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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Nirmal Ltd. holds 10,000 shares of Zenith Ltd. (face value Rs 10) as a long-term investment, carried at cost Rs 1,20,000. Zenith Ltd. issued bonus shares in the ratio 1:2, then Nirmal Ltd. sold 4,000 shares from the total holding for Rs 14 per share. Using average cost, what profit or loss arises on the sale?

The profit is Rs 24,000, which is not among the options as printed, so the stated key is incorrect.

  1. AProfit Rs 8,000Correct
  2. BLoss Rs 8,000
  3. CProfit Rs 56,000
  4. DProfit Rs 20,000

Explanation

Bonus shares: 5,000, total 15,000 shares, no extra cost. Average cost = 1,20,000/15,000 = Rs 8 per share. Cost of 4,000 shares = 32,000. Sale = 4,000 x 14 = 56,000. Profit = 24,000... recompute: 56,000 - 32,000 = 24,000.

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