As of 31 December 2016, Company A holds 160 million shares with a par value of 0.5 per share of Subsidiary A, a publicly listed company (Total investment in Subsidiary A is 80.0 million representing 80% shareholding) (remaining 40.0 million shares is free-floating/ traded in the market) On 30 September 2017, Subsidiary A increased its share capital by 700 million through the issuance of fully tradeable rights issue of 1.4 billion rights at an issue price of 0.5/share. As Company A is holding 80% of Subsidiary A, it is entitled to 1.12 billion tradeable rights issue. The rights issue is separately traded in the stock exchange. The trading of rights issue was opened for one month, starting November 06, 2017, till ending of trading session December 05, 2017. On 12 November 2017, Company A sold 168 million rights issue to Company B for 470.4 million at 2.8 per right which is the market price of each right at that date. On 6 December 2017, Company A exercised its remaining rights issue of 952 million rights and subscribed to the shares of subsidiary A for 476 million at 0.50 per share (which is also the par value). Questions: 1. Normally, no entry is being made for the entitlement to the rights issue. Is this also the case for tradable rights issue? 2. On 12 November 2017, how should the sale be treated? Is this an income or a reduction in the investment account as this will effectively dilute the shareholding of Company A in Subsidiary A.
