AS –13 provides that if the investments are acquired at cum-right basis and the market value of
the investment after becoming ex-right is less than the cost of acquisition then the sale proceed, if
any, from the rate of right entitlement should be deducted from the cost of investment.
In the above case, D Ltd. had acquired the shares at cum right basis. So, the sale proceeds of
right entitlement should be adjusted in the cost of investment as follows:
Rs.
Cost of existing investment (1,000 shares) 30,000
Cost of new investment at cum right price (1,000 ´ Rs. 60) 60,000
Total cost (2,000 shares) 90,000
Total right entitlement ( 1 : 2 ratio) 1,000 shares
Sale of right of 250 share @ Rs. 10 2,500
Subscripttion to right shares (750 ´ Rs. 50) 37,500
Calculation of carrying cost:
Cost of 2,000 shares 90,000
Cost of right share (750) 37,500
Total cost 1,27,500
Less: Sale proceeds of right entitlement 2,500
Carrying cost of investment 1,25,000
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