Investment Accounts

PAPER 1 ACCOUNTING
CHAPTER 12
INVESTMENT ACCOUNTS
PROF RAHUL J. MALKAN
INTRODUCTION
Investments are assets held by an enterprise
1. For earning income by the way of dividend,
interest and rentals
2. For capital appreciation, or
3. For other benefits to the investing enterprise.
Investment Accounting is done as
per AS 13
Classification of Investments
As per AS 13 investment are classified
into two categories
Long Term
Investment
Current Investments
A current Investments is an investment that are
intended to be held for not more than one year
from the date of investment
Current Investments
The carrying amount should be lower of cost and
fair value
Market Value is the amount obtainable from sale of
Investments in an open market, net of expenses
Under appropriate circumstances, market value or
reliable value provides an evidence of fair value
Fair Value is the amount for which an asset could be
exchanged between knowledgeable buyer and
Seller
Long Term Investments
Investment other than current investments are long

term investments
Long Term Investment

They are usually carried at cost
If there is permanent decline in value of investment,
the carrying amount is reduced to recognise the
decline
The Decline is charged to Profit and Loss A/c
The reduction in carrying amount is reversed when
there is a rise in the value of the investment.
Investment Accounting
A Separate Investment Account should be made for
each scrip purchased. The scrips purchased may be
broadly divided into two categories.
Fixed Income Bearing Scrips
Variable Income Bearing Scrips
Fixed Interest Bearing Securities

Interest in government securities or debentures
comes under this category
Dr
Date
InvestmentAccount
Particulars
W.N
Face
Interest Cost
Date
Cr
Particulars
Value
Total
W.N Face
Interest Cost
Value
Total
Cost of investment includes acquisition charges such as

brokerage, fees and duties.
Fixed Interest Bearing Securities
Purchase
Ex Interest
Cum Interest
Sale
Ex Interest
Cum Interest
Purchase Ex Interest
Ex Interest price is the quotation which does not
include the interest. Interest have to be paid
separately.
Journal Entry
Investment A/c . . . Dr (Ex Interest)

Interest A/c . . . . . Dr (Interest)
To Bank A/c
(Cum Interest)
Note : If brokerage is paid it should be Added
Purchase Ex Interest
Example
1.7.2012 100, 8% debentures purchased ex-interest

at 98. Brokerage at 1% is to be paid. Dates of
interest payment is 31st March and 30th Oct.
Ex Interest price = 100 X 98 = 9800 + 1% = 9898

Interest = 100 x 100 x 8% x 3/12 = 200
Investment A/c . . . Dr 9898
(Ex Interest)
Interest A/c . . . . . Dr 200
(Interest)
To Bank A/c
10,098 (Cum Interest)
Purchase Cum Interest

Cum Interest price is the quotation which includes
the interest. Interest is to be subtracted to get to the
ex interest price.
Journal Entry
Investment A/c . . . Dr (Ex Interest)
Interest A/c . . . . . Dr (Interest)
To Bank A/c
(Cum Interest)
Note : If brokerage is paid it should be Added
Purchase Cum Interest
Example
1.1.2012 50, 8% debentures purchased cum-interest

at 98. Brokerage at 1% is to be paid. Dates of
interest payment is 31st March and 30th Sept.
Cum Interest price = 50 X 98 = 4900 + 1% = 4949

Interest = 50 x 100 x 8% x 3/12 = 100
Ex Interest price = 4949 100 = 4849
Investment A/c . . . Dr 4849
Interest A/c . . . . . Dr 100
To Bank A/c
4949
(Ex Interest)
(Interest)
(Cum Interest)
Sale Ex Interest
Ex Interest price is the quotation which does not
include the interest. Interest will be received
separately.
Journal Entry
Bank A/c . . . . . . . Dr (Cum interest)

To Interest A/c
(Interest)
To Investment A/c (Ex Interest)
Note : If brokerage is paid it should be subtracted
Sale Ex Interest
Example
1.7.2012 200, 8% debentures sold ex-interest at

98. Brokerage at 1% is to be paid. Dates of interest
payment is 31st March and 30th Oct.
Ex Interest price = 200 X 98=19600 - 1% = 19404

Interest = 200 x 100 x 8% x 3/12 = 400
Bank A/c . . . . . . . . . . Dr 19,804 (Cum Interest)
To Interest A/c
400 (Interest)
To Investment A/c 19,404 (Ex Interest)
Sale Cum Interest

Cum Interest price is the quotation which includes
the interest. Interest will be subtracted to get the ex
interest price.
Journal Entry
Bank A/c . . . . . . . Dr (Cum interest)

To Interest A/c
(Interest)
To Investment A/c (Ex Interest)
Note : If brokerage is paid it should be subtracted
Sale Cum Interest
Example
1.1.2012 50, 8% debentures Sold cum-interest at

98. Brokerage at 1% is to be paid. Dates of interest
payment is 31st March and 30th Sept.
Cum Interest price = 50 X 98 = 4900 - 1% = 4851

Interest = 50 x 100 x 8% x 3/12 = 100
Bank A/c . . . . . . . . . . Dr 4,851 (Cum Interest)
To Interest A/c
100 (Interest)
To Investment A/c 4,751 (Ex Interest)
Profit or loss on sale

When investments are sold, we need to calculate profit
or loss on sale. Profit or loss is calculated by comparing
the ex-interest investment sale price to the cost of
investment held.
Journal Entry
Loss on sale
Loss of Sale of Investment A/c . . . . . Dr

To Investment A/c
Profit on sale
Investment A/c . . . . . Dr
To Profit on Sale A/c
Example
Opening Balance Face Value 1,20,000 Cost 1,18,000

Purchase Face Value 10,000 Cost 9898
Sale Face Value 20,000 Cost 19,800 (S.P)
Solution
FIFO
Face Value
Opening Balance 1,20,000
Sold
20,000
Selling Price
Profit on Sale
Cost
1,18,000
19,800
133
20,000 x 1,18,000
/ 1,20,000
19,667
Example
Opening Balance Face Value 1,20,000 Cost 1,18,000

Purchase Face Value 10,000 Cost 9898
Sale Face Value 20,000 Cost 19,800 (S.P)
Solution
Weighted Average
Face Value
Purchase
10,000
1,30,000
Sold
20,000
Selling Price
Profit on Sale
Cost
1,18,000
9,898
1,27,898
19,800
123
20,000 x 1,27,898
/ 1,30,000
19,677
Closing Balance of Investment Account
Investment should be valued at lower of cost or net

realisable value whichever is lower.
Practice Problem Practice manual Q - 4

Mr. Purohit furnishes the following details relating to his holding in 8%
debentures (100 each) of P Ltd., held as current assets.
1
1.4.2009 Opening Balance Face Value 1,20,000 Cost 1,18,000

1.7.2009 2 100 Debentures purchased ex interest at 98.
4
1.10.2009 Sold 200 Debentures ex interest at 100
1.1.2010 5 Purchased 50 debentures at 98 cum interest
6
1.2.2010 Sold 200 Debentures ex interest at 99
Due Dates of interest are
30th
September and
31st
March
Mr. Purohit closes his books on 31.3.2010. Brokerage at 1% is to be

paid for each transaction. Show investment Account as it would appear
in his books. Assume FIFO method. Market Value of 8% debentures of P
Limited on 31.3.2010 is 99.
Practice Problem Solution
TimeLine
31/3
Interest
1/4
Op.Bal
1/7
30/9
Purchase Interest
1/10
Sold
1/1
Purchase
1/2
Sale
31/3
Interest
Closing
Solution
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1.4.09 To Balance b/d
Total
1/7
30/9
Purchase Interest
W.N. Face
Value
120000
1/10
Sold
1/1
Purchase
Mr.Purohit
8%DebenturesofP.Limited
Interest Cost Date
Particulars
1/2
Sale
31/3
Int/Clo
Cr
W.N. Face Interest Cost
Value
118000
Total
Note : The last date of interest was 31/3 and the opening balance is 1/4
so there is no accrued opening interest. If the dates would have been
different then there would have been opening accrued interest also.
solution
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value

1.7.09 To Bank A/c
10000
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
1
1/10
Sold
118000
200
9898
Total
Working Note 1
Ex Interest price = 100 X 98 = 9800 + 1% = 9898
Interest = 100 x 100 x 8% x 3/12 = 200
Total
1/2
Sale
31/3
Int/Clo
Cr
Value
TimeLine
solution
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value

1.7.09 To Bank A/c
1/10
Sold
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
118000 30.9.09 By Bank A/c
Total
Working Note 2
Interest = 130000 x 8% x 6/12 = 5200
9898
Total
1/2
Sale
31/3
Int/Clo
Cr
Value
2
5200
TimeLine
solution
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value

1.7.09 To Bank A/c
1.10.09 To Profit on Sale
1/10
Sold
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
118000 30.9.09 By Bank A/c

9898 1.10.09 By Bank A/c
1/2
Sale
Cr
Value
2
20000
133
Total
Total
Working Note 4 Profit / Loss on Sale (Fifo Basis)

Face Value
Cost
1,18,000
Sold
20,000
19,667
Selling Price
19,800
Profit on Sale
133
31/3
Int/Clo
20,000 x 1,18,000 / 1,20,000
5200
-
19800
TimeLine
Solution
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
1.10.09 To Prof of Sale
1.1.10 To Bank A/c
5000
100
1.7.09 To Bank A/c
1/10
Sold
1/2
Sale
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
133
4849
Total
Working Note 4
Cum Interest price = 50 X 98 = 4900 + 1% = 4949
Interest = 50 x 100 x 8% x 3/12 = 100
Total
31/3
Int/Clo
5200
-
19800
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
1.1.10 To Bank A/c
5000
100
1.7.09 To Bank A/c
1/10
Sold
1/2
Sale
31/3
Int/Clo
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
19800
20000
533
19602
133 1.2.10
By Bank A/c
4849
Total
Working Note 5
Ex Interest price = 200 X 99 = 19800 - 1% = 19602
Interest = 200 x 100 x 8% x 4/12 = 533
Total
5200
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
1.1.10 To Bank A/c
5000
100
1.7.09 To Bank A/c
1/10
Sold
1/2
Sale
31/3
Int/Clo
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
19800
By Bank A/c
20000
533
19602
By Loss on Sale
133 1.2.10
4849 1.2.10
Total
Total
Working Note 6 Profit / Loss on Sale (Fifo Basis)

Face Value
Cost
1,18,000
Sold
20,000
19,666
Selling Price
19,602
Loss on Sale
64
20,000 x 1,18,000 / 1,20,000
5200
64
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
10000
200
1.1.10 To Bank A/c
5000
100
1.7.09 To Bank A/c
1/10
Sold
Working Note 7
Interest = 95000 x 8% x 6/12 = 3800
31/3
Int/Clo
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
19800
By Bank A/c
20000
533
19602
By Loss on Sale
133 1.2.10
4849 1.2.10
31.3.10 By Bank A/c
Total
1/2
Sale
Total
5200
3800
64
-
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
10000
200
1.1.10 To Bank A/c
5000
100
Total
135000
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
1.7.09 To Bank A/c
1/10
Sold
1/2
Sale
31/3
Int/Clo
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
19800
By Bank A/c
20000
533
19602
By Loss on Sale
133 1.2.10
4849 1.2.10
31.3.10 By Bank A/c
31.3.10 By Balance c/d
132800
Working Note 8
Closing cost 132800 19800 19602 64 = 93414
Market Price = 95000 / 100 x 99 = 94050
So lower of cost and market value is 93414
Total
95000
135000
5200
64
3800
93414
132800
TimeLine
31/3
Interest
Dr
Date
1/4
Op.Bal
Particulars
1/7
30/9
Purchase Interest
W.N. Face
Value
10000
200
1.1.10 To Bank A/c
5000
100
31.3.10 To P / L A/c
Total
9533
1/2
Sale
31/3
Int/Clo
Cr
Value
118000 30.9.09 By Bank A/c
9898 1.10.09 By Bank A/c
20000
19800
By Bank A/c
20000
533
19602
By Loss on Sale
133 1.2.10
4849 1.2.10
9233
135000
1/1
Purchase
Mr.Purohit
Interest Cost Date
Particulars
120000
1.7.09 To Bank A/c
1/10
Sold
132800
31.3.10 By Bank A/c
Total
5200
64
3800
95000
93414
135000
9533
132800
Note : Interest being the nominal account, it should be closed

and the balance should be transferred to profit and loss A/c
Variable Income Bearing Securities

The investment in equity shares comes under this
category.
Dr
Date
InvestmentAccount
Particulars
W.N
Face
Dividend Cost Date
Cr
Particulars
Value
Total
W.N Face Dividend Cost

Value
Total
Cost of investment includes acquisition charges such as

brokerage, fees and duties.

Some important points to be noted with reference to investment in
equity shares
A) Dividends from investments in shares are not recognised
in the statement of profit and loss until a right to receive
payment is established.
B) The amount of dividend accruing between the date of
last dividend payment and the date of purchase cannot be
immediately ascertained.
C) The dividend received for a particular period of time

is assumed to be evenly distributed over the period.

Right Shares
When right shares offered are subscribed for, the cost of the right
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 investment immediately after their becoming ex
right is lower than the cost for which they were acquired, it may be
appropriate to apply the sale proceeds of rights to reduce the
carrying amount of such investments to the market value.

Right Shares
For e.g. Mr. X acquires 200 shares of a company on cum-right
basis for 50,000. He subsequently receives an offer of right to
acquire fresh shares in the company in the proportion of 1 : 1 at
200 each. X subscribes for the right issue. Thus, the total cost of Xs
holding of 400 shares would amount to 90,000
Suppose, he does not subscribe but sells the rights for 15,000.
The ex-right market value of 200 shares bought by X immediately
after rights falls to 40,000. In this case out of sale proceeds of
15,000, 10,000 may be applied to reduce the carrying
amount to the market value 40,000 and 5,000 would be
credited to the profit and loss account.

Bonus Shares
Where an investment is acquired by way of issue of bonus shares,
no amount is entered in the cost column of investment account since
the investor has not to pay anything. It only adds to the face value
of the shares.

Dividend
Dividend on shares is received on the shares held on the day
dividend is announced by the company.
The dividend for the period, for which the shares were not held by
the investor, should not be treated as revenue receipt but they
should treated as capital receipt.

Dividend
Example
Mr. X Purchase 5000 equity shares of Rahul Ltd. having face value
of 10 for 25 on 1/10/2011. The company announces
dividend @ 10% on 15/3/2012 for the year 2011. Calculate
total dividend and the amount that can be credited to cost.
Solution
Total Dividend = 5000 x 10 x 10% = 5,000
01/01/2011
01/10/2011
31/12/2011
Amount credited to the cost = 5,000 x 9 / 12

= 3,750

Journal Entries
Purchase
Investment A/c . . . . . . Dr
To Bank A/c
Sale
Bank A/c . . . . . .
To Investment A/c
Dr

When investments are sold, we need to calculate profit
or loss on sale. Profit or loss is calculated by comparing
the selling price to the cost of investment held.
Journal Entry
Loss on sale
Loss of Sale of Investment A/c . . . . . Dr

To Investment A/c
Profit on sale
Investment A/c . . . . . Dr
To Profit on Sale A/c
Practice Question Study Material ILL 2 Page No 12.7
On 1.4.2010 Mr Krishna Murty Purchased 1,000 equity shares of 100

each in TELCO Ltd. @ 120 each from a Broker, who charged 2%
brokerage. He incurred 50 paise per 100 as cost of shares transfer
stamps. On 31.1.2011 bonus was declared in the ratio 1 : 2. Before and
after the record date of bonus shares, the shares were quoted at 175
per share and 90 per share respectively. On 31.3.2011 Mr. Krishna
Murty sold bonus shares to a broker, who charged 2% brokerage.
Show the investment Account in the books of Mr. Krishna Murty, who held
the shares as current assets and closing value of investments shall be
made at cost or market value whichever is lower.
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Sale
31/3
Closing
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Closing
Mr.Krishna
Equity SharesofTelcoLtd.
Dr
Date
31/3
Sale
Particulars
1.4.10 To Bank A/c
Total
W.N. Face Dividend Cost

Value
1 100000
Date
Cr
Particulars

Value
123000
Total
Working Note 1
Cost = 1000 x 120
= 120000 + 2% on120000 + % (50 p per 100) on 120000
= 123000
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Closing
Mr.Krishna
Dr
Date
31/3
Sale
Particulars
1.4.10 To Bank A/c

31.1.11 To Bonus Shares
Total

Value
1 100000
50000
Date
Cr
Particulars
123000
-
Total
Working Note 2
Bonus in the ratio 1 for 2 = 1000 / 2 = 500 x 100 = 50,000

Value
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Closing
Mr.Krishna
Dr
Date
31/3
Sale
Particulars
1.4.10 To Bank A/c


Value
1 100000
50000
Date
Cr
Particulars
123000 31.3.11 To Bank A/c

-
Total
Working Note 3
Selling price = 500 x 90 = 45000 2% = 44100
Total

Value
3
50000
44100
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Closing
Mr.Krishna
Dr
Date
31/3
Sale
Particulars
1.4.10 To Bank A/c

Value
1 100000
50000
3100
Date
Cr
Particulars
123000 31.3.11 To Bank A/c
Total
Working Note 4 Profit / Loss on Sale

Face Value
Cost
Purchase
1,00,000
1,23,000
Bonus
50,000
.
Total cost
1,50,000
1,23,000

Value
3
50000
44100
Total
Cost of Investment Sold

= 50,000 x 123000 / 150000 = 41,000
Selling Price
44,100
Profit on Sale
3,100
TimeLine
1/4
Purchase
31/1
Bonus
31/3
Closing
Mr.Krishna
Dr
Date
31/3
Sale
Particulars
1.4.10 To Bank A/c

Value
1 100000
50000
3100
Date
Cr
Particulars

Value
123000 31.3.11 By Bank A/c
Total
150000
126100
Total
Working Note 5 Valuation of Closing Stock

Cost = 123000 + 3100 44100 = 82000
Market Value = 1000 (1500 500) x 90 = 90000
Closing Balance will be he lower of cost or market value i.e. 82000
50000
5 100000
150000
44100
82000
126100

1
0n
Jan ,10, Singh had 20,000 equity shares in X Ltd. Face value of the shares was 10
each but their book value was 16 per share. On 1st June,10 Singh purchased 5,000 equity
2
shares in the company at a premium of 4 per share.
On 30th June,10, the directors of X Ltd. announced a bonus and rights issue. Bonus was
declared at the rate of one equity share for every 5 shares held and this shares were
received on 2nd August, 2010. 3
The Terms of Rights issue were
1. Rights shares to be issued to the existing holders on 10th Aug, 2010
2. Rights issue would entitle the holders to subscribe to additional equity shares in the ratio
of 1 for 3 @ 15 per share and amount was payable on 30th Sept, 2010. 4
3. Existing holders may either wholly or partly, transfer their rights to outsiders.
4. Singh exercised his option under the issue for 50% of his entitlement and the balance of
rights he sold to Ananth for a consideration of 1.50 per share.
5. Dividends for the year ended 31st March, 2010 at the rate of 15% were declared by
the company and received by Singh on 20th October, 2010. 5
6. On 1st November, 2010, Singh sold 20,000 equity shares at the premium of 3 per
6
shares.
7
The market price of shares on 31-12-2010 was 13. Show the investment account as it
would appear in Singhs books on 31-12-2010 and the value of shares held on that date.
1st
TimeLine
1/1
1/6
2/8
30/9
20/10
1/11
31/12
Opening
Purchase
Bonus
Rights
Dividend
Sale
Closing
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Equity SharesofXLtd.
Dr
Date
30/9
Rights
Particulars

Value
1
200000
Total
Working Note 1
Opening Balance
Face Value = 20,000 x 10 = 200,000
Cost = 20,000 x 16 = 320,000
Date
Cr
Particulars
320000
Total

Value
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
320000
1.6.10 To Bank A/c
50000
70000
Total
Working Note 2
Purchase
Face Value = 5,000 x 10 = 50,000
Cost = 5,000 x 14 = 70,000
Date
Cr
Particulars
Total

Value
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
1.6.10 To Bank A/c

2.8.10 To Bonus Issue
2
3
Total
200000
320000
50000
50000
70000
-
Date
Cr
Particulars

Value
Total
Working Note 3
Bonus Issue = 1 for 5 shares held = 25,000 / 5 = 5000 x 10 = 50,000
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
1.6.10 To Bank A/c

2
3
50000
50000
70000
-
30.9.10 To Bank (Rights)
50000
75000
Date
Cr
Particulars
320000 30.9.10 By Bank (Rights)
Total
Working Note 4
Rights Issue = 1 for 3 shares held = 30,000 / 3 = 10,000
Purchase of Rights = 10,000 X 50% x 15 = 75,000
Sale of Rights = 10,000 x 50% x 1.5 = 7,500
Total

Value
4
7500
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
1.6.10 To Bank A/c

Date
Cr
Particulars
200000
2
3
50000
50000
70000 30.9.10 By Bank A/c

(Dividend)
-
50000
75000

Value
320000 30.9.10 By Bank (Rights)
Total
7500
30000
7500
Total
Time Line
1/1
Opening
1/6
Purchase
Working Note 5
Dividend = 250000 x 15% = 37,500
Credited to cost = 50,000 (Purchased on 1/6/10) x 15% = 7500
Note : No Dividend shall be received on Bonus Issue and Rights Issue
2/8
Bonus
30/9
Rights
20/10
Dividend
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
1.6.10 To Bank A/c

2
3
50000
50000
50000
Total
Working Note 6
Sale
Face Value = 20000 x 10 = 200000
Cost = 20000 x 13 = 260000
Date
Cr
Particulars
320000 30.9.10 By Bank (Rights)

Value
4
70000 30.9.10 By Bank A/c

(Dividend)
-
30000
7500
75000 1.11.10 By Bank A/c
200000
260000
Total
7500
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
1.6.10 To Bank A/c

2
3
50000
50000
50000
Date
Cr
Particulars
320000 30.9.10 By Bank (Rights)
Total

Value
4
70000 30.9.10 By Bank A/c

(Dividend)
-
30000
7500
75000 1.11.10 By Bank A/c
200000
260000
2857
Total
Working Note 7 Profit or Loss on Sales

Investment Held = Face Value = 200000 + 50000 + 50000 + 50000 = 350000
Cost Price = 320000 + 70000 + 75000 7500 7500 = 450000
Cost of Investment Sold = 200000 x 450000 / 350000 = 257143
Profit on sale = 260000 (SP) 257143(CP) = 2857
7500
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
31/12
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
1.6.10 To Bank A/c

2
3
50000
50000
50000
Date
Cr
Particulars
320000 30.9.10 By Bank (Rights)
70000 30.9.10 By Bank A/c

(Dividend)
-
30000
7500
75000 1.11.10 By Bank A/c
200000
260000
350000
7500
150000
192857
2587
31.12 By Balance c/d
Total

Value
467857
Total
350000
Working Note 8 Valuation of Closing Stock

Face Value = 350000 200000 = 150000
Cost = 450000 257143 = 192857 or 150000 x 450000 / 350000 = 192857
Market Value = 150000 / 10 x 13 = 195000
The closing has to be lower of cost or market price = 192857
467857
Time Line
1/1
Opening
1/6
Purchase
2/8
Bonus
20/10
Dividend
1/11
Sale
1/11
Closing
Singh
Dr
Date
30/9
Rights
Particulars

Value
200000
1.6.10 To Bank A/c

2
3
50000
50000
50000
31.12 To P / L A/c
Total
Date
Cr
Particulars
320000 30.9.10 By Bank (Rights)

Value
4
7500
70000 30.9.10 By Bank A/c

(Dividend)
-
30000
7500
75000 1.11.10 By Bank A/c
200000
260000
150000
192857
2587
30000
350000 30000 467857
31.12 By Balance c/d
Total
350000 30000 467857
rahulmalkan@live.com

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PAPER 1 ACCOUNTING

PROF RAHUL J. MALKAN

Long Term Investments

Investment other than current investments are long

Long Term Investment

Fixed Interest Bearing Securities

Cost of investment includes acquisition charges such as

Fixed Interest Bearing Securities

Investment A/c . . . Dr (Ex Interest)

Note : If brokerage is paid it should be Added

1.7.2012 100, 8% debentures purchased ex-interest

interest payment is 31st March and 30th Oct.

Ex Interest price = 100 X 98 = 9800 + 1% = 9898

Purchase Cum Interest

Note : If brokerage is paid it should be Added

Purchase Cum Interest

1.1.2012 50, 8% debentures purchased cum-interest

interest payment is 31st March and 30th Sept.

Cum Interest price = 50 X 98 = 4900 + 1% = 4949

Bank A/c . . . . . . . Dr (Cum interest)

1.7.2012 200, 8% debentures sold ex-interest at

payment is 31st March and 30th Oct.

Ex Interest price = 200 X 98=19600 - 1% = 19404

Sale Cum Interest

Bank A/c . . . . . . . Dr (Cum interest)

Sale Cum Interest

1.1.2012 50, 8% debentures Sold cum-interest at

payment is 31st March and 30th Sept.

Cum Interest price = 50 X 98 = 4900 - 1% = 4851

Profit or loss on sale

Loss of Sale of Investment A/c . . . . . Dr

Profit or loss on sale

Opening Balance Face Value 1,20,000 Cost 1,18,000

Profit or loss on sale

Opening Balance Face Value 1,20,000 Cost 1,18,000

Closing Balance of Investment Account

Investment should be valued at lower of cost or net

Practice Problem Practice manual Q - 4

1.4.2009 Opening Balance Face Value 1,20,000 Cost 1,18,000

Mr. Purohit closes his books on 31.3.2010. Brokerage at 1% is to be

Practice Problem Solution

1.4.09 To Balance b/d

1.4.09 To Balance b/d

1.4.09 To Balance b/d

118000 30.9.09 By Bank A/c

1.4.09 To Balance b/d

118000 30.9.09 By Bank A/c

Working Note 4 Profit / Loss on Sale (Fifo Basis)

20,000 x 1,18,000 / 1,20,000

1.4.09 To Balance b/d

1.10.09 To Prof of Sale

1.1.10 To Bank A/c

1.7.09 To Bank A/c

118000 30.9.09 By Bank A/c

9898 1.10.09 By Bank A/c

1.4.09 To Balance b/d

1.10.09 To Prof of Sale

1.1.10 To Bank A/c

1.7.09 To Bank A/c

118000 30.9.09 By Bank A/c

9898 1.10.09 By Bank A/c

1.4.09 To Balance b/d

1.10.09 To Prof of Sale

1.1.10 To Bank A/c