98,000. THE NOMINAL VALUE OF EQUITY SHARES ISSUED FOR THE
PURPOSE IS 2, 00,000 . HOWEVER ECP OF THE SHARES ISSUED FOR THE PURPOSE IS
4,98,000

12%DEBENTURES IN K LTD

4.CUM INTEREST PURCHASE AS ON 1.6.06 [PREVIOUS DATE OF INTEREST 1ST APRIL]

NOMINAL VALUE 10,00,000 [10000 x 100]

EFFECTIVE COST PRICE [ECP]

TOTAL COST 11,00,000

ACCRUED INTEREST INCLUDED FOR 2MONTH [SINCE THE TRANSACTION IS CUM INTEREST]

10,00,000 x 12% x 2/12 20,000

10,80,000

5. INTEREST RECEIVED ON 1STOCTOBER

[ 10,00,000 x 12% x 6/12] 60,000

SHARES OF S LTD

6. NOMINAL VALUE 2,00,000 [20,000 x 10]

EFFECTIVE COST PRICE 4,98,000

7. DIVIDEND RECEIVED ON SHARES ON 25.8.06.

NOMINAL VALUE HELD AS ON THE DATE IS 2,00,000

[ 200,000 x 20%] 40,000

7. NUMBER OF RIGHT ENTITLEMENT: 20,000/20 = 1,000

SALE OF RIGHT ENTITLEMENT: 1,000 x 4= 4,000 [TRANSFERRED TO P/L]

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12% DEBENTURE IN S LTD ACCOUNT

DATE PARTICULAR NOMINAL ECP INTEREST DATE PARTICULAR NOMINAL ESP INTEREST
S S
15.4 BANK 4,00,000 4,98,000 4,000 15.6 EQUITY 4,00,000 4,98,000
31.3 P/L 8,000 SHARES IN S
LTD
15.6 BANK 12,000

4,00,000 4,98,000 12,000 4,00,000 4,98,000 12,000

TH
INTEREST PAYABLE ON 15 MAR AND 15THSEPT

12% DEBENTURE IN K LTD ACCOUNT

DAT PARTICULARS NOMINAL ECP INTEREST DAT PARTICULARS NOMINAL ESP INTEREST
E E

15.6 BANK 10,00,000 10,80,000 20,000 1.10 BANK 60,000

31.3 P/L 1,00,000 31.3 BALANCE 10,00,000 10,80,000 60,000

10,00,000 10,80,000 120,000 10,00,000 10,80,000 120,000

INTEREST PAYABLE ON 1STAPR AND 1STOCT

INVESTMENT IN SHARE ACCOUNT

DATE PARTIC NOMINAL ECP DIV DATE PARTI NOMINAL ESP DIV
C

NO NO
15.6 DEBENTU 20000 2,00,000 4,98,000 25.8 BANK 4000 40,000 1,00,000
RE 15.3 BANK 40,000
31.3 400 31.12 BAL 16,000 1,60,000 3,98,400
31.3 P/L [₹100000- 40,000
99600]
P/L

20,000 2,00,000 4,98,400 40,000 20,000 2,00,000 4,98,400 40,000

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