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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Narmada Industries Ltd. holds 5,000 equity shares of Tapi Ltd. as long-term investments, with cost Rs 80 per share. Tapi Ltd. made a rights issue of 1 share for every 5 held at Rs 60 per share. Narmada Industries subscribed fully to its entitlement. The rights entitlement was not sold. What is the total carrying cost of the investment after the rights subscription?

The total carrying cost is Rs 4,60,000. The original 5,000 shares cost Rs 4,00,000, and subscribing to 1,000 rights shares at Rs 60 adds Rs 60,000. Under AS 13 the amount paid for rights shares is added to cost, giving 6,000 shares at a total cost of Rs 4,60,000.

  1. ARs 4,60,000Correct
  2. BRs 4,00,000
  3. CRs 4,40,000
  4. DRs 4,80,000

Explanation

Original cost = 5,000 x 80 = Rs 4,00,000. Rights shares = 5,000/5 = 1,000 shares at Rs 60 = Rs 60,000. Total cost = 4,00,000 + 60,000 = Rs 4,60,000 for 6,000 shares. Rs 4,00,000 ignores the amount paid for rights shares.

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