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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Nair Enterprises Ltd. holds equity shares of Zenith Ltd., bought in two lots: 2,000 shares at Rs 50 each and later 3,000 shares at Rs 70 each. The company sold 1,500 of these shares at Rs 80 per share and paid brokerage of Rs 1,500 on the sale. Cost is determined on a weighted average basis. What is the profit on sale to be credited to the profit and loss statement?

The profit on sale is Rs 25,500. The weighted average cost is Rs 62 per share (Rs 3,10,000 over 5,000 shares), so the cost of 1,500 shares is Rs 93,000. Net proceeds after brokerage are Rs 1,18,500, and the difference is the profit.

  1. ARs 27,000
  2. BRs 25,500Correct
  3. CRs 43,500
  4. DRs 13,500

Explanation

Total cost is 1,00,000 + 2,10,000 = Rs 3,10,000 for 5,000 shares, so the average cost is Rs 62 per share. Cost of the shares sold is 1,500 × 62 = Rs 93,000. Net sale proceeds are 1,20,000 − 1,500 = Rs 1,18,500. Profit = 1,18,500 − 93,000 = Rs 25,500. Rs 27,000 ignores the brokerage, and Rs 43,500 uses the first lot's cost of Rs 50 instead of the average.

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