When shares are purchased and then sold at a profit, it results in a capital gain. The following example illustrates the necessary journal entries for such transactions, including any associated expenses like brokerage, stamp duty, and service tax.
Example Scenario
Purchase of Shares:
- Purchase cost: ₹31,000
- Expenses (Brokerage, Stamp Duty, Service Tax): ₹1,000
Sale of Shares:
- Sale proceeds: ₹39,400
Journal Entries
1. Purchase of Shares
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-07-2024 | Investment in Shares | 31,000 | Investment in shares(Asset) | |
| 01-07-2024 | Brokerage and Other Charges | 1,000 | Expenses related to purchase | |
| 01-07-2024 | To Bank | 32,000 | Payment for shares and expenses |
Explanation:
- Investment in Shares Account Debit: Records the cost of the shares.
- Brokerage and Other Charges Account Debit: Records the expenses incurred during the purchase.
- To Bank Account Credit: Reflects the payment made for the shares and related expenses.
2. Sale of Shares
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2024 | Bank | 39,400 | Proceeds from sale of shares | |
| 01-08-2024 | To Investment in Shares | 31,000 | Removing the investment from books(Asset) | |
| 01-08-2024 | To Short-term Capital Gain | 8400 | Expenses related Recording the capital gain | |
Explanation:
- Bank Account Debit: Records the inflow of cash from the sale of shares.
- To Investment in Shares Account Credit: Removes the investment from the books.
- To Short-term Capital Gain Account Credit: Records the capital gain from the sale of shares.