(ACCOUNTING FOR INVESTMENTS)
I want to know the exact A/c Treatment for Sale of Right (Right Issue and not the Shares) that whether amount received from the sale of right is entered into the Dividend/Income Columns or in Cost Column to reduce the Cost Price of Shares.
As per the P.C. Tulsian Book (Revised Version) it will treated as Dividend/Income while in the earlier editions of the same author shows the credit to the Cost Column. For details, i am just illustrating as below:
Mr. X holds 10000 Equity Shares of Y Ltd. @ Rs. 10/- each as on 01.04.2001. Y Ltd. offers the Right Shares to X in the proportion of 1:2 @ Rs. 8/- per share. Mr. X has the option to not to excercise the issue but he can sale the right to another Person. Accordingly Mr. X transfer the Right to Mr. Z i.e. 5000 shares for Rs. 0.5/- i.e. Rs. 2500/- . Now while preparing the Investment A/c in the books of X whether this Sale Proceed of Rs. 2500/- is to be entered in the Dividend/Income Column or in Cost Column. As there is no Sale of Right Shares it was just sale of Right.
The book of Dr. P.C. tulsian with their revised editions is contradicting this concept. As earlier it was treated as Cost Reduction but now it is shown as Income. Moreover in the latest ICAI Module it is clearly mentioned that it is to be treated as Income as done in Latest Edition of P.C. Tulsian but the questions of ICAI Modules are solved by treating it as Cost Reduction.
Please clarify on it.....
CAclubindia
