investment account

while preparation of investment account, if investment in shares, we need to follow weighted average cost method. 

sale of bonus shares are credited to Investment a/c.

Cost of bonus sahres is to be calculate under weighted average cost method. 

difference is considered as profit or loss on sale of Bonus shares.

number of shares column and Amount column only.

Number of shares held originally = 100 shares

Bonus announcement                  = 1:1

Purchase price                             = Rs 50/- per share

Number of Bonus shares             = 100 shares

Cost of original sahres                = (100 shares x 50/-) = 5,000

Cost of Bonus shares (under weighted average cost method) = (total cost / total number of shares after bonus) x Number of bonus shares

= (Rs. 5000 / 200 sh) x 100 sh = Rs. 2,500

trader wants to sell the bonus shares at Rs. 30/- per share

Sale proceeds of bonus shares            = Rs. 3,000

                  (100 shares x 30)

Less: cost of bonus shares                   = Rs. 2,500

Profit on sale of Bonus shares                         500