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Investment Accounting

Investments Accounting
Does not deal with:
(i)
Interest, dividends and rentals earned on investments.
(ii)
Operating or finance leases.
(iii)
Investment of retirement benefit plans and life insurance enterprises.
(iv)
Mutual funds.

ACCOUNTING
STANDARD 13

Forms
Investments

of

Classification
of
Investments
Cost of Investments

(1) Investments having no physical existence and are represented merely by certificates e.g.
shares.
(2) In a physical form e.g. buildings.
(3) Investment may be in the nature of debt.
(4) Investments representing financial rights.
Investments are classified as Long Term Investments and Current Investments.

The cost of an investment includes acquisition charges such as brokerage, fees and duties.
If an investment is acquired by the issue of shares or asset, the acquisition cost is the fair value
of the securities or asset issued.

Interest, dividends and rentals receivables are generally regarded as income, In some
circumstances, such inflows represent a recovery of cost and do not form part of income. The
pre-acquisition portion is deducted from cost.

When rights shares offered are subscribed for, the cost of the rights shares is added to the
carrying amount of the original holding. If rights are not subscribed for but are sold in the
market, the sale proceeds are taken to the profit and loss statement. Where the investments are
acquired on cum-right basis and the market value of investments immediately after their
becoming ex-right is lower then it may be appropriate to apply sale proceeds of rights to
reduce the carrying amount to market value.
Current

The carrying amount for current investments is the lower of cost and fair value.
Investments

Any reduction to fair value and any reversals of such reductions are included in the profit and
loss statement.
Long-term

Long-term investments are usually carried at cost. There is a permanent decline in the value of
Investments
a long-term investment, the carrying amount is reduced to recognize the decline.

The reduction in the carrying amount is charged to the profit and loss statement. The reduction
in carrying amount is reversed when there is a rise in the value of the investment, or if the
reasons for the reduction no longer exist.

On disposal recognized in the profit and loss statement.

When disposing, the carrying amount to be allocated to that part is to be determined on the basis of the average
carrying amount of the total holding of the investment.

Banana Ltd. On 1st April 1993 Rs. 2,00,000 of 9% Government loan (2003) at Rs. 1,90,000. (Face value of loan Rs.
100 each). Three months interest had accrued on the above date. On 31 st May, 1993 the company purchased the same
Government loan of the face value of Rs. 80,000 at Rs. 95 (net) cum interest. On 1st June 1993 Rs. 60,000 face value of the
loan was sols at Rs. 94 (net) ex-interest. Interest on the loan was paid each year 30th June and 31st December and was
credited by the bank on the same date.
On the 30th November 1993. Rs. 40,000 face value of the loan was sold at Rs. 97 (net) cum interest. On 1 st December
1993 the company purchased the same loan Rs. 10,000 at par ex interest. On 1 st March 1994 the company sold Rs. 10,000
face value of the loan at Rs. 95 ex-interest. The market price of the loan on 31st March 1994 was Rs. 96.
Draw up the 9% Government loan (2003) Account in the books of Banana Limited. First in first out method shall be
followed and the balance of the loan held by the company shall be valued at total average costs or market price whichever is
lower Calculation shall be made to the nearest rupee or multiple thereof.
Ans.
In the books of Banana Ltd.
9% Government Loan (2003) Account
Q.1.

Investment Accounting

CA IPCC Accounting Gr1

Dr.
Date

Particular

Nominal
Value
Rs.

1993
April
1
May.
31
Dec. 1
1994
Mar.
31

To Balance
b/d
To Bank A/c
To Bank A/c
To
Income
from
investment
A/c

2,00,000
80,000
10,000
--

2,90,000

(Interest payable on 30th June and 31st December)


Cr.
Interest Principal Date
Particular
Nominal
Amount
Value
Rs.
Rs.
Rs.
1993
4,500 1,90,000
June 1 By Bank A/c
60,000
3,000
73,000
June 30 By Bank A/c
375
10,000
(Interest for
6 months)
18,525
-Nov. 30 By Bank A/c
40,000
Dec. 31 By Bank A/c
-(Interest fro
1994 6 months)
Mar.1
Mar.31 By Bank A/c
10,000
By P&L A/c
-Mar. 31 (Loss
on
sale)
1,80,000
By Balance
c/d
26,400 2,73,000
2,90,000

Interest
Value
Rs.

Principal
Amount
Rs.

2,250
9,900

56,400
--

1,500
8,550

37,300
--

150
--

9,500
1,300

4,050

1,68,500

26,400

2,73,000

Q.2.
Madhuri Dixit purchased on 1st March, 2001 Rs. 24,000 5% Bharat Debenture stock @ 90 cum-interest. Interest being
payable on 31st March and 30th September each year. Stamp and expenses on purchase amounted to Rs. 20 and brokerage @
2% was charged on cost; interest for the half- year was received on the due date. On 1st September Rs. 10,000 of the stock
was sold 92 ex-interest less brokerage @ 2%. On 30th September, Rs. 8,000 stock was purchased @ 91 ex-interest plus
brokerage @ 2% and charges Rs. 10. On first 1st December. Rs. 6,000 stock wise sold @ 94 cum interest less Brokerage @
2%. The market price of stock on 31st December was 88.5%. Show the Investment Account for the year ending on 31st
December, 2001 assuming FIFO Method. Calculation should be made in the multiple of rupee. Madhuri Dixit holds the
Bharat Debenture stock as a current assets.
Ans.
Investment A/c for the year ending on 31st Dec. 2001
[Scrip: 5% Bharat Debenture Stock]
[Interest Payable on 31st March and 30th September]
Date
Particulars
Nominal
Interest
Cost Date
Particulars
Nominal
Interest
Cost
Value
Value
Value
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
01.03.01 To
Bank
24,000
500
21,552 31.03.01 By Bank A/c
-600
-30.09.01 A/c
8,000
200
7,436
[Rs. 24,000
31.12.01 To
Bank
-908
-* 5% * 6/12]
A/c
01.09.01 By Bank A/c
10,000
208
9,016
To
P&L
30.09.01 By Bank A/c
-550
-A/c
[Rs. 22,000
* 5% * 6/12]
01.12.01 By Bank A/c
6,000
50
5,477
31.12.01 By P&L A/c
(Loss)
--335
31.12.01 By Balance
16,000
200
14,160
c/d
32,000
1608
28988
32,000
1,608
28,988
Working Notes:
(i)
Cost of Debenture stock purchased on 1st March

Investment Accounting

CA IPCC Accounting Gr1

= 90% of Rs. 24,000 + 2% of Rs. 21,600 + Rs. 20 Rs. 500 ( Interest)


= Rs. 21,552
(ii)
Sale Proceeds of Debentures stock sold on 1st Sept.
= 92% of Rs. 10,000 + 2% of Rs. 9,200
= Rs. 9,016
(iii)
Cost of Debentures Stock purchased on 30th Sept.
= 91% of Rs. 8,000 + 2% of Rs. 7,280 + Rs. 10
(iv)
Sale Proceeds of Debentures stock sold
= 94% of Rs. 6,000 + 2% of Rs. 5,640 + Rs. 50 (Interest)
= Rs. 5,477
(v)

Valuation of Closing Balance of Debentures Stock on FIFO Basis:


Nominal Value
Actual Value
Market Value
Rs.
Rs.
Rs.
Balance out of March Purchase
8,000
7,184
7,080
Balance out of Sept. Purchase
8,000
7,486
7,080
16,000
14,620
14,160
Closing Balance has been valued at Rs. 14,160 being lower than the actual cost.
(vi)
Interest accrued on 31st Dec. = Rs. 16,000 * 5% * 3/12 = Rs. 200.
Q.3.
On 1.1.2001 Sri Devi purchased 500 Equity Share of Rs. 100 each in Tata Ltd @ Rs. 120 each from a Broker who
charged 2%. She incurred 50 Paise per Rs. 100 as cost of shares transfer stamps. On 30.11.2001 bonus was declared in the
ratio of 1:2. Before and after the record date of bonus Shares. The shares were quoted at Rs. 175 per Share and Rs. 90 per
Share. On 31.12.2001 Sri Devi sold bonus Shares to a Broker who charged 2%.
Required: Show the investment Account in the books of Sri Devi who held the Shares as Current Assets.
Ans.

Date

Particulars

01.01.01
30.11.01
31.12.01

To Bank A/c
To Bonus Sh.
To P&L A/c

Investment A/c in the Books of Sri Devi


For the year ending on 31st Dec. 2001
[Scrip: Equity Shares of Tata Ltd.]
Nominal
Price Date
Particulars
Value
Rs.
Rs.
50,000
61,500 31.12.01
By Bank A/c
25,000
-- 31.12.01
By
Balance
-1,550
c/d
75,000
63,050

Nominal
Value
Rs.
25,000
50,000

Price
Rs.
22,050
41,000

75,000

63,050

Working Notes:
(i)
Cost of Equity Shares purchased on 1st Jan.
= 500 * Rs. 120 + 2% of Rs. 60,000 + % of Rs. 60,000 = Rs. 61,500
(ii)
Sale proceeds of Equity Shares sold on 31st Dec.
= 250 * Rs. 90 2% of Rs. 22,500 = Rs. 22,050
(iii)
Profit on sale of Bonus shares on 31st Dec.
= Sale Proceeds Average cost = Rs. 22,050 (Rs. 61,500 * 25,000/75,000) = Rs. 1,550
(iv)
Valuation of Equity Shares on 31st Dec.
Cost = (Rs. 61,500 * 50,000/75,000) = Rs. 41,000
Market value = 500 * Rs. 90 + Rs. 45,000
Closing Balance has been valued at Rs. 41,000 lower than the market value.
Q.4.
On 1.4.96 Sundar Lal has had 25,000 equity shares of C Ltd. At a book value of Rs. 15 per share (face value Rs. 10).
On 20.6.96 the purchased another 5,000 shares of the company at Rs. 16 per share. The director of C Ltd. Announced a
bonus and right issue. No dividend way payable on these issues. The terms of the Issue are as follows:
Bonus basis 1 : 6 (date 16/8/96)
Right basis 3 : 7 (date 31.8.96) Price Rs. 15 per share

Investment Accounting

CA IPCC Accounting Gr1

Due date of payment 30.9.96


Shareholders can transfer their right in full or in part. Accordingly Sundar sold 33 1/3% of his entitlement to Sekhar for
consideration of Rs. 2 per share. Due date of payment 30.9.96
Dividends for the year ended 31.3.96 at the rate of 20% were declared by C Ltd. And received by the Sundar on
31.10.96 Dividends for shares acquired by him on 20.6.96 are to be adjusted against the cost of purchase. On 15.11.96
sunder sold 25,000 equity shares at premium of Rs. 5 per share.
You are required to prepare in the books of Sundar. (I) Investment account (2) P & L Account. For your exercise.
assume that the books are closed on 31/12/96 and shares are valued at average cost.
Ans.
Investment A/c for the year ending on 31st Dec. 1996
[Equity Shares in C Ltd.]
Date
Particulars
No.
Divi
Amount Date
Particulars
No.
Divid
01.04.96
To Bal b/d
25,000
3,75,000 30.09.96
By Bank (Sale of
10,000
20.06.96
To Bank
5,000
80,000
right
16.08.96
To Bonus
5,000
-- 31.10.96
By Bank (divid.
50,000
30.09.96
To Bank
10,000
1,50,000
on shares acquired
(Rights Shares)
on 2nd june)
15.11.96
To P&L A/c
60,000
44,444 15.11.96
By Bank
(Sale of shares)
25,000
31.12.96
By Balance c/d
20,000
45,000 60,000
6,55,000
45,000 60,000
P&L A/c
Particulars
Rs.
Particulars
Rs
To Balance c/d
1,04,444 By Profit Transferred
50,000
By Dividend
4,444
1,04,444
1,04,444
Working Notes:
(i)
Bonus Shares [(25,000 + 5,000)] = 5,000 Shares
6
(ii)
Rights Shares [(25,000 + 5,000 + 5,000)] = 15,000 Shares
7
(iii)
Rights shares renounced = [15,000 * 1/3] = 5,000 shares
(iv)
Dividend received [25,000 * 10 * 20%] = Rs. 50,000
Dividend on share purchased on 20th June = 5,000 * 10 * 20% = Rs. 10,000 is adjusted to Investment Account.
(v)
Cost of Shares on 31st Dec.
[(75,000 + 80,000 + 1,50,000 = 10,000) * 20,000] = 2,64,444
45,000
Q.5.
The following transactions of Investor Ltd. took place during the year ended 31st March 2008:
2007
1st April Purchased Rs 12,00,000, 8% bonds at Rs 80.50 cum-interest. Interest is payable on 1st November and 1st May.
12th April Purchased 1,00,000 equity shares of Rs 10 each in X Ltd. for Rs 40,00,000.
1st May Received half-years interest on 8% bonds.
15th May X Ltd made a bonus issue of three equity shares for every two held. Investor Ltd sold 1,25,000 shares for Rs 20 each.
1st July Purchased 50,000 equity shares of Rs 10 each in C Ltd at Rs 7.75 each.
1st Oct Sold Rs 3,00,000, 8% bonds at Rs 81 ex-interest.
1st Nov Received half-years bond interest.
1st Dec Received 18% dividend on equity shares in X Ltd.
2008
1st Jan C Ltd made a rights issue of one equity share for every two held at Rs 5 per share. Rights sold in the market at Rs 2.25
per share.
1st Mar Received 12.5% dividend on equity shares in C Ltd.
Prepare the relevant investment account in the books of Investor Ltd for the year ended 31 st March, 2008.

Investment Accounting

CA IPCC Accounting Gr1

Amount

10,000

3,75,000
2,64,444
6,55,000

Ans:-

Dr.
Date

Particulars

1.4.2007
1.10.2007

To Bank A/c (N 1)
To P&L A/c (N 2)

31.3.2008

To P & L A/c

Dr.
Date

Particulars

12.4.2007
15.5.2007
15.5.2007

To Bank A/c
To Bonus issue A/c
To P&L A/c

31.3.2008

To P&L A/c

In the books of Investor Ltd.


8% Bonds Account
[Interest Payable : 1st November & 1st May]
Nominal
Interest
Cost Date
Particulars
value (Rs)
(Rs)
(Rs)
1,200
40
926 1.5.2007
By Bank A/c
--11.5 1.10.2007
By Bank A/c (N 2)
1.11.2007
By Bank A/c (N 3)
-84
31.3.2008
By Bal c/d (N 4)
1,200
124
937.5
Investment in Equity Shares of X Ltd. Account
Cr.
No. Dividend
Cost (Rs) Date
Particulars
(Rs)
1,00,000
-- 40,00,000 15.5.2007 By Bank A/c
1,50,000
--- 1.12.2007 By Bank A/c
--5,00,000 31.3.2008 By Balance c/d

Nominal
Value (Rs)
-300
-900
1,200

No.
1,25,000
-1,25,000

Cr.
Interest
(Rs)
48
10
36
30
124

Dividend
(Rs)
-2,25,000
--

-2,50,000

2,25,000
-2,25,000 45,00,000
2,50,000
2,25,000
Dr.
Investment in Equity Shares of C Ltd. Account
Cr.
Date
Particulars
No. Dividend
Cost Date
Particulars
No. Dividend
(Rs)
(Rs)
(Rs)
1.7.2007
To Bank A/c
50,000
-3,87,500 1.3.2008
By Bank A/c
-62,500
31.3.2008
To P&L A/c
-62,500
-- 31.3.2008
By Bal c/d
50,000
-50,000
62,500
3,87,500
50,000
62,500
Tutorial Note: Amount received Rs 56,250 (50,000/21Rs 2.25) by selling rights entitlement will be credited to
Profit and Loss Account [AS13, Para13]
Working Notes:
(1) On 1st April, 2007, 12,000, 8% bonds were purchased @ Rs 80.50 cum-interest. Total amount paid 12,000 Rs 80.50 =
Rs 9,66,000 which includes accrued interest for 5 months, i.e., 1 st November, 2006 to 1st April, 2007. Accrued interest
will be:
(2) On 1st October, 2007, 3,000 bonds were sold @ Rs 81 ex-interest. Total amount received = 3,000 81 + accrued
interest for 5 months = Rs 2,43,000 + (3,00,000 8/100 5/12 = Rs 10,000).
Profit on Sale of Bonds on 1.10.2007
Rs
Sale Proceeds
2,43,000
Less: Average Cost: Rs 9,26,000 Rs 3,00,000
2,31,500
Rs 12,00,000
.
Profit on Sale
11,500
(3) On 1st November, 2007, interest will be received for 9,000 bonds @ 8% for 6 months, i.e., Rs 9,00,000 8/100 =
Rs 36,000.
(4) Cost of bonds on 31.3.2008 will be: Rs 9,26,000/12,000 9,000 = Rs 6,94,500.
(5) Profit on Sale of Shares:
Cost per share after bonus = Rs 40,00,000 / 2,50,000 = Rs 16.
Profit per share sold (Rs 20-Rs16) = Rs 4.
Therefore, total profit on sale of 1,25,000 shares = Rs 4 1,25,000 = Rs 5,00,000.
Q.6. On 1st April, 2008. Mr. Aman purchased 5,000 equity shares of Rs. 100 each in X Ltd. @ Rs. 120 each from a Broker, who
charged 2% brokerage. He incurred % as cost of shares transfer stamps. On 31 st January, 2009, Bonus was declared in the ratio
of 1:2 Before and after the record date of bonus shares, the shares were quoted at Rs. 175 per share and Rs. 90 per share
respectively. On 31st March, 2009, Mr. Aman sold bonus shares to a broker, who charged 2% brokerage.
Show the Investment Account in the books of Mr. Aman, who held the shares as current assets and closing value of
investments shall be made at cost or Market value, whichever is lower.
Answer:
Investment Account in the books of Mr. Aman

Investment Accounting

CA IPCC Accounting Gr1

Cost
(Rs)
-243
-694.5
937.5

Cost (Rs)
25,00,000
-20,00,000

45,00,000

Cost
(Rs)
-3,87,500
3,87,500

Date

Particulars

1.4.08
31.01.09
31.03.09

To
Bank
A/c
(W.N.1)
To Bonus Shares
To Profit and Loss
A/c (W.N.3)

For the year ended 31st March, 2009


(Scrip: Equity Shares of X Ltd.)
Nominal
Cost (Rs.) Date
Particulars
Value (Rs.)
5,00,000
6,15,000 31.3.09
By
Bank
A/c
2,50,000
(W.N.2)
31.3.09
-15,500
By Balance c/d

Nominal
Value (Rs.)
2,50,000

Cost (Rs.)

5,00,000

7,50,000
6,30,500
Working Notes:
1. Calculation of cost of equity shares purchased on 1.4.08

7,50,000

2,20,500
4,10,000

6,30,500

2.
3.

= 5,000 Rs. 120 2% of Rs. 6,00,000 + % of Rs. 6,00,000 = Rs. 6,15,000


2
Calculation of profit proceeds of equity shares sold on 31.3.09
= 2,500 Rs. 90 2% of Rs. 2,25,000 = Rs. 2,20,500
Calculation of profit on sale of bonus shares on 31.3.09
= Sale proceeds Average cost
2,50,000
= 2,20,500 2,05,000 i.e. (Rs. 6,15,000
) = Rs. 15,500
7,50,000

4.

Valuation of equity shares on 31.3.09


Cost = 6,15,000

5,00,000
7,50,000

= Rs. 4,10,000

Market value = 5,000 shares Rs. 90 = Rs. 4,50,000


Closing Balance has been valued at Rs. 4,10,000 i.e. at cost which is lower than the market value.
Q.7. (iii) MY Ltd. had acquired 200 equity shares of YZ Ltd. at Rs. 105 per share on 01.01.2009 and paid Rs. 200 towards
brokerage, stamp duty and STT. On 31st March, 2009 Shares of YZ Ltd. were traded at Rs. 110 per share. At what value
investment is to be shown in the Balance Sheet of MY Ltd. as at 31 st March, 2009.
Answer:
Calculation of Cost of Investment
Rs.
Particulars
Purchase price of Equity shares of YZ Ltd. (200 shares Rs. 105 per share)
21,000
Add: Brokerage, Stamp duty and STT
200
Cost of investment
21,200
If the investment is a long then investment then it will be shown at cost. Therefore value of investment will be Rs. 21,200.
However, if the investment is a current investment, then it will be shown at lower of cost (i.e. Rs. 21,200) or net realizable value
(i.e. Rs. 200 110 = Rs. 22,000).
Therefore value of investment will be Rs. 21,200
Q.8.
Mr. Investor furnishes the following details relating to his holding in 6 percent Government Bonds: Opening Balance as
on 1.1.95 face value Rs. 60,000. Cost Rs. 59,000.
1.03.95 100 units purchased ex-interest at Rs. 98.
1.07.95 Sold 200 ex-interest out of the original holding at Rs. 100.
1.10.95 Purchased 50 units at Rs. 98 cum-interest
1.11.95 Sold 200 units ex-interest at Rs. 99 out of the original holding
Interest dates are 30th September and 31st March.
Mr Investor closes his books every 31st December.
Show the Investment account as it would appear in his books.
Ans
Dr.
Date

Particulars

Nominal
Rs.

1995

Investment Accounting

Investment in 6% Government Bonds Account


Cr.
Interest Principal Date
Particulars
Nominal
Rs.
Rs.
Rs
1995

Interest
Rs

CA IPCC Accounting Gr1

Principal
Rs

Jan. 1
Mar.1
July 1.
Oct. 1
Dec. 31
Dec 31

To
Balance
b/d
To Bank
To P&L A/c
(Profit
on
sale)
To Bank
To P&L A/c

60,000
10,000

900
250

59,000
9,800

-5,000
--

----

333
4,900
134

--

3,375

--

75,000

4,525

74,167

Mar
31
July 1
Sep 30
Nov 1
Dec
31

By Bank
By Bank
By Bank
By Bank
By
Balance
c/d

-20,000
-20,000
35,000

2,100
300
1,500
100
525

-20,000
-19,800
34,367

75,000

4,525

74,167

To
Income
from
Investment
A/c

Q.9.
Delhi Investments held 400. 12 percent debentures of Rs. 100 each in Acme Ltd. as on 1 st April, 1995 at a cost of Rs.
50,000. Interest is payable on 30th June and 31st December, each year. On 1st June 1995, 200 debentures are purchased cuminterest for Rs. 21,400. On 1st November. 1995, 300 debentures are sol ex-interest at Rs. 28,650. On 30th November, 1995, 200
debentures are purchased ex-interest at Rs. 19,200. On 31st December, 1995. 300 debentures are sold cum-interest or Rs. 32,250.
Prepare investment account valuing closing stocks as on 31 st March, 1996 at cost (applying FIFO method) or market
price, whichever is lower. The debentures were quoted at par on 31st March, 1996.
Ans.

Date
1995
April 1
June 1
Nov
30
Dec 31

Particular

To Balance b/d
To Bank
To Bank
To P&L A/c
(Profit
transferred)

Nominal
Rs
40,000
20,000
20,000
--

Delhi Investments
12% Debentures in ACME Ltd. Account
(Interest payable 30th June & 31st Dec.)
Interest Principal Date
Particular
Rs
Rs
1995
1,200
50,000 June
By Bank
1,000
20,400 30
By Bank
1,000
19,200 Nov 1
By P&L A/c
By Bank
5,200
-- Dec
By P&L A/c
31
Loss on sale)
By Bank
(Interest on Rs.
20,000)
By Balance c/d

Nominal
Rs

Interest
Rs

Principal
Rs

-30,000
-30,000

3,600
1,200
-1,800

-28,650
8,850
30,450

--

--

\2,450

--

1,200

--

20,000

600

19,200

80,000

8,400

89,600

1996
Mar
31
80,000

8,400

89,600

Q.10.
Investors Ltd. held on 1-1-1992. Rs. 60,00 of 12% Government securities (Tax free) of Rs. 100 each of Rs. 56,500. On
1.6.1992, the company purchased a further of Rs. 40,000 of the security at 96.5 cum-interest brokerage being 2.5%.
On 31.7.1992 Rs. 50,000 of the security was sold at 94.5 ex-interest, brokerage being 2%. On 1.12.1992 Rs. 20,000 of
the security was again sold at Rs. 96 cum-interest.
Interest on the security was paid each year on 31st March and 30th September and was credited by the bank on 3rd April
th
and 4 October respectively. The Price of the security on 31.12.1992, was Rs. 96.
Investors Ltd. closes its books on 31st December each year. Draw up the Investment Account in the books of Investors
Ltd.

Investment Accounting

CA IPCC Accounting Gr1

Ans.

Date
1992
Jan 1
June 1
Dec 31

1.

In the books of Investors Ltd.


Investment Account
(12% Govt. Security: tax free)
Particular
Nominal Interest Principal Date
Particulars
Rs
Rs
Rs
1992
To Balance b/d
60,000
1,800
56,500 Apr 3
By Bank (Int on
To Bank
40,000
800
38,765
Rs. 60,000 for 6
To P&L A/c
months @ 12%
(Int.
7,300
-- July
p.a.)
transferred)
31
By Bank
Oct 4
By Bank (Int on
Rs. 50,000 for 6
months @ 12%
Dec 1
p.a)
By Bank (Sales
Dec
at 96 cum-int)
31
By P&L A/c
(Loss on sale)
Dec
By Balance c/d
31
(at cost)
1,00,000
9,900
95,265
[(40,000 * 96.5%) 40,000 * 12% * 2/12] + 2.5%

Nominal
Rs.

Interest
Rs.

Principal
Rs.

-50,000

3,600
2,000

-46,305

--

3,000

--

20,000

400

18,800

--

--

1,360

30,000

900

28,800

1,00,000

9,900

95,265

Q.11. On 1.1.1995, X Ltd, had 10,000 Equity Shares of Rs. 10 each in Daman Ltd. Purchased for Rs. 1,25,000. The company
unlike Investment Companies does not make any apportionment of dividends [received or receivable} in between capital and
revenue.
On 15.5.1995, the Daman Ltd, made a bonus issue of 1 fully paid share for 2 held on 15.5.1995. In addition on the
same day Right shares were issued at 3 for 5 held that date at a premium of Rs. 3, Rs. 7 to be paid on application and the balance
in one call after a month. These shares are not to rank for dividend for the year ending 30th June, 1995.2,000 Right Shares were
taken up by X Ltd. balance Right being sold at Rs. 2 each on 25.5.1995.
On 15.10.1995, the company declared a dividend of 20% for the year ending 30 th June, 1995. Make out the Investment
Account in the books of X Ltd. Ignore Income-Tax.
Ans.

Date
1995
Jan 1
May
15

June
15

Dec 31

Particular

Nominal
Rs.

Interest
Rs

To Balance b/d
To Bonus Shares
To Bank (shares
Application
money @ Rs. 7
on 2,000 shares)
To Bank (Share
Call Money @
Rs. 6 on 2,000
shares)
To P&L A/c
(Dividend tr)
(bal.fig)

1,00,000
50,000
20,000

Investment Accounting

In the Books of X Ltd.


Investment Account
Principal Date
Rs
1995
1,25,000 May 25
14,000
Oct 15

12,000

28,000

Dec 31

Particular

By
Bank
(4,000 Right
shares sold @
Rs.2)
By Bank
(Dividend
received
@
20% on Rs.
1,00,000)
By Balance c/d

Nominal
Rs.

Interest
Rs.

Principal
Rs.

8,000

20,000

1,70,000

1,51,100

CA IPCC Accounting Gr1

1,70,000

28,000

1,51,000

1,70,000

28,000

1,51,100

Q.12. M.N. Ltd. bought and sold 6% Stock as follows, interest being payable on 31 st March and 30th September each year:
2007
March 1 Bought Rs 24,000 @ Rs 90.875 ex-interest, brokerage Rs 30
June 15 Sold Rs 10,000 @ Rs 92.625 cum-interest, brokerage Rs 13
Aug 1
Bought Rs 6,000 @ Rs 91.375 ex-interest, brokerage Rs 8
Sept 1 Sold Rs 4,000 @ Rs 93.125 ex-interest, brokerage Rs 5
Dec 1
Bought Rs 12,000 @ Rs 94.125 cum-interest, brokerage Rs 15
Prepare Investment Account for the year ended 31st December 200
Ans:In the books of MN Ltd.
6% Stock Account
[Interest Payable: 31st March & 30th September]
Cr.
Nominal Interest
Cost Date
Particulars
value
(Rs)
(Rs)
24,000
600 21,840 31.3.07
By Bank A/c (Note 2)
--25 15.6.07
By Bank A/c (Note 3)
1.9.07
By Bank A/c (Note 5)
6,000
120
5,490 30.9.07
By Bank A/c (Note 6)
--74 31.12.07 By Bal c/d (Note 8)

Dr.
Date

Particulars

1.3.07
15.6.07

To Bank A/c (Note 1)


To Profit & Loss A/c
(Note 2)
To Bank A/c (Note 4)
To Profit & Loss A/c
(Note 5)
To Bank A/c (Note 7)
To Profit & Loss A/c

1.8.07
1.9.07
1.12.07
31.12.07

12,000
-42,000

120
1,005
1,845

11,190
-38,619

Nominal
value
-10,000
4,000
-28,000

Interest
(Rs)
720
125
100
480
420

Cost
(Rs)
-9,125
3,720
-25,774

42,000

1,845

38,619

Q.13. Kanpur Investments Ltd. hold 1,000 15% debentures of Rs 100 each in Udaipur Industries Ltd. as on April 1, 2007 at a
cost of Rs 1,05,000. Interest is payable on June 30 and December 31 each year.
On May 1, 2007, 500 debentures are purchased cum-interest at Rs 53,500.
On November 1, 2007, 600 debentures are sold ex-interest at Rs 57,300.
On November 30, 2007, 400 debentures are purchased ex-interest at Rs 38,400.
On December 31, 2007, 400 debentures are sold cum-interest for Rs 55,000.
Prepare the Investment Account upto March 31, 2008.
Ans:-

Dr.
Date

Particulars

1.4.07
1.5.07
30.11.07
31.12.07

To Bal b/d (N 1)
To Bank A/c (N 2)
To Bank A/c (N 5)
To Profit & Loss
A/c (Note 6)
To Profit & Loss
A/c

31.3.08

In the books of Kanpur Investments Ltd.


15% Debentures in Udaipur Industries Ltd. Account
[Interest Payable : 30th June & 31st December]
Cr.
Nominal Interest
Cost Date
Particulars
Value
(Rs)
(Rs)
1,00,000
3,750 1,05,000 30.6.07
By Bank A/c (N 3)
50,000
2,500
51,000 1.11.07
By Bank A/c (N 4)
40,000
2,500
38,400 1.11.07
By Profit & Loss
--11,385
A/c (Note 4)
31.12.07
By Bank A/c (N 6)
-18,625
-- 31.12.07
By Bank A/c (N 7)
31.3.08
By Bal c/d (N 8)
1,90,000
27,375 2,05,785

Nominal
Value
-60,000
--

Interest
(Rs)
11,250
3,000
--

Cost
(Rs)
-57,300
5,100

40,000
-90,000
1,90,000

3,000
6,750
3,375
27,375

52,000
-91,385
2,05,785

Working Notes:
(1) Opening balance of Rs 3,750 in interest column represents accrued interest for 3 months (Jan + Feb + March). Accrued
interest = Rs 1,00,000 15/100 3/12 = Rs 3,750.
(2) On 1st May, 2007, 500 debentures were purchased cum-interest. It means that the total payment of Rs 53,500 includes
interest accrued upto 30th April, 2007. The amount of accrued interest = Rs 50,000 15/100 4/12 = Rs 2,500.
Therefore, cost of investment will be: Rs 53,500 Rs 2,500 = Rs 51,000.

Investment Accounting

CA IPCC Accounting Gr1

(3) On 30th June 2007, interest will be received on entire debentures holding on that date including new purchase for 6
months. The amount of interest = Rs 1,50,000 15/100 6/12 = Rs 11,250.
(4) On 1st November 2007, 600 debentures were sold ex-interest at Rs 57,300. It means that the accrued interest of Rs
3,000 (Rs 60,000 15/100 4/12) were also received in addition to Rs 57,300.
Loss on Sale of 600 debentures on 1.11.2007
Rs
Sale Proceeds
57,300
Less: Average Cost: Rs 1,05,000 + Rs 51,000 600 = Rs 104 600
62,400
1,000 + 500
.
Loss on Sale
5,100.
Closing value of 900 debentures = Rs 104 900 = Rs 93,600.
(5) On 30th November 2007, 400 debentures were purchased ex-interest at Rs 38,400. It means that the accrued interest of
Rs 2,500 (Rs 40,000 15/100 5/12) were also paid in addition to Rs 38,400.
(6) On 31st December 2007, 400 debentures were sold cum-interest at Rs 55,000. It means that the accrued interest of Rs
3,000 (Rs 40,000 15/100 6/12) were received, which is included in Rs 55,000. Therefore, the effective sale
proceeds is Rs 55,000 Rs 3,000 = Rs 52,000.
Profit on sale of 400 debentures on 31.12.07
Rs
Sale Proceeds
52,000
Less: Average Cost: Rs 93,600 + Rs 38,400 400 = Rs 101.54 400
40,615
900 + 400
.
Profit on Sale
11,385
(7) On 31st December 2007, interest will be received on entire debentures holding on that date i.e., Rs 90,000. Interest for 6
months = (90,000 15/100 6/12) = Rs 6,750.
(8) On 31st March 2008, accrued interest will be for 3 months = Rs 90,000 15/100 3/12 = Rs 3,375.
Balance of investment on 31st March, 2008 = Rs 101.54 900 = Rs 91,385.
Q.14. Mr. T purchased 1,000 nos. 10% debentures of Rs. 100 each on 1 st April, 2009 at Rs. 96 cum-interest, the previous interest
date being 31st December, 2008. Compute cost of investment.
Ans:
Total amount payable 1,000 96 =
96,000
Less: Interest included in the price for
January, February and March
i.e. 1,00,000

10
100

Cost of the Investment

3
12

2,500
93,500

Q.15. Mr. X purchased 1,000, 6% Government Bonds of Rs. 100 each on 31st January,2009 at Rs. 95 each. Interest is payable on
30th June and 31st December. The price quoted is cum interest. Journalise the transaction.
(vi) An unquoted long-term investment is carried in the books at cost of Rs. 2 lac. The published accounts of unlisted company
received in May, 2009 showed that the company has incurred cash losses with decline market share and the long-term investment
may not fetch more than Rs. 20,000. How you will deal with it in the financial statement of investing company for the year ended
31.3.2009.
Answer:
Journal Entry
Date
Particulars
Amount (Dr.)
Amount
Rs.
(Cr.) Rs.
31st Jan.
Investment A/c
Dr.
94,500

Investment Accounting

CA IPCC Accounting Gr1

6
1
500
Interest A/c (Rs. 1,00,000
)
Dr.
100
12
95,000
To Bank A/c
(Being purchase of 1,000, 6% Government bonds of Rs. 100 each at Rs. 95 each
cum interest)
(vi)
According to AS 13 Accounting for Investments, investment classified as long term investments should be carried in
the financial statements at cost. However, provision for diminution shall be made to recognize a decline, other than temporary, in
the value of the investments, such reduction being determined and made for each investment individually. According to this
standard, indicators of the value of an investment are obtained by reference to its market value, the investees assets and results
and the expected cash flows from the investment.
The facts of given situation clearly suggest that there is decline in the market share of the company and the investment
will not fetch more than Rs. 20,000. Therefore, the provision of Rs. 1,80,000 should be made to reduce the carrying amount of
long term investment to Rs. 20,000 in the financial statements for the year ended 31st March, 2009.

2009

Q.16.
On April 1, 2007, Mr. Shalendra had 20,000 Equity Shares in X Ltd. Face value of the shares was Rs 10 each but their book
value was Rs 16 per share.
On June 1, 2007, Mr. Shalendra purchased 5,000 Equity Shares more in X Ltd. @ Rs 14 each.
On September 1, 2007, X Ltd. declared 15% dividend for the year 2006-07. Mr. Shalendra received the same on
September 20, 2007.
Show Investment Account upto September 20,2007.
Solution
In the books of Mr. Shalendra
Investment in Equity Shares of X Ltd. Account
Cr.

Dr.

Date

Particulars

Nominal Dividend
Cost Date
Particulars
Nominal Dividend
Cost
value
(Rs)
(Rs)
value
(Rs)
(Rs)
1.4.07 To Bal b/d
2,00,000
-- 3,20,000 20.9.07 By Bank A/c (N
30,000
7,500
1.6.07 To Bank A/c
50,000
-70,000
1)
Tutorial Note: 1. Mr. Shalendra was holding 20,000 Equity Shares of X Ltd. on 1 st April, 2007. Any dividend in
respect of these shares will be treated as dividend from post-acquisition profit. He acquired 5,000 Equity Shares of X Ltd. on 1 st
June, 2007. The dividend in respect of these shares will be treated as dividend from pre-acquisition profit. Therefore, Rs 30,000
(Rs 2,00,000 15/100) dividend will be credited to Income Account and Rs 7,500 (Rs 50,009 15/100) dividend will be credited
to Investment Account (cost column).
Bonus Shares
Bonus shares are issued by capitalizing free reserves. A business receives Bonus shares on the basis of existing holding, at no
cost. Therefore, only the nominal value column of the Investment Account needs amendment. The total nominal value of shares
received as bonus will appear in nominal value column only and nothing is recorded in the cost column. In effect, the average
cost of the existing shares are reduced.
Q.17. On April 1, 2007, Mr. Shalendra had 20,000 Equity Shares in X Ltd. Face value of the shares was Rs 10 each but their
book value was Rs 16 per share.
On June 1, 2007, Mr. Shalendra purchased 5,000 Equity Shares in X Ltd more @ Rs 14 each.
On June 30, 2007, the directors of X Ltd. announced a bonus issue. Bonus was declared at the rate of one Equity Shares
for every five shares held and these shares were received on August 2, 2007.
Show Investment Account upto August 2, 2007.
Ans:In the books of Mr. Shalendra
Dr.
Investment in Equity Shares of X Ltd. Account
Cr.
Date
Particulars
Nominal Dividend
Cost Date
Particulars
Nominal
Dividend
Cost
Value
(Rs)
(Rs)
Value
(Rs)
(Rs)
1.4.07 To Balance b/d
2,00,000
-- 3,20,000

Investment Accounting

CA IPCC Accounting Gr1

1.6.07
2.8.07

To Bank A/c
50,000
-70,000
To Bonus Shares
50,000
--A/c
Teaching Note: Mr. Shalendra will receive 25,000 1/5 = 5,000 shares of Rs 10 each as Bonus Shares at no cost.

Q.18. On 1.4.2007, X Limited had 10,000 equity shares of XYZ Limited, purchased at Rs 12 each (face value being Rs 10 per
share). On 1.1.2008, XYZ Limited offered two rights shares for every five shares held at a premium of Rs 3 per share. X Limited,
however, sold these rights entitlement in the market at Rs 2 per share. On 1.2.2008 immediately after the shares became ex-right,
the market price of the shares fell to Rs 11.50 each. Show Investment Account up to 1.2.2008.
Ans:Dr.
Date

Particulars

1.4.07

To Bal b/d

No. of
Shares
10,000

In the books of X Ltd.


Investment in Equity Shares of XYZ Ltd. Account
Cr.
Dividend
Cost Date
Particulars
No. of
(Rs)
(Rs)
Shares
-- 1,20,000 1.2.08 By Bank A/c (N
-1)
10,000
By Bal c/d
-- 1,20,000
10,000

Dividend
(Rs)
---

Cost
(Rs)
5,000
1,15,000

10,000
-- 1,20,000
Working Note:
Rs
(1) Sale of rights: 10,000 / 5 2 Rs 2
8,000
Less: Adjustment for fall in price (10,000 0.50)
5,000
Amount credited to Profit and Loss Account
3,000
Teaching Note: If in the above Illustration, the entire rights entitlement were sold for Rs 3,000 (instead of Rs 8,000),
the balance of the investments would be shown at Rs 1,17,000 (Rs 1,20,000 Rs 3,000), the income from sale of rights being
adjusted against cost.
Q.19. Gamma Investment Company hold 1,000, 15% debentures of Rs. 100 each in Beta Industries Ltd. as on April 1, 2009 at a
cost of Rs. 1,05,000. Interest is payable on June, 30 and December, 31 each year.
On May 1, 2009, 500 debentures are purchased cum-interest at Rs. 53,500. On November 1, 2009, 600 debentures are
sold ex-interest at Rs. 57,300. On November 30, 2009, 400 debentures are purchased ex-interest at Rs. 38,400. On December 31,
2009, 400 debentures are sold cum-interest for Rs. 55,000.
Prepare the investment account showing value of holdings on March 31, 2010 at cost using FIFO method.
Ans:
In the books of Gamma Investments Ltd.
Investment Account (15% Debentures in Beta Industries Ltd.)
Date
Particulars
Nominal
Interest
Cost
Date
Particulars
Nominal
Interest
Cost
value
Rs.
Rs.
value
Rs.
Rs.
1.04.09
To Balance b/d
1,00,000
3,750
1,05,000 30.06.09 By Bank A/c
-11,250
-1.05.09
To Bank A/c
50,000
2,500
51,000 1.11.09
By Bank A/c
60,000
3,000
57,300
30.11.09 To Bank A/c
40,000
2,500
38,400 1.11.09
By Profit &
5,700
31.12.09 To Profit & Loss
10,000
Loss A/c
52,000
31.03.10 A/c
-18,625
31.12.09 By Bank A/c
40,000
3,000
-To Profit & Loss
31.12.09 By Bank A/c
-6,750
89,400
A/c
31.03.10 By Bank A/c
90,000
3,375
1,90,000
27,375
2,04,400
1,90,000
27,375
2,04,400
Working Notes:
1.
2.

Accrued interest as on 1.4.09 = Rs. 1,00,000


Accrued interest = Rs. 50,000

15
100

4
12

15
100

3
12

= Rs. 3,750.

= Rs. 2,500

Cost of investment for purchase on 1.5.09 = Rs. 53,500 Rs. 2,500 = Rs. 51,000

Investment Accounting

CA IPCC Accounting Gr1

15

3.

Interest received = Rs. 1,50,000

4.

Accrued interest = Rs. 60,000

5.

Accrued interest = Rs. 40,000

6.

Accrued interest = Rs. 40,000

7.

Sale price of investment on 31.12.09 = Rs. 55,000 Rs. 3,000 = Rs. 52,000

8.

Accrued interest = Rs. 90,000

9.

Accrued interest = Rs. 90,000

100
15
4

100
15
100
15
100
15
100
15
100

= Rs. 11,250

= Rs. 3,000

12
5

12

12
6
12
6
12
3
12

= Rs. 2,500
= Rs. 3,000
= Rs. 6,750
= Rs. 3,375

10. Cost of investment as on 31.3.10 = Rs. 51,000 + Rs. 38,400 = Rs. 89,400
11. Loss on debentures sold on 1.11.2009:
Sales price of debentures
.1,05,000
Less: Cost of investment sold =
600 =
1,000

Loss on sale
12. Profit on debentures sold on 31.12.2009:
Sales price of debentures
.1,05,000
Less: Cost of investment sold =
400 =
1,000

Profit on sale

Investment Accounting

Rs. 57,300
Rs. 63,000
Rs. 5,700
Rs. 52,000
Rs. 42,000
Rs. 10,000

CA IPCC Accounting Gr1

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