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Investment A/c - Sale of Right Shares ???

Krish (CA Final ) (3331 Points)

17 July 2010

In Investment A/c, What is the adjustment criteria for sale of right share.

Sometime we treat it as Income and sometime as Cost of acquistion. What is the concept for the same ?? Kindly suggest me.........................

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5 Replies

Sagar Zankhariya (Audit Assist.) (278 Points)
Replied 17 July 2010

Hi... Krishna

As per your question my answer here attached.

Pls find may be satisfied.

And any further quarry pls tell me about it.

Regards

Sagar Zankhariya

Attached File : 23 krishna answer.doc downloaded: 427 times

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Krish (CA Final ) (3331 Points)
Replied 17 July 2010

Dear Sagar,

Very Very thanks for replying, it is really helpful for me. But actually I want to ask that why we consider it as Income, while in some other cases it is treated as Cost of acquisition.

For better clearance, lets we take example

In my study mat. i have gone through the situation in a question with statement "X sold 33.33 % of his entitlement of right to Y for consideration of Rs. 2 per share."

In study material, it has been treated as Cost of acuquistion. (Capital receipt)

While in some other book, it has been treated as Income (Revenue receipt)

I am getting confused, how shall we recognise it that the same should be either Capital or Income receipt. ?

Suraj Khandelwal Saha (none) (28 Points)
Replied 25 October 2013

Both are correct. you can follow anyone....Its better to follow Capital receipt as it is treated as recovery of cost. For example RIL Shares having FV 10 but its MV is Rs 800 So when you purchase the shares you are paying Rs 790 extra i.e. excess. So on selling rights to someone you are getting back what you paid excess at the time of purchasing the shares.