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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Narmada Industries Ltd. holds 10,000 equity shares of Tapi Ltd. (face value Rs 10) bought at Rs 50 each. Tapi Ltd. later offered rights shares in the ratio 1:5 at Rs 30 per share. Narmada exercised its rights fully. Cost of the total holding after the rights issue will be:

The total cost is Rs 5,60,000. The original holding cost Rs 5,00,000, and a 1:5 rights offer on 10,000 shares gives 2,000 new shares at Rs 30, costing Rs 60,000. Under AS 13, the cost of rights shares is added to the existing carrying cost of the investment.

  1. ARs 5,60,000Correct
  2. BRs 5,30,000
  3. CRs 5,00,000
  4. DRs 5,90,000

Explanation

Original cost = 10,000 x 50 = 5,00,000. Rights shares = 10,000/5 = 2,000 at Rs 30 = 60,000. Total cost = 5,60,000. Rs 5,30,000 would wrongly use only 1,000 shares... the key mistake is ignoring or miscounting rights shares.

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