INVESTMENT ACCOUNTING

ACCOUNTING ENTRIES IN JOURNAL

Transaction/Entry

Amount

No.
(1)

Purchase [at Ex-Interest Price]

Investment A/c
Dr.
[Towards Cost = Price]
Interest A/c
Dr.
[Towards Accrued
Interest]
To Bank A/c
[Total paid=
Price + Interest]
Notes:
1. Price paid = Quoted Price + Brokerage
2. Accrued Interest upto date of purchase
= NV x % 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 Price]
Investment A/c
Dr.
[Towards Cost
= Price Interest]
Interest A/c
Dr.
[Towards Accrued Interest]
To Bank A/c
[Total Paid = Price]
Notes:
1. Price paid = Quoted Price + Brokerage
2. Accrued Interest upto date of purchase
= NV x % of Interest x 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 Price]
Bank A/c
Dr.
[Total Recd. = Price + Interest]
To Investment A/c
[Towards Capital = Price]
To Interest A/c
[Towards Accrued Interest]
Notes:
1. Price received = Quoted Price Brokerage
2. Accrued Interest upto date of purchase
= NV x % of Interest x Months from last due date till date of purchase 12
3. Sold ex-interest; so, Total Receipts = Price received + Accrued Interest received
(4)
Sale [at cum Interest Price]
Bank A/c
Dr.
[Price]
To Investment A/c
[Towards Capital = Price
Interest]
To Interest A/c
[Towards Accrued Interest]
Notes:
1. Price received = Quoted Price Brokerage
2. Accrued Interest upto date of purchase
= NV x % of Interest x Months from last due date till date of purchase 12
3. Sold cum interest; so, Received towards Capital = Price received Accrued interest
(5)
Profit on Sale
Investment A/c
Dr.
To P & L A/c
Notes:
1. On each sale, the profit or loss is calculated as Sale Price Less Weighted Average Cost.
Weighted Average Cost on date of sale is equal to
No. of Securities sold Total cost of Investments on Date of Sale
No. of Total Securities
(The Weighted Average Cost is to be used for ascertaining Profit, as per Accounting
Standard 13. Hence,
even if an examination problem states that securities are sold out
of a specific lot or out of the Opening
Stock etc. Weighted Average cost should be used
for ascertaining profit)
2. Profit on sale of investement (whether current or long term investment) is transferred to
profit & loss a/c, by the
above journal entry.
3. Loss on sale of investments (whether current or long term) is debited to the Profit & Loss
Account.
(6)
Interest Received on due date
Bank A/c
Dr.
[Amount received]
To Interest A/c
Notes:

1. Interest Amount Received = NV x % of Interest x Months due 12

2. If any tax at source is deducted [TDS], Tax at source a/c is debited and the net amount
(Total less TDS) is debited
to the Bank a/c.
(7)
Accrued interest at year-end
Accrued interest A/c
Dr.
[Amount due]
To Interest A/c
Note: Accrued Interest Amount due = NV x % of Interest x Months due 12
(8)
Interest Tfd. To P & L A/c at year-end
Interest A/c
Dr.
To P & L A/c
Note: Net Balance of interest a/c (or column) is transferred at year end.
(9)
Valuation at year-end
Profit & Loss A/c
Dr.
[Cost Market value]
To Investment A/c
Notes:
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 debited to profit & loss account, vide the above journal entry. This
debit to profit & Loss A/c
due to change in carrying amount is as per the recommendation of AS 13.
2. Investment held as fixed asset (long term) is valued at cost at the yearend as per AS 13
irrespective of the
market price.
Q.1

On 1st January 2013, 1000-12% Debentures of ` 100 each of Shiva Ltd. were held as investment
by Mr. Dharmesh at a cost of ` 91,000. Interest is payable on 31st December.
On 1st April 2013, ` 20,000 of such debentures were purchased by Dharmesh @ ` 98 cuminterest.
On 1st September 2013, ` 30,000 of such debentures were sold @ ` 96 ex-interest.
On 1st December 2013, ` 50,000 of such debentures were sold @ ` 99 cum-interest.
Interest is received on due date.
Prepare Investment account for 12% debentures of Shiva Ltd. in the books of Mr. Dharmesh
valuing closing stock as on 31st December 2013 applying AS 13. The Debentures were quoted at
` 93 on 31st December 2013.

Q.2

Mr. Ram Nene held on 1-1-2013 ` 60,000 of 12% Government securities (Tax free) of ` 100 each
of ` 56,500.
On 1-6-2013 he purchased a further of ` 40,000 of the security at ` 96.5 cum-interest, brokerage
being ` 200.
On 31-7-2013 ` 50,000 of the security was sold at 94.5 ex-interest, brokerage being ` 250.
On 1-12-2013 ` 20,000 of the security was again sold at ` 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 and 4th October respectively. The price of the security on 31-12-2013,
was 96.
Mr. Nene closes his books on 31st December each year.
Draw up the investment Account in the books of Mr. Nene.

Q.3

Mr. Investor furnishes the following details relating to his holding in 6% government bonds :Opening Balance
Nominal value ` 60,000, cost ` 59,000.
1-3-2013
100 units purchased ex-interest ` 98.
1-7-2013
Sold 200 ex-interest at ` 100.
1-10-2013
Purchased 50 units at ` 98 cum-interest.
1-11-2013
Sold 200 units ex-interest at ` 99.
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.

Q.4

Miss Bhagwati entered into the following transactions of purchase and sales of 12% Debentures
of ` 100 each of Mansi Ltd. Interest is payable on 30th June and 31st December every year.
Transactions are as under :
Date
01-04-2012
01-06-2012

No. of Debentures
800
300

Terms
Opening Balance at a cost of `
76,000

01-09-2012
01-12-2012
01-02-2013

700
400
900

Sold at ` 105 each cum-interest

Purchased at ` 98 each Ex-interest
Purchased at ` 108 each Cuminterest
Sold at ` 97 each Ex-Interest
Prepare Investment Account of 12% Debentures in the books of Bhagawati for the year ended
31st March, 2013. The market value on 31st March, 2013 was ` 67,500 of the said investment.
Apply AS 13.
Q.5

Mr. Mandar holds as on 1st April, 2012 ` 75,000 (Cost price ` 78,000) 6 % Government Securities
as investment on which interest is payable half yearly on 30th June and 31st December every
year. The following transactions took place during the accounting year ended 31 st March, 2013.
Purchases :
(i) On 1-5-2012 Face value ` 30,000 @ 98 Cum-Interest
(ii) On 1-11-2012 Face value ` 45,000 @ 101 Ex-Interest
Sales :
(i) On 1-8-2012 Face value ` 36,000 @ 97 Cum-Interest.
(ii) On 1-2-2013 Face value ` 24,000 @ 102 Ex-Interest
Market price of investment at 1% discount on 31st March, 2013.
Write up Investment Account closing it on 31st March, 2013 in the books of Mr. Mandar.
Investments are to be valued at cost or at market value whichever is less. (Apply AS 13).

Q.6

On 15th March, 2013 O.P. Ralhan purchased ` 1,00,000, 9% Government Stock (interest payable
on 1st April, 1st July, 1st October and 1st January) at ` 88.50 cum-interest and on 1st September `
30,000 stock is sold at ` 89.25 ex-interest. On 31st December, the date of the Balance Sheet, the
market price was ` 90.
Show the Ledger Account of the investment of the year ignoring income tax, brokerage, etc.
making appointment in months.

Q.7

During the year ended 31st March, 2013 Mr. Virag bought and sold the following 12% Debentures
of ` 100 each of Limozin Ltd. Interest being payable by Limozin Ltd. on 1st April and 1st October
each year.
Date
Particulars
1st June, 2012
Bought 300 Debentures at ` 92 ex-interest
1st September, 2012
Bought 100 Debentures at ` 94 cum-interest
1st December, 2012
Sold 200 Debentures at ` 95 ex-interest
1st February, 2013
Bought 150 Debentures at ` 98 cum-interest
Books are closed on 31st March every year. Market price on 31st March, 2013 was ` 90 per
Debenture.

Q.8

Mr. Jayant holds 2,400, 6% debentures of ` 100 each in Gemini Ltd. as on 01-04-2012 at a cost
of ` 2,80,000. Interest is payable on 30th June and 31st December every year. Other details are as
follows:
1. On 01-06-2012, 6% Debentures are purchased cum-interest at ` 81,600.
2. On 01-11-2012, 800, 6% Debentures are purchased ex-interest at ` 76,800
3. On 30-11-2012, 1200, 6% Debentures are sold cum-interest at ` 1,29,000
4. On 31-12-2012, 1600, , 6% Debentures are sold ex-interest at ` 1,54,600
Prepare 6% Debenture account in the books of Mr. Jayant valuing closing balance on 31-03, 2013
at cost or market price whichever is lower. The Debentures are quoted at par on 31-03-2013.
(Interest on 31/12/2012 to be recorded after giving effect to the sale transaction.)

Q.9
During the year ended 31st March, 2013, ABC company had acquired shares of Telecom Ltd. as
follows:
Date of Acquisition
No.of Shares
Purchase cost per Share `
04-05-2012
500
55.00
25-08-2012
500
60.00
15-12-2012
1000
70.00
18-02-2013
750
75.00
On 15-03-2013 ABC Company sold 1000 shares at ` 80 per share. Calculate profit or loss on sale
of shares.
Q.10 Universal plastic Traders acquired 5,000 shares of Maruti Ltd. @ ` 80 each on 15th July, 2012.
Brokerage is paid @ 0.5%. On 1st December, 2012 Maruti Ltd. issued Right Shares in the ratio of
2 : 5 @ ` 98 per share. Universal Plastics Traders exercised their option for 50% of right shares
and applied for the same.

On 20th march, 2013 Universal Plastics traders sold 1600 shares of maruti Ltd. @ ` 100 per
share.
Calculate Profit/Loss on sale of shares on 20th March, 2013.
Q.11 On 1st April 2012 Sundar held 25,000 fully paid equity shares of ` 10 each in X Ltd., at a book
value of ` 15 per share.
On 20th June, 2012 he purchased another lot of 5,000 shares of the
company at ` 15 per share. Afterwards X Ltd.
announced a bonus issue and rights issue, the
following being the terms:
Bonus issue in the ratio 1 : 6 (Record date 18-8-2012)
Rights issue in the ratio 3 : 7 (Record date 31-8-2012)
The right shares were issued at ` 15 per share and the full amount was payable by 30th
September, 2012. Shareholders were entitled to transfer their rights in full or in part.
Accordingly Sunder sold one-third of his entitlements to another person for a consideration of ` 2
per share on 5th September, 2012. After becoming ex-rights, the market price of the shares were
` 15.
Dividends for the year ended 31st March, 2012 @ 20% were declared by X Ltd. and received by
Sunder on 31st October, 2012. Dividend on shares acquired by Sunder on 20th June, 2012, were
adjusted against the cost of purchase. On 15Th November, 2012 Sunder sold 25,000 shares @ `
15 per share.
You are required to prepare in the books of Sunder:
1. Investment in Equity shares in X Ltd. Account,
2. Dividend received account
3. Profit and loss Account
Assume that the books are closed on 31st March, 2013 and shares are valued at average cost.
Q.12 On 1st April, 2012 Mr. Mayur had 30,000 Equity Shares in Jai Ltd at a book value of ` 4,50,000
(Face value ` 10 per share). On 22nd June 2012, he purchased another 5000 shares of the
company for ` 80,000.
The Directors of Jai Ltd announced a bonus issue of equity shares in the ratio of one share for
seven shares held on 16 August 2012 .
On 31st August, 2012 the company made a right issue in the ratio of three shares for Eight
shares held on payment of ` 15 per share. Due date for the payment was 30th September, 2012.
Mr. Mayur subscribed to 2/3rd of the right shares and sold remaining of his entitlement to
Vinayak for a consideration or ` 2 per share.
On 31st October , 2012 received dividends form Jai Ltd. @ 20% for the year ended 31 st March,
2012. Dividend for shares acquired by him on 22nd June, 2012 are to be adjusted against the cost
of purchase.
On 15th November, 2012 Mayur sold 30,000 Equity shares at a premium of ` 5 per share. You
are required to prepare investment s account in the books of Mr. Mayur. Assume that the books
of Accounts are closed on 31st March, 2013 and shared valued at weighted average cost.
Q.13 On 1-4-2012 Mr. Ajay had 30,000 equity shares in Vipro Ltd. face value of the share was ` 10
each but his purchase
price was ` 14 per share. On 1-7-2012, Ajay purchased 6,000 additional
equity shares of the same company for a price
of ` 16 per share. On 31-7-2012 the directors of the
company announced a bonus and rights issue. Bonus was declared
at the rate of one equity share
for every six shares held. Bonus shares were received on 5-8-2012.
Rights issue were as per the following terms:
1. Right shares to be issued to the existing holders on 17-8-2012.
2. Rights offered were at the rate of one share for every for three shares held at ` 15 per
share. Full amount was payable by 30-9-2012.
3. Existing shareholders may to the extent of their entitlement, either wholly or in part,
transfer their rights to outsiders.
4. Ajay exercises his option and subscribed for 60% of his entitlement and the balance of
rights, he sold to Vikas for a consideration of ` 15 per share .
5. Dividend for the year ended 31-3-2012 at the rate of 14% was declared by the company
and received by Ajay.
6. On 1-11-2012 he sold 25,000 shares at ` 15 per share.
Prepare Investment Account of Equity Shares in Vipro Ltd. for the year ended 31-3-2008 in the
books of Mr. Ajay. Apply AS 13.
The market price of an equity share was ` 14 as on 31-3-2013
Q.14 On 1st April, 2012 Mr. Vinay had 30,000 Equity Shares of ` 10 each of Spectrum Ltd. purchased
at a cost of ` 15 per share.
On 1st May, 2012, he purchased 10,000 Equity share of Satyam Ltd. (Face value ` 10 each) at `
25.
On the same day he also purchased 20,000 equity shares of Spectrum Ltd. at ` 12 each. On 1st
July, 2012 he sold 2,00 equity shares of Satyam Ltd. @ ` 22 per share. Board of Directors of

Spectrum Ltd. announced rights issues of equity shares , in ratio of one share for every three
shares held, at ` 20 each, full amount was payable on 31st August, 2012. Shareholders were
allowed to renounce their right either in part or full to the outsiders. Mr. Vinay renounced 40% of
his rights at ` 5 per share and subscrined for the balance. On 1st December, 2012. Mr. Vinay
sol;d 5,000 equity shares of Spectrum Ltd. and 2,000 Equity shares of Satyam Ltd. @ 30 and @ `
27 per share respectively.
You are required to prepare :
1. Investment in Equity shares of Spectrum Ltd. A/c and
2. Investment in Equity shares of Satyam Ltd. A/c in the books of Mr. Vinay for the year
ended 31st March, 2013.
Q.15 The following transactions of Nidhi took place during the year ended 31st March 2012:
1st April
Purchased ` .12,00,000, 8% bonds at ` 80.50 cum interest.
Interest is payable on 1st
November and 1st May .
th
12 April
Purchased 1,00,000 Equity Shares of ` 10 each in X Ltd. for `
4,00,000
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. Nidhi sold
1,25,000 bonus shares for ` 20 each
1st October
Sold ` 3,00,000, 8% bonds at ` 81 ex-interest
1st November
Received half years bond interest
1st December
Received 18% dividend on Equity shares in X Ltd.
Prepare the relevant investment account in the books of Nidhi for the year ended 31 st March,
2012.