## Right Shares under AS 13
### What Are Right Shares?
Right shares are an offer from the company to existing shareholders to subscribe to new shares, usually at a price below the current market rate. Each shareholder gets a right proportional to their holding.
---
### Two Choices for the Shareholder
| Action | Meaning | Accounting |
|---|---|---|
| Subscribe | Pay the issue price; receive new shares | Debit Investment A/c at cost |
| Renounce | Sell the right to a third party for a premium | Credit P&L (profit on sale of rights) |
---
### Key Principle
Under AS 13, no cost is allocated from the parent investment to the rights. Therefore:
- If you subscribe: cost = subscription price paid × number of right shares
- If you renounce: proceeds received = pure profit (zero cost base for the right)
---
### Right Ratio Calculation
$$\text{Right shares} = \text{Eligible shares} \times \frac{\text{Rights ratio numerator}}{\text{Rights ratio denominator}}$$
Eligible shares = all shares held on the record date (opening + purchases + bonus)
---
### Journal Entries
Subscribing right shares:
```
Investment in Eq. Shares A/c Dr [Subscription amount]
To Bank / CIB A/c [Subscription amount]
```
Renouncing (selling) right shares:
```
CIB A/c Dr [Sale proceeds]
To P&L (Profit on sale of rights) [Sale proceeds]
```
---
### Partial Subscribe / Partial Renounce
If a shareholder subscribes 50% and renounces 50%:
- Apply subscription treatment to 50% of rights
- Apply renouncement treatment to remaining 50%