An investment account for ordinary shares has three columns on both the debit and credit sides:

• Nominal column: Records the face/stated value of shares (not part of double-entry)
• Income column: Records dividend income and accrued dividends (part of double-entry)
• Capital column: Records the cost of acquisition and disposal proceeds (part of double-entry)

The profit or loss on disposal is determined by balancing the capital column and is transferred to the profit or loss account.

When purchasing ordinary shares, the total cost includes the purchase price plus any additional expenses (brokerage fees, stamp duty). This total is recorded in the capital column on the debit side.

Journal entry for purchase:

• Debit: Investment Account (Capital column) — total cost
• Credit: Bank Account

When selling shares, the proceeds are recorded in the capital column on the credit side. The profit or loss is calculated by comparing proceeds to the proportional cost of the shares sold.

Calculation of profit or loss on disposal: $\text{Profit/Loss} = \text{Proceeds} - \text{Cost of shares sold}$

Where: $\text{Cost of shares sold} = \frac{\text{Number of shares sold}}{\text{Total shares held}} \times \text{Total cost of investment}$

The timing of a share purchase relative to dividend payment affects the price quotation:

Cum-Div (Cumulative Dividend) Price

• Includes accrued dividend up to the transaction date
• Purchase price is higher than normal market price
• The buyer will receive the upcoming dividend
• Recording: Split the payment into capital (normal price) and income (accrued dividend)

Ex-Div (Excluding Dividend) Price

• Does NOT include accrued dividend
• Purchase price is the normal market price only
• The seller retains the right to receive the upcoming dividend
• Recording: Record the full price in capital column; accrued dividend is paid separately

Returns from equity investments come in two forms:

1. Dividends: Cash distributions from company's profits, approved by the board of directors
2. Capital Gains: Profit from selling shares at a price higher than the purchase price

Problem: On 1st January 2023, Hasa Ltd purchased 2,000 ordinary shares of Sasa Plc at TZS 2,500,000. On 1st September 2023, Sasa Plc gave existing shareholders rights to buy 1 new share for every 2 shares held at TZS 800 each. Hasa Ltd exercised the right to buy new shares. On 15th December 2023, Hasa Ltd sold 500 shares at TZS 1,200 each.

Required: Record transactions in the investment account and calculate profit on sale.

Solution:

Step 1: Calculate the cost of rights issue

Rights issue = 1/2 × 2,000 shares × TZS 800 = TZS 800,000

Total shares after rights = 2,000 + 1,000 = 3,000 shares

Total cost = TZS 2,500,000 + TZS 800,000 = TZS 3,300,000

Step 2: Calculate proceeds from sale

Proceeds = 500 shares × TZS 1,200 = TZS 600,000

Step 3: Calculate cost of shares sold

$\text{Cost} = \frac{500}{3,000} \times TZS 3,300,000 = TZS 550,000$

Step 4: Calculate profit on sale

$\text{Profit} = TZS 600,000 - TZS 550,000 = TZS 50,000$

Investment Account (Common Shares of Sasa Plc)

• Always maintain separate investment accounts for each type of investment
• The total cost includes purchase price plus acquisition expenses
• When calculating profit or loss on disposal, use the average cost method
• Cum-div price includes accrued dividend; ex-div price excludes it
• Dividends received are recorded in the income column
• Balance the investment account at year-end to determine carrying value and investment income

A Form 5 student whose parent receives a retirement package of TZS 10,000,000 can apply this knowledge by advising on investing in shares listed on the Dar es Salaam Stock Exchange (DSE). The student could help maintain records of any dividends received from CRDB Bank or Tanzania Breweries shares, track the purchase cost including broker fees, and calculate whether selling shares later would result in a capital gain or loss—skills directly used in managing family savings and planning for university fees.