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AS 13 - Sale of right - entry.

10 May 2007

Suppose, a shareholder got 5000 right share which he sold to other at Rs 2 each. What will be the entry?
Proposed entry:
1.Back a/c Dr ... To Investment a/c .... Rs 10000
2. What next ?

In the book of DS Rawat's AS, (Q no - 3) I got new entry like followings -
1. Back a/c Dr ... To Investment a/c .... Rs 10000
2. Bank a/c Dr .... To Profit & Loss a/c .... Rs 10000.

## My question is the last entry.....

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6 Replies

Ankit Bhatia (163 Points)
Replied 10 May 2007

atleast write the names of the involved A/Cs carefully

Anuj (19 Points)
Replied 10 May 2007

first learn to write your Qs correctly and then ask for solution.

Surajit Kashyapi (31 Points)
Replied 10 May 2007

Anuj... dont give valuable response any more.
Ankit... I want to know the all entries on right issue.. so please take any example and give the entries in related books.

Any one can help me on that

Akshay (22 Points)
Replied 10 May 2007

hey
Ur doubt is a bit incomplete but got to know ur question
See if the rights are renounced then you will credit the P&L account as rightly done in Rawat
If you are selling the right issue subscribed by you then you need to route it through investment by bringing in the cost of investment to that extent and realising your profit or loss on sale in to P&L account
So got the ans buddy

V K Bansal (43 Points)
Replied 10 May 2007

hi

akshay's ans also not complete.

example- company offer right issue of 5000 shares at 20 each. these can be renounced at rs. 5 each.

in case of right one has 2 options - (1) renounce the right issue (2) subscribe the share

(2) when shares are subscribed, cost of right is debited to Investment a/c

Investment a/c dr (5000*20) 100000.......To bank.

when these are sold entry is bank a/c dr ......to investment a/c......balance P&L a/c.

(1) when right is renunced in favour of other person

Bank a/c dr (5000*5) 25000.......To P& L a/c........because it is a gain.

however it is subject to original shares was not purchased cum-right.

if original shares purchsed cum-right.....value of original shares is an increased amount. in such case ...

bank a/c dr. 25000......To Investment a/c.

Vineet

Ganesh (18 Points)
Replied 10 May 2007

renounceme of right treatment is as follows in the following two situations:
1) SUPPOSE MR X holds 1000 Shares in XYZ CO. AND company offers 1:4 rights @ Rs 20 per right share and these shares applied by mr X to the comapany then the investment account should be debited whith the value of 20X250=5000.
Supose if Mr X renounced these rights in fovour some other person in the open market @ Rs 2 per right then according to AS 13 that sale proceeds of 250x2=500 tobe credited to the P&L account.
2) in case the above 1000 shares are purchased in the openmarket with cum right price of Rs 50 per share and
rights are applied to the company then the right amount which is paid to the company shall be debited to the investment account.
if the rights are renounced infavour of some other person and after the Ex-rights market value of shares are decreased then the sale proceeds of rights shall be utilised to bring the cost of purchase of those investments to market value so,then the right proceeds shallbe credited to the investment account.

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