T.Y.B.

COM
INVESTMENT ACCOUNTING (ACCOUNTING STANDARD- 13)
1. Introduction:
The term ‘Investment’ refers to funds invested in various securities consisting of Government
and semi-Government Loans, Shares and Debentures of Companies, etc. Investors, who have
surplus funds or savings, generally like to invest their money to earn interest or dividend over
a period or/and to make profit by sale. Employment of funds with specific objective of earning
income or profit is known as investment. The funds invested represent investments.
2. Accounting Standard – 13:
According to AS-13 investments are assets held for earning income by way of dividends,
interests, rent or capital appreciation or any other benefits. While doing investment
following factors must be considered that is liquidity, security and profitability.
Example of Investments:
• Government or Trust Investments
• Debentures, Bonds issued by Company’s
• Shares of Company’s
• Deposits with banks
• Immovable property
• Jewelers, partnership firm, insurance policy etc.

This Standard does not deal with:

• The bases for recognition of interest, dividends and rentals earned on investments
which are covered by Accounting Standard 9 on Revenue Recognition;
• Operating or finance leases;
• Investments of retirement benefit plans and life insurance enterprises; and
• Mutual funds and venture capital funds and/or the related asset management
companies, banks and public financial institutions formed under a Central or State
Government Act or so declared under the Companies Act, 1956.
• Assets held as stock-in-trade are not ‘investments’.

3. Classification of Investments:
Enterprises present financial statements that classify fixed assets, investments and
current assets into separate categories. Investments are classified into two categories as
per AS- 13 i.e. long term investments and current investments.

4. Disposal of Investments
On disposal of an investment, the difference between the carrying amount and net
disposal proceeds should be charged or credited to the profit and loss statement.

4.1 Computation of Disposal of Investment (Sale of Investment)

When investment sold Net price should consider as sale price i.e.
Sale Price xx
(-) Brokerage xx
(-) Other expenses xx
Net Sale Price xx
(-) Carrying cost of Investment sold xx
Profit or Loss on sale xx

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4.2 Cost of Investments / Investment Acquisition (Purchase of Investment)

The cost of an investment includes acquisition charges such as brokerage, fees and duties.

5. Categories of Investment on the basis of Income (Nature of Investment)

a. Fixed Income bearing securities- e.g. Govt. Securities; Debentures or Bonds
b. Variable Income bearing securities- e.g. Equity shares
5.1 Ex- Interest:
• Ex- Interest means exclusive of Interest.
• Ex interest price = Cost of Investment

5.2 Cum- Interest:

• Cum- Interest means cumulative of interest or Inclusive of Interest.
• Cum interest price = Cost + Interest for stipulated period

6. Performa of Investment Account

Investment A/c for the year ended….
Date Particulars Face Int. Cost Date Particulars Face Int. Cost
Value Value
To Bal. b/d xxx xxx xxx By Cash (Int.) --- xxx ---
To Cash xxx xxx xxx By Cash Sale xxx xxx xxx
To P /L ---- ---- xxx By Cash (Int.) --- xxx ---
(Profit on sale) By Cash Sale xxx xxx xxx
To Cash xxx xxx xxx By P/L (Loss) --- --- xxx
To P/L ---- xxx --- By Acc. Int. xxx ---
By Bal. C/d xxx ---- xxx

xxx xxx xxx xxx xxx xxx

PRACTICAL PROBLEMS
Fixed Income Bearing Securities
Q.1 Mr. Amit furnishes the following details to holding in 6% Government bonds:
Opening balance Face value Rs. 60,000 only – cost Rs. 59,000.
01. 03. 2017 100 units purchased ex-interest at Rs. 98.
01. 07. 2017 Sold 200 ex-interests at Rs. 100.
31. 10. 2017 Purchased 50 units at Rs.98 cum-interest.
01. 11. 2017 Sold 200 units cum- interest at Rs.97.50.
Interest dates are 30th September and 31st March every year. Mr. Amit closes his
books every 31st December. Show the investment account as it would appear in his
books.

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Q.2 Mumbai Investments hold 1200- 6% Debentures of Rs. 100 each in Prabhu Ltd. as on
1st April 2017 at a cost of Rs. 1, 40,000. Interest is payable on 30th June and 31st December
every year. Other Details are as under:
Date Particulars
01-06-2017 : 400 Debentures are purchased cum-interest at Rs. 40,800
01-11-2017 : 400 Debentures are purchased ex-interest at Rs. 38,400
30-11-2017 : 600 Debentures are sold cum-interest for Rs. 64,500
31-12-2017 : 800 Debentures are sold ex-interest for Rs. 77,300
Prepare Investment Account valuing closing balance on 31-03-2018 at cost or market price
whichever is lower. The Debentures are quoted at par on 31-03-2018

Q.3 Miss Bhagyshri entered into the following transactions of purchases and sales of
12% Debentures of Rs. 100 each of Bhagylaxmi Ltd. Interest is payable on 30th June
and 31st December every year. Other Details are as under:
Date No. of Debentures Terms
01-04-2017 800 Opening Balance at a cost of Rs. 76,000
01-06-2017 300 Sold at Rs. 105 each Cum-interest
01-09-2017 700 Purchased at Rs. 98 each Ex-interest
01-12-2017 400 Purchased at Rs. 108 each Cum-interest
01-02-2018 900 Sold at Rs. 97 each Ex-interest
Prepare investment Account of 12% Debentures in the books of Bhagyshri for the
year ended 31st March, 2018. The market value on 31st march, 2018 was Rs. 69,500
of the said investment. Apply AS-13.

Q.4 On 15th March, 2016 Hemangi purchased Rs. 1, 00,000, 9% Government Stock
(Interest payable on 1st April, 1st July 1st October and 1st January) at Rs. 88.50 cum-
interest (face value Rs. 100 each).
On 1st August, Rs. 20,000 stock in sold at Rs. 89 cum – interest and on 1st September Rs.
30,000 stocks in sold at Rs. 89.25 ex – interest.
On 31st December, the date of the Balance Sheet, the market price was Rs. 90.
Show the Ledger Account of the investment of the year ignoring income tax, brokerage
etc. and making apportionment in months.

Q.5 Mr. Kaka holds as on 1st April 2019 Rs. 75,000 (Cost price Rs. 78,000) 6% Central govt.
bonds 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 31st March, 2020.
Purchases:
On 1-05-2019 Face value Rs. 30,000 @ 98 Cum-Interest
On 1-11-2019 Face value Rs. 45,000 @ 101 Ex-Interest
Sales:
On 1-08-2019 Face value Rs. 36,000 @ 97 Cum-Interest
On 1-02-2020 Face value Rs. 24,000 @ 102 Ex-Interest
Market price of Investment at 1% discount on 31st March, 2020.
Prepare Investment Account as per AS-13.

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Q.6 On 1st January 2016, 1000-12% Debenture of Rs 100 Each ABC Ltd. Were held as
investment by Mr. Rony at a cost of Rs. 91,000.
Interest is payable on 31st December.
On 1st April, 2016, Rs. 20,000 of such debentures were purchased by Rony @ 98 cum-
interests.
On 1st September 2016, Rs, 30,000 of such debentures were sold at Rs 96 ex-interest
On 1st December, 2016, Rs 50,000 of such Debentures were sold at Rs 99 cum- Interest.
Interest is received on due date.
Prepare investment account for 12% debentures of ABC Ltd. in the books of Mr. Rony
valuing closing stock as on 31st December, 2016 applying AS-13 the debentures were
quoted at Rs. 93 on 31st December 2016.

B. Variable Income Bearing Securities

Q.7 On 1-04-2019 Mayur had 50,000 equity shares in Hero Ltd. The face value of shares was
Rs 10 each but there book value was Rs. 24 per shares.
On 2-06-2019 Mayur purchased 10,000 equity shares in Hero Ltd. at a premium of Rs. 6
per share.
On 1-07-2019, The Directors of Hero Ltd. issued bonus shares at the rate of one shares for
every three shares held.
On 1-01-2020 Mayur purchased 5000 right shares in Hero Ltd. of Rs. 10 each at Rs.15 per
share.
On 31-01-2020 he sold 20,000 equity shares in Hero Ltd. of Rs.10 each at Rs. 30 per shares.
Show investment account as it would appear in Mayur books for the year ended 31-03-
2020.

Q.8 Mr. Viraj entered into following transactions of purchase and sale of equity shares of
Honda Ltd. The shares have paid-up value of Rs.10 per shares.
DATE NO. OF SHARES TERMS
01.01.2012 600 Buy @Rs.20 per shares
15.03.2012 900 Buy @Rs.25 per shares
20.05.2012 1000 Buy @Rs.22 per shares
25.07.2012 2500 Bonus shares received
20.12.2012 1500 Sale @Rs.22 per shares
01.02.2013 1000 Sale @Rs.24 per shares
Additional Information:
1. On 15th September 2012, dividend @ Rs.3 per shares was received for the year
ended 31st March, 2012.
2. On 12th November 2012, the company made a rights issue of equity Shares in the
ratio of one shares of five shares held on payment of Rs.20 per shares. He
subscribed to 60% of the shares and renounced the remaining shares on receipt of
premium of Rs.3 per shares.
3. Shares are to be valued on weighted average cost basis.
You are required to prepare Investment Account for the year ended 31.03.2012 and
31.03.2013.