When a company realizes a capital gain on the sale of shares, it needs to record the transaction to reflect the profit made. This involves debiting the cash account with the proceeds from the sale, crediting the investment account to remove the cost of the shares sold, and crediting a capital gains account to recognize the profit.
Scenario:
Assume a company sells shares for ₹120,000 that were originally purchased for ₹80,000, realizing a capital gain of ₹40,000.
Journal Entry for Capital Gain on Shares:
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-01 | Cash/Bank A/c | 120,000 | |
| To Investment in Shares A/c | 80,000 | ||
| To Capital Gain on Sale of Shares A/c | 40,000 | ||
| (Being sale of shares and recognition of capital gain) |
Explanation:
- Cash/Bank A/c is debited with the total sale proceeds (₹120,000).
- Investment in Shares A/c is credited with the cost of the shares sold (₹80,000).
- Capital Gain on Sale of Shares A/c is credited with the profit made on the sale (₹40,000).
Example with Different Details
Scenario: A company sells shares for ₹200,000 that were originally purchased for ₹150,000, realizing a capital gain of ₹50,000.
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-01 | Cash/Bank A/c | 200,000 | |
| To Investment in Shares A/c | 150,000 | ||
| To Capital Gain on Sale of Shares A/c | 50,000 | ||
| (Being sale of shares and recognition of capital gain) |
Summary:
Recording capital gains on shares accurately reflects the financial performance of the company, showing the profit earned from investments. This helps in understanding the company's investment performance and provides clear information for financial analysis and reporting.
