Accounting Entry for Shares
This query is : Resolved
03 January 2025
Kindly guide me how to make accounting entry for Shares if:-
1. A company Purchases eq.Shares
2.Sells an eq.shares
3.Entry for Gain/(Loss)
and how will I present in company books of Accounts?
1. A company Purchases eq.Shares
2.Sells an eq.shares
3.Entry for Gain/(Loss)
and how will I present in company books of Accounts?
03 January 2025
When a company purchases, sells, or experiences gains/losses on equity shares, the accounting entries and presentation in the books of accounts are handled as follows:
**1. Purchase of Equity Shares**
* When a company purchases equity shares of another company, it is considered an investment.
* The investment is recorded at cost, which includes the purchase price plus any directly attributable costs like brokerage and commissions.
**Journal Entry:**
Investment in Equity Shares A/c Dr. XXX
To Bank A/c Cr. XXX
(Being purchase of XXX shares of Company Y)
**2. Sale of Equity Shares**
* When the company sells these shares, the proceeds from the sale are compared to the carrying amount (cost) of the shares to determine any gain or loss.
**Journal Entry:**
Bank A/c Dr. XXX
To Investment in Equity Shares A/c Cr. XXX
To Gain/Loss on Sale of Investments A/c Cr./Dr. XXX
(Being sale of XXX shares of Company Y)
**3. Entry for Gain/(Loss)**
* The gain or loss on the sale of investments is the difference between the selling price (net of any selling expenses) and the carrying amount (cost) of the shares sold.
* If the selling price is higher than the carrying amount, it's a gain. If it's lower, it's a loss.
**Journal Entry:**
Bank A/c Dr. 12,000
To Investment in Equity Shares A/c Cr. 10,000
To Gain on Sale of Investments A/c Cr. 2,000
(Being sale of 1,000 shares of Company B)
**Presentation in Company Books of Accounts**
* **Balance Sheet:**
* Investments in equity shares are usually classified as non-current assets (unless they are intended to be held for trading, in which case they are current assets).
* They are shown at cost, subject to any impairment.
* **Income Statement:**
* Gains or losses on the sale of investments are reported as part of other income or expenses.
**1. Purchase of Equity Shares**
* When a company purchases equity shares of another company, it is considered an investment.
* The investment is recorded at cost, which includes the purchase price plus any directly attributable costs like brokerage and commissions.
**Journal Entry:**
Investment in Equity Shares A/c Dr. XXX
To Bank A/c Cr. XXX
(Being purchase of XXX shares of Company Y)
**2. Sale of Equity Shares**
* When the company sells these shares, the proceeds from the sale are compared to the carrying amount (cost) of the shares to determine any gain or loss.
**Journal Entry:**
Bank A/c Dr. XXX
To Investment in Equity Shares A/c Cr. XXX
To Gain/Loss on Sale of Investments A/c Cr./Dr. XXX
(Being sale of XXX shares of Company Y)
**3. Entry for Gain/(Loss)**
* The gain or loss on the sale of investments is the difference between the selling price (net of any selling expenses) and the carrying amount (cost) of the shares sold.
* If the selling price is higher than the carrying amount, it's a gain. If it's lower, it's a loss.
**Journal Entry:**
Bank A/c Dr. 12,000
To Investment in Equity Shares A/c Cr. 10,000
To Gain on Sale of Investments A/c Cr. 2,000
(Being sale of 1,000 shares of Company B)
**Presentation in Company Books of Accounts**
* **Balance Sheet:**
* Investments in equity shares are usually classified as non-current assets (unless they are intended to be held for trading, in which case they are current assets).
* They are shown at cost, subject to any impairment.
* **Income Statement:**
* Gains or losses on the sale of investments are reported as part of other income or expenses.
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03 January 2025
Completely clear. Thank you So much Sir.
03 January 2025
You are welcome.
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