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Advanced Accounting · AS 13 Accounting for Investments

Bonus Shares, Rights Issue and Cum-Interest Transactions under AS 13

Updated 4 October 2026 · Fact-checked

Under AS 13, bonus shares add to the number of shares at nil cost, so average cost per share falls. Rights shares cost the amount you pay. Sale of rights goes to profit and loss. In cum-interest purchases, split out accrued interest and keep only the balance as cost.

Understand Bonus Shares, Rights Issue and Cum-Interest Transactions

An investment account tracks three things: number of units, cost, and income. Bonus shares, rights and accrued interest each change one of these in a different way. Learn which one changes and the sums become routine.

Bonus shares are issued free out of the company's reserves. You pay nothing, so cost added is nil. The number of shares rises, so the average cost per share falls, but total cost stays the same. Bonus shares are not income for you.

Rights shares are offered to existing holders at a fixed price. If you subscribe, the cost of the new shares is the amount you pay. Your original cost does not change. If you do not subscribe and instead sell (renounce) the right, the amount received is treated as a gain and credited to the Statement of Profit and Loss. It is not deducted from the cost of the original shares. Always check whether the question tells you to treat it differently.

Cum-interest means the quoted price includes interest accrued since the last interest date. That accrued part is the seller's income, not the cost of the debenture. So you split the price: accrued interest goes to the Interest account, the balance is cost. Ex-interest means the quoted price excludes accrued interest. The buyer pays the accrued interest separately, and it is again debited to Interest account, not to cost.

On sale the mirror image applies. Interest accrued up to the date of sale is credited to Interest account. Profit or loss on sale is the net sale price (without interest) minus the carrying cost of the units sold. Brokerage and similar acquisition charges are part of the cost; on sale they reduce the sale proceeds.

Key rules to remember

Bonus shares received
Bonus shares = Shares held × Bonus ratio
For 1:5 bonus, divide shares held by 5. Cost of bonus shares = nil.
Rights shares entitlement
Rights entitlement = Shares held (after any earlier bonus) × Rights ratio
Use the holding on the record date. Include bonus shares if they were allotted earlier.
Cost of rights shares
Cost = Number of rights shares subscribed × Issue price (plus brokerage or other direct charges)
Added to total cost of the investment.
Sale of rights
Profit on renunciation = Sale proceeds of rights (less any expenses)
Credited to Statement of Profit and Loss. Cost of original shares is unchanged.
Average cost per share
Average cost = Total cost ÷ Total number of shares held
Recompute after every bonus or rights subscription. Use it to cost shares sold.
Accrued interest
Accrued interest = Nominal value × Interest rate × Months since last interest date ÷ 12
Use days ÷ 365 if the question gives exact dates.
Cost of debenture, cum-interest
Cost = Total price paid − Accrued interest
Add brokerage to cost. Accrued interest is debited to Interest account.
Cost of debenture, ex-interest
Cost = Price paid (excluding interest)
Accrued interest paid separately is debited to Interest account.
Profit or loss on sale
Profit or (loss) = Sale price excluding accrued interest − Carrying cost of units sold
If the sale is cum-interest, first remove the accrued interest from the sale price.

How to solve Bonus Shares, Rights Issue and Cum-Interest Transactions questions

Use this method for any bonus, rights or cum-interest problem. Keep a table of number of units, cost and interest in the investment account format.

  1. 1List events in date order: purchase, bonus, rights, sales, interest dates. Note the ratio and price for each.
  2. 2Open a table with columns for number, nominal value (for debentures), interest and amount (cost). Write the opening balance first.
  3. 3For a bonus issue, add the number of shares and nil amount. Do not touch cost. Compute the new average cost.
  4. 4For rights, compute entitlement on the correct holding. Add subscribed shares at the issue price to number and cost. Credit proceeds of any renounced rights to the Statement of Profit and Loss, not to cost.
  5. 5For debentures, compute accrued interest from the last interest date. Cum-interest: deduct it from the price paid to find cost. Ex-interest: cost equals price; interest is paid in addition.
  6. 6For a sale, cost the units sold at average cost (or as the question directs). Remove accrued interest from a cum-interest sale price and credit it to Interest account.
  7. 7Calculate profit or loss on sale. Then find the closing number and cost. Check that opening plus additions minus sales agrees with the closing figures.
  8. 8Write the final answer clearly: profit or loss, interest income, closing balance and carrying amount, as the question asks.

Quickest way: Table, average cost and interest-split shortcut

When to use it: Use for MCQs and for time-pressed written answers where only the closing balance, profit or interest is asked.

  1. For MCQs, note first that total cost never changes on a bonus issue. Eliminate options that add cost for bonus shares.
  2. Total cost after rights = old cost + (shares subscribed × issue price). Divide by total shares for average cost.
  3. For rights sold, the proceeds are a profit item. Any option that reduces the investment cost by the rights proceeds is usually the trap, unless the question says so.
  4. For debentures, compute accrued interest first: nominal × rate × months ÷ 12. Cum-interest: price minus that. Ex-interest: price as given.
  5. In written answers, draw the investment account with number, interest and cost columns. Show the working notes for bonus, rights and accrued interest separately. Each note earns step marks even if the final balance is wrong.

Common mistakes in Bonus Shares, Rights Issue and Cum-Interest Transactions

  • Adding a value to cost for bonus shares.

    Students value bonus shares at market price or face value because shares were received.

    Fix: Bonus shares are free. Add the number of shares with nil amount and recompute average cost.

  • Deducting the sale proceeds of rights from the cost of the original shares.

    Students link the right to the original holding and want to reduce cost.

    Fix: Credit the proceeds to the Statement of Profit and Loss as profit on renunciation, unless the question directs otherwise.

  • Computing rights entitlement on the old holding when a bonus was issued earlier.

    Students ignore the order of events.

    Fix: Update the share count after the bonus before applying the rights ratio, if the bonus came first.

  • Treating the whole cum-interest price as the cost of the debenture.

    The price paid looks like the cost.

    Fix: Remove accrued interest from the price. Debit it to Interest account. Only the balance is cost.

  • Counting interest for the wrong period.

    Students count from the purchase date or the year start instead of the last interest date.

    Fix: Accrued interest at purchase runs from the last interest date to the purchase date. Income for the year runs for the period actually held.

  • Costing shares sold at the latest purchase price instead of average cost.

    Students forget bonus and rights change the average.

    Fix: Recompute average cost after each event and use it for the shares sold, unless FIFO is specified.

Worked examples

Example 1

Mr. A held 10,000 equity shares of ₹10 each in X Ltd, bought at ₹25 per share. X Ltd issued bonus shares in the ratio 1:5. Later it offered rights shares in the ratio 1:4 at ₹15 per share on the new holding. Mr. A subscribed for 2,000 shares and renounced the balance of his entitlement at ₹5 per right. He then sold 5,000 shares at ₹28 per share. The renunciation rate and the sale price are given figures and are hypothetical; use them as stated and do not derive them from market prices. Show the profit on sale, the profit on renunciation and the closing balance.

Show the solution
  1. Opening: 10,000 shares at ₹25 = ₹2,50,000.
  2. Bonus 1:5 → 10,000 ÷ 5 = 2,000 shares at nil cost. Holding = 12,000 shares. Cost remains ₹2,50,000.
  3. Rights 1:4 on 12,000 → entitlement = 12,000 ÷ 4 = 3,000 shares.
  4. Subscribed for 2,000 shares at ₹15 = ₹30,000. Total cost = ₹2,50,000 + ₹30,000 = ₹2,80,000. Holding = 12,000 + 2,000 = 14,000 shares.
  5. Renounced rights = 3,000 − 2,000 = 1,000 rights. At the given ₹5 per right = ₹5,000, credited to the Statement of Profit and Loss. Cost is unchanged.
  6. Average cost = ₹2,80,000 ÷ 14,000 = ₹20 per share.
  7. Sale of 5,000 shares at ₹28 = ₹1,40,000. Cost = 5,000 × ₹20 = ₹1,00,000. Profit = ₹40,000.
  8. Closing: 14,000 − 5,000 = 9,000 shares at ₹20 = ₹1,80,000. Check: ₹2,80,000 − ₹1,00,000 = ₹1,80,000.

Answer: Profit on sale of shares ₹40,000; profit on renunciation of rights ₹5,000; closing balance 9,000 shares at cost ₹1,80,000.

Example 2

On 1 October 2026, Ms. B bought ₹1,00,000 nominal of 12% debentures at ₹96 per ₹100 cum-interest. Interest is paid on 30 June and 31 December. She received interest on 31 December 2026. On 1 March 2027 she sold ₹40,000 nominal at ₹97 per ₹100 cum-interest. Her year ends on 31 March 2027. Ignore brokerage. Find the cost of the debentures, profit on sale and total interest income for the year.

Show the solution
  1. Price paid = ₹1,00,000 × 96% = ₹96,000 (cum-interest).
  2. Accrued interest at purchase: 1 July to 1 October = 3 months. ₹1,00,000 × 12% × 3/12 = ₹3,000.
  3. Cost of debentures = ₹96,000 − ₹3,000 = ₹93,000. Debit Interest account with ₹3,000.
  4. Interest received on 31 December 2026 = ₹1,00,000 × 12% × 6/12 = ₹6,000. Income for 1 October to 31 December = ₹6,000 − ₹3,000 = ₹3,000.
  5. Sale on 1 March 2027: price = ₹40,000 × 97% = ₹38,800 (cum-interest).
  6. Accrued interest on ₹40,000 from 1 January to 1 March = 2 months. ₹40,000 × 12% × 2/12 = ₹800. Net sale price = ₹38,800 − ₹800 = ₹38,000.
  7. Cost of ₹40,000 nominal sold = ₹93,000 × 40% = ₹37,200. Profit = ₹38,000 − ₹37,200 = ₹800.
  8. Interest on the remaining ₹60,000 nominal for 1 January to 31 March = 3 months. ₹60,000 × 12% × 3/12 = ₹1,800.
  9. Total interest income = ₹3,000 + ₹800 + ₹1,800 = ₹5,600.
  10. Closing balance: ₹60,000 nominal at cost ₹93,000 − ₹37,200 = ₹55,800.

Answer: Cost of debentures ₹93,000; profit on sale ₹800; interest income for the year ₹5,600; closing ₹60,000 nominal at cost ₹55,800.

Exam tips

  • Draw the investment account with columns for number or nominal value, interest and cost. Questions on this topic are usually solved faster in this format.
  • Show working notes for bonus shares, rights entitlement and accrued interest. Examiners give step marks for each note.
  • Read the order of events. A bonus issue before a rights issue changes the rights entitlement.
  • Check for the words cum-interest and ex-interest in each purchase and sale. Interest handling is where most marks are lost.
  • Always state the treatment of renounced rights in your answer: credited to the Statement of Profit and Loss.

Practice questions from AS 13 Accounting for Investments

Bonus Shares, Rights Issue and Cum-Interest Transactions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Bonus Shares, Rights Issue and Cum-Interest Transactions: frequently asked questions

Are bonus shares income for the investor under AS 13?

No. Bonus shares are issued free out of reserves, so the investor records only an increase in the number of shares. Total cost does not change, and the average cost per share falls.

How do I account for the sale of rights entitlement?

Credit the amount received from selling the rights to the Statement of Profit and Loss as profit on renunciation. The cost of the original shares stays unchanged, unless the question directs otherwise. Do not treat it as a reduction of the cost of the original holding.

What is the difference between cum-interest and ex-interest?

In a cum-interest deal the quoted price includes interest accrued since the last interest date. You must split that interest out of the price. In an ex-interest deal the price excludes it, and the accrued interest is paid or received separately. In both cases accrued interest goes to the Interest account, not to cost.

How do I cost shares sold after bonus and rights?

Compute total cost and total shares after every event, then find average cost. Multiply the shares sold by that average cost. Profit or loss is the sale proceeds less this cost.