4 I N V E S T M E N T ACCOUNTA

UNTINNG
4 (w.r.t. AS-13)

THEORY AND ILLUSTRATIONS

Page
OUTLINE

No. Toplc Debentures

Etc 294
ln
Accounting for Investment
1.1 Basic Concepts Journal
Entries in
Worksheet 1: AccountingI n v e s t m e n t Account
1.2
Format for
1.3 Worksheet 2: Account

Entries in Investment
1.4 Worksheet 3:
Shares 298
Investment in Equlty
2. ACCOunting for
2.1 Basic Concepts in
Investment Account
Transactions
2.2 Hecording 300
3. Illustrations
Bonds and Debentures
3.1
3.2 Shares

DEBENTURES ETC.
ACCOUNTING FOR
INVESTMENT IN
1

1.1 BASIC CONCEPTS

In ome Bearing (e.g. debentureska
be two types: (i) Fixed
) Types: Securities purchased may of shares).
equity
i) Variable Income Bearing (e.g. Preference shares, governne
Securities: Fixed Income Securities e.g.
) Fixed Income Bearing at fixed intervals.
bonds etc. earn fixed rate of interest
securities, debentures,
3) Interest: Nominal Value of the security.
(a) Calculation; Interestis always calculated on the
securities accrues on due dates fixed in advance.
(b) Accrual ; Interest on
to the holder of the security on the
due date, irrespective ofh
(c) Payment: Interest is paid
actual period of holding.
of Interest
) Effect of Date of Transfer on Accounting falls due. D
Transfer on Due Date: Ifa security is transferred on the exact date when interest
(a) seller.
entire interest up to that due date belongs the
to

b) Transfer on Other Date: Ifa security

is transferred on any other date, the recerve
interest
last due date uplo
the next due date by the purchaser made up of (i) interest from the
is
 nting (wrL 1S-13)ow
nentAccounting 295

ai) interest after date oftransfer. The seller has the right to claim the Interest
qesime f e r a n d(ii) C transfer as his income. The purchaser has the right to claim the interest after
t h e date o f
transfer as his i n c o m e .
pto af transfer
of
EfectofEx-Intes t and Cum-lnterest Price on
Accounting
d a t e

he

(a)Accrueahteree
fWhen a security is purchased, interest accrued from the last due date upto
ad Inierhase needs to be considered. Such interest is = NV x % of interest x Months
purch

t h e d t due
d a t e
of
date till
date till date
of purchase-12.
(he d u e

When a security 1s purchased on any day after the due date, the price may either
last

from

jnleresinclude such acérued interest. Ifthe price is only towards the cost and excludes the
st, it is known as ex-interest price. Thus, Ex-Interest Price
e d interest,
Cost of the
Since the acerued interest, as seen above, belongs to the seller, the purchaser
estmeditional amount towards the accrued interest to the seller. Thus, Total Payment by
seller. Thus, Total Payment by
the
+Accrued Interee
I n v e

Ex-Interest Price
purchaser=,
nterest: A l t e r n a rnatively, if the price is towards the cost as well as the accrued terest, it
Cum-as the cum-interest price. 1he total payment made by the purchaser is equal to this
i sk n o w n

Thus, Toota otal Payment by purchaser = Cum-Interest price. The accrued interest, in this
price is purchas hased' by the purchaser and belongs to him. The purchaser keeps back the
case.nterest. Since the pre-acquisition interest is a capital receipt, it reduces his cost of
a c c r u e d inte

investment.
Thus, Cum-Interest price Less Accrued interest Cost ofthe investment.
inves If XYZ buys 200 Debentures of nominal value of7 100 each of ICICI Ltd. (i) at
798 ( e x - i n t e r e s t ) oon 1-3-2013, (ii) at 101 (cum-interest) on 1-3-2013. [interest 12% p.a.
(d) Ex June: and
alf-yearly on 30th 31st December]
be paid ordeov
to
al value [Nv] of inyestment purchased is 20,000 in both the cases.o
(1)
Nominal
have to calculate Accrued
purchase
on 1-3-2013 we Interest [Jan. & Feb.]
(2)Tf Interest x Months from last due date till date of purchase 12
=
NVx % of
=T 20,000 x
12% x 2 12 =
7 400, epetelo13song bolouo-bis9 e
purchased
ex-interest eEsdoug to elsb olqu tes19/nt beurooA
(3)If sl mo arinot xteenotni to e x
paid= Cos 19,600 (200 x7 98)
Price
tal Payment Price paid + Acerued Interest Paid 20,000 ( 19,600)+7 4001
cum-interest,
(4)If purchased oA frsm/eevi
Price Paid (200 x
Total Payment= 20,200
101)
Cost Price paid Accued Interest Retained T 19,800 [ 20,200) - 400].
ol Sale Transactions: The above discussion equally applies to securities sold, with suitable
modifications (e.g. price is received instead of being paid; interest accrues upto the date of
sale etc). Thus, ps1olo
a Accrued Interest : When a security is sold, interest accrued from the last due date upto the
date of sale needs to be considered. Such interest is = NV x % o f Interest x Months from last

due date till date of sale 1 2 .

i) Ex-Interest: In case of an ex-interest sale price, the accrued interest belongs to the seller.
The seller receives an additional amount towards the accrued interest from the purchaser,
which is treated as income.
(i) Cum-lnterest: In case of a sale at a cum-interest price, the accrued interest is received along
with the sale price. Such accrued interest is a revenue income for the seller.
(iv)Examples: If ABC sells 100 Debentures of nominal value of 100 each of ICICI Ltd. (i) at
98 (ex-interest) on 1-3-2013; (ii) at 101 (cum-interest) on 1-3-2013; [interest 12% p.a.
to be
paid half-yearly on 3Oth June and 31st December]
Nominal value [NV] of investment sold is 10,000, in both the cases.
2) If sold on
1-3-2013; we have to calculate Accrued Interest [Jan. & Feb.]A nsd
NVx % of Interest x Months from last due date till date 12t
of sale +
oT
=R10,000 x 12% x 2 12 =7 200.
13ln sUO/ ebiswOT
oA fes9tnl of
 e
296
(3) If sold ex-interest; olis
FinancialAccountingg (T.YB.o
x
Y.B.Com.: SEM
ce received Capitalreceipt
=
=
79,800 [R 98 T00J 10,000
(4)
lotal receipts
If sold
=
Price recd. + tecrued Interest
recd=7
800)+ 20
cum-interest;
[R 101 x 100
ice received=Tolal receipts =7 10,100 Interest=9,900
Capital receipt Price received-Accrued
[R 101 0,100) -T20
INote: If the details are not available in an examination probiem, Students shoul
securities are traded at 'ex-interest'
ould assume
prices.J whether tthe
me t
6) Accrued Interest: However, for the purpose of accounting, price is
ex-interest, accrued interest is always
calculated and entered in the Income cum-
columninteteina
Investment Account.
(7) Brokerage on Actual Price: Brokerage (on purchase or sale)
snoibbe
is normally
n
purchase or sale price i.e. the cum-interest price. In case ot purchase transactiond calcu ked ona
the purchase cos and in case of a sale transaction it 1s deducted from the Salaad
syllabus specifically excludes brokerage.
Sale Price.added
(8 Investment Account: A separate Investment Account is opened tor each scrip purcha
archased
2WoORKSHEET 1: ACCOUNTING ENTRIES IN JOURNAL
No. 60to 2030 Amount
Transaction/Entry 1 e191
(1) Purchase [at Ex-Interest
Investment A/c PricelebasDr. Towards Cost Pricel
Interest A/c hod oi 000,05 bopsdougDr.[Towards Accrued terest
To Bank Ac w a d ar[Total Paid =iPrice + Inte
Notes:
1. Price Paid Quoted Price +
Brokerage 0045-C x 000.00
2. Accrued Interest
upto date of purchase
NVx % of Interest x Months from last due date till date of purchase + 12
3. Purchased ex-interest; so, Total Payment=Price paid + Accrued Interest.
(2) Purchase [at Cum-Interest Pricel
Investment A/c Dr. [Towards Costomug
(10100S)005.0 = Price Interest]ang
Interest A/cncon00ue (Towards Accrued Interest
Dr. [Total
To Bank Alc Paid = Price]

Noles:ii ofgu z9u7998 te915/a iBg ga19do beicil, bavie09121 901 . 9 )21OUE tbon
1. Price Paid Quoted Price +Brokerage
2Accrued Interest upto date of purchase
NVx % of Interestx Months from last due date till date of purchase 12
3. Purchased cum-interest; so, Cost =Price paid-Accrued interest
(3) Sale [at Ex-Interest Pricel391qlse ta
Bank AVc Dr. [Total Recd. Price +Interes
To Investment A/c [Towards Capital = Price]
To Interest A/c Towards Accrued Interest
Notes:
1, Price Received = Quoted Price- BroKerageordsi0 allse "20411okgpesa
2. Accrued Interest upto date of sale
1o:12513)-x)
= NVx% of Interest x Months from last due date till date of sale 12
3. Sold ex-interest; so, TotalReceipts =Pricereceived +Accrued InterestReceved
(4) Sale [at Cum-Interest Price
Bank Alc 9plt Dr. Price 0-11o bloe1R
0A
ToInvestment A / c B oph ouk te troit atiTowards Capital =

t Price Interest]
To Interest A/c lowards Accrued Interes
 e n fA c c o u n t i n g( w r t AS-13)se 297

Q u o t e d Price - Brokerage
eived = date of sale
Re s t upto
est x Months from last due date till date of sale 12
r u e dI n t e r e s

% orest; so, Received Towards Capital= Price received - Accrued

Interest.
2
Soldcum-in.
p r o f i to n S a l e

Investment A/c Dr.

A/c
ToP&
L
t h e profit or loss is calculated as Sale Price Less Weighted Average
s a l e

NOes
On
each

Cost on date of sale is equal to

nuooos
Average
l dC o s t .
Weighted.
S e
urities Sold
C u r i t i e
Sold
s
Total Cost of Investments on Date of Sale
No.of
o f Total
S e c u r i t e s

rage
Cost is to be used for ascertaining profit, as per Accounting
veighted Avera
We
ence, even if an examination problem states that securities are sold
(The
ndard 13. He
lot or out of the opening stock etc. Weighted Average Cost should be

o u t
rtaining profit.]
a s c e r t a

Profit
U s e
for
d

o ns a l e
ale of investment (whether current or long term investment) is transferred
loss a/c, by the above Journal entry.
&
to
profit

of investments (whether current or long term) is debited to the Profit &

3)Losson
Account.

ceived on due date

terest
Bank A/c Dr. Amount received]
srnion erifpai
ToInterest Ac

Notes:
Interest
Amount Receiv
source is dedu
NVx % of Interest x Months due+ 12
ducted [TDS], Tax at Source a/c is debited and the net
to
(1) tax at.
2)If any
amount
(Total LessTDS) is debite to the Bank A/c.
Interest at year-end
Accrued
(7 Accrued Interest A/c Dr. [Amount due] gu os
To Interest A/c
due 12
ata Accrued Interest Amount Due = NV x % of Interest x Months
Interest Tfd. to P & L Alc at year-end
(8) Dr.
Interest A/c
To P & L A/c
-21
is transferred at year end.
Note: Net balance of Interest a/c (or colunmn)
(9) Valuation at year-end Dr. [Cost Market value]h
E

Profit& Loss A/c

dsto To Investment A/c t or solbexDHDi evrisei brebivi
| Notes:E 0
(1) At the year end, cost of each investment on hand (known as "carrying amount") is
ascertained on Average Cost basis. This cost is compared with its market value. If
market value of investment
held as current asset is less than cost. depreciation is
Loss
debited profit & loss a/c, vide the above journal entry. This debit to
to
Nc due to change in carrying amount is as per the recommendation of AS 13.
Profit and
) Investment held as fixed asset (long term) is valued at cost at the year-end as per
AS 13irrespective of the market price 0-E0-1E o 2is blor
 298
Financhal Accouting (T.
YB.Com Com.: SE
1.3 WORKSHEET 2 FORMAT FORINVESTMENT ACCOUNT
Dr. 9beiouo
Invostmont Account

onding....
wioooft
For the yoar
of ...[Namo of Socurlty/sharo
Jeorotnl bousooA bavieda [Duo Dato for
Interost, If any
leo19nlmus
Date n c o m e Capltal Dato Partlculars NV
Particulars NV

[1 (2] (4] 5] 6 (7 [8
IncomoCa
L13) 2801 1O 1010 o r
Notes:
(1) Investment Account is kept like a Cash Book having Many Columns (Cassh, Bank
Bank etc.).
shares.
This format can be used for debentures as well as
(2) Entries in w o r k s h e e t 1) are recorded
in the
he Capital
Capital col
column
(3) Entries involvingInvestment a/c (as per in the Income column (sen ab
and entries involving Interest o r Dividend a/c are
recorded
avoVA boirrpiow
see Wokshoabon
3 below). as eo0
od ofcolumns
of the Account;
l6) to 70J show
the Crert
n s 1to
the Account.
[5] show the debit side
odol olliooqe
s lo
luo
side
other debit
transacuon.
ibfheoes 1o
Column [1] shows the date of purchase or of
boau
Column
(6) shows the name of the A/c credited.
[2]
column showing the nominaor vauue uny purchased
O u m n [s] is a memorandum
showing the amount Income (interes/Dividend
COlumn [4] is a n accounting column coSt of security purcha.
( showing the
column
actual
amount
o chased
[5] is a n accounting
Oumn or of other credit trans
oeviegaAte9t
(10) Column [6] shows the date of sale account debited.
n a m e of the v a l u e of the security sold.
(71) Column [7] shows the showing the nominal
column i n c o m e (InteresUDividend) rece
C o l u m n [8] is
a memorandum
column showing
the amount of eceives
a n accounting
5 ) Clumn [9] is
receipts (sale proceeds) onsal sale d
credited. the capital
column showing
is a n accounting bohubeb
7 4 ) C o l u m n [10] JoH heens
security.is
IN
INVESTMENTACcOUNT

nl beurooA
wORKSHEET 3: ENTRIES
A 1297 bouiooA
1.4
No. 299. iuomAl
Refer to Page ITS IN F Q U I T Y
SHARES
3181 DecupeL So13
Cjo20d atook se ou 318
tebeis UAGEueug dcco
eteer ta Laceineq 0u
D

Ou 1e1 2ebrounsl s01

4 1e yb S013 S0'0 3
W DUSUGzp stg coe
OU 1eI19unst soi8 10

CBOUDESS

D
D D

Dopcieiee cem
A IepeL2 COiAG
Y213
P231 btGcscge
a
(P)C02 12 CULGLGG
( ODG AI6 12

p os130T2 c

COGOmS

(p 231 bLnccege m
 00e sqsbre

g cnuujo1ee

UA9eeUP

G1

wsaud

E M E - S V 7 1 )uunoop
 300 Financial Accounting (T YB.Co.

2.2 RECORDING SHARETRANSACTIONSIN INVESTMENTACCOUN

B.Com.: SEM
(1) Purchase: When
ACCOUNT
shares are
(a) Nominal value purchased-
is entered in the NV column (Dl:*
(6) Cost is entered in
the Capital column (Dr.
(2) Sale: When shares
are sold-
(a) Nominal value is entered in the NV column
(b) Sale proceeds
(CT)
are entered in the column r).
Capital
(3) Dividend Received: When dividend is actually received on the due date-

(a) The Pro-rata amount relating to the period after the date of acquisition is entered in
Income Column (Cr.)
(b) The Pro-rata amount relating to the period before the date of acquisitic f any, 1s
the Capital Column (Cr.). entere
(4) Bonus Shares: When bonus shares are receivea-
(a) The Nominal Value [NV] of uch bonus shares is entered in the NV C
Column (Dr.).
(b) No amount is entered in the Capital column (Dr)
Note: Bonus shares are etitled io pro-rata dividend from the date ot their isue).
(5) Subseribing to Right Shares: When the rights shares are Subscribed-

(a) Nominal value is entered in the NV column (Dr.).

(6) Cost is entered in the Capital column (Dr.).
OTe Right shares are entitled to pro-rata dividend from the date of their issue].
(6) Sale of Right Entitlements: When the rights are sold (without subscribing) -

(a) No entry is made in the Investment Account.

(b) Sale proceeds are, normally, credited to the Prof+it & Loss Account (as recommend
AS 13). ended
(7) Debentures Converted into Shares: If shares are received against convertible debenture.
Debentures Investment Account will be closed by transfer of itsbalance to a newly
Shares Investment Acount. Interest on debentures upto the date of conversion will bereiOpeng
in the Income column (Cr.) of the Debentures Investment Account.
Cor
Note: Other entries relating to shares are the same as explained in the case of debentures in a
in par
above. Valuation at year-end is done as explained in Worksheet 2 (a).

3 ILLUSTRATIONSs

3.1 BONDS AND DEBENTURES

Illustration 1: (Cum. Pur./ Ex. Sale/ Cum. Sale / Annual Int.)
On 1st January 2013, 1000-12% Debentures of 100 each of Shiva Ltd. were held asinvestmet:
Mr. Dharmesh at a cost of 91,000. Interest is payable on 31st December.
On 1st April 2013, 20,000 ofsuch debentures were purchased by Dharmesh @98cum-intes
On 1st September 2013, 7 30,000 of such debentures were sold at 96 ex-interest.
On 1st December2013, 50,000 of such debentures were sold at 99 cum-interest.
Interest is received on due date.
Prepare investment account for 12% debentures of Shiva Ltd. in the books of Mr. Dharmesh
closing stock as on 31st December 2013 applying AS-13. The debentures were quoted a s
31st December 2013. (T. Y.B.Com., March 2005, ada