UNIT IV
Investment Accounting
Q1) Which Investments are covered under AS 13, Accounting for Investments? AS 13, Accounting for Investments does not deal with which situations?
A1) As per AS 13, Investments are assets held by an enterprise for earning income by way of dividends, interests and rentals, for Capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not ‘Investments’.
Investments in shares, debentures, bonds, etc held for the purpose as referred to in above are considered as Investments.
Similarly, investments in land or building that are not intended to be occupied substantially for use by, or in the operation of the investing enterprise is covered under AS 13 as Investment Property.
AS 13, does not deal with:
(a) The bases of recognition of interest, dividend and rentals earned on investments, which are covered by AS 9 on Revenue recognition.
(b) Operating or finance leases,
(c) Investments of retirement benefit plans and life insurance enterprises and
(d) 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.
Thus, disclosures and valuation of investments held by life insurance enterprises, Mutual Funds, banks, etc. will be made as per provisions of the respective act governing them and not as per AS 13.
Q2) What is difference between Current Investments and Stoke-in-Trade? Should Stock-in-Trade also be disclosed under Investments?
A2) Any asset held for earning income by way of dividends, interest and rentals for capital appreciation or for other benefits are considered as investments. Current Investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made.
Whereas for example shares, debentures and other securities held for sale in the ordinary course of business are not investments but ‘stock-in-trade’ and disclosed under the head ‘Current assets.
Premium Investments Ltd. Is an investment company. On each buy and sell, along with purchase price of the equity share, it also pays brokerage, service tax and securities transaction tax. Premium Investments Ltd. At the time of purchase and sell considers only purchase price as Investments and debits profit and loss account for the brokerage, service-tax and securities transaction tax. Is the treatment given by Premium Investments Ltd. In accordance with AS 13?
As per AS 13, the cost of an investment includes acquisition charges such as brokerage, fees and duties. Thus, transaction costs such as fees and commission paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties that are directly attributable to the acquisition and disposal of an Investment should be included in the cost of investment.
Thus, accounting treatment followed by Premium Investments Ltd. Is not in consonance with the requirements of AS 13. Premium Investments Ltd. Should include such cost incurred as part of investment cost, irrespective of the tax implications.
Q3) Fair Investments Ltd., a listed company, is in investments of infrastructure projects. The company initially gives infrastructure Companies, advance money to be converted into equity later on. Fair Investments has borrowing and utilizes such borrowings also for advancing. In its financial statements, Fair Investments Ltd., adds interest paid on such borrowings to advances and when shares are allotted (at par) by the infrastructure companies, capitalises the entire advance towards equity along with interest. So, what actually happens, that though equity is issued at PAR, the shares are capitalsed as if Premium is paid on those shares as it includes interest element. Is the treatment given by Fair Investments Ltd., correct?
A3) As per AS 13, cost of investment includes acquisition charges such as brokerage, fees and duties. Meaning thereby AS 13 is silent as to whether interest on such advances, which are towards equity, can be included. Hence, AS 16, dealing with borrowing cost will have to be referred to. As per AS 16, a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
In this case, what Fair Investments Ltd. Acquires is equity in infrastructure companies. The nature remains the same but the entities are different i.e. Investment in equity by Fair Investments and creation of asset by infrastructure companies. The borrowings are made by Fair Investments Ltd. And not by infrastructure companies. Further, Infrastructure companies will not be capitalising any interest on borrowings made by Fair Investments Ltd. They will show and issue equity capital of only that amount received by them from Fair Investments Ltd. Thus, Fair Investments Ltd., cannot be said to have created asset taking substantial period of time. In short, advance for equity cannot be said to have given rise to a qualifying asset. Accordingly, Fair Investments Ltd. Will have to write off the interest in its profit and loss account in the year of payment, irrespective of the fact that advances for equity shares still remains in its financial statements at the year end.
Q4) Quick gains Ltd., is an investment company. It holds following shares of R Ltd as long-term investments.
No. of Cost
Shares
1,000 | 5,00,000 |
800 | 4,80,000 |
1,200 | 8,40,000 |
1,500 | 11,50,000 |
4,500 | 29,70,000 |
The above shares were purchased on different dates over the past two years. Quick gains Ltd. Has sold 2,000 equity shares of R Ltd. For total value of Rs. 17,00,000. Quick gains Ltd. Reported a profit of Rs.5,80,000 on sale of long-term investments. Is the Profit computed by Quick gains Ltd. In consonance with the requirements of AS 13?
A4) As per AS 13, when disposing of a part of holding of an individual investment, 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.
Thus, Quick gains Ltd., need to work out the average carrying number of investments at the time of sale. The average carrying amount for 4,500 equity shares in R Ltd. Comes to Rs.660. As against this average cost, the sale proceeds is Rs.850 per equity share giving a net profit of Rs.190 per share. Total profit on sale of 2,000 equity shares at the rate of Rs.190 per share will come to Rs.3,80,000 and not Rs.5,80,000 as accounted by Quick gains Ltd.
However, the situation would be different, if the shares in R Ltd. Were treated as stock-in-trade. In that case as per AS 2, the cost of stocks disposed of is determined by applying an appropriate cost formula e.g. First-in-first out or average cost. The profit computed by Quick gains Ltd. Would be correct, if the company had treated R Ltd. Shares as stock-in-trade and had followed FIFO method for its valuation.
Q5) Miracle Investments Ltd. Purchased cum-right 10,000 equity shares of A Ltd. At Rs.100 per share. A Ltd. Has declared a rights issue of 1:1 at Rs.20 per share. Miracle Investments Ltd. Instead of subscribing the rights, sells 10,000 rights shares in the market at Rs.50 per share and thus earns a profit of Rs.5,00,000. In its balance sheet, it accounted investments in A Ltd. At Rs.10,00,000 and showed profit on sale of investment of Rs.5,00,000 in its profit and loss account. Is accounting treatment adopted by Miracle Investments Ltd. Appropriate?
As per AS 13, where the investments are acquired on cum-right basis and the market value of investments 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.
Thus, Miracle Investments Ltd. Should reduce the cost of investments by Rs.5,00,000 instead of showing profits of Rs.5,00,000.
Similarly, if Miracle Investments Ltd. Preferred to subscribe 10,000 equity shares of A Ltd. At Rs.20 per share, then the cost of the right shares should be added to the carrying amount of the original holding. In this case, 20,000 equity shares of A Ltd. Should be valued at Rs.12,00,000 showing an average purchase price of Rs.60 per share and not to be valued at Rs.100 and Rs.20 separately.
Equity Shares | No. Of Shares | Cost | Market Value |
A Ltd. | 5,000 | 2,50,000 | 3,00,000 |
X Ltd. | 1,000 | 80,000 | 1,00,000 |
Z Ltd. | 10,000 | 10,00,000 9,50,000 | |
| (a) | 13,30,000 13,50,000 | |
Unreliable Investments Ltd. Is holding following securities as current investments at the balance sheet date.
Unreliable Investments Ltd., has made a provision for diminution in value of current investments of Rs.75,000 as at the balance sheet date, comparing total cost of Rs.19,80,000 as against market value of Rs.19,05,000. Is diminution in value of current investments of Rs.75,000 made by Unreliable Investments Ltd. In compliance of AS 13? What provision for diminution in value of investments be required if the investments were considered as long-term investments?
A5) The carrying amount for current investments is the lower of cost and fair value. As per AS 13, two options are available of comparing cost with fair value. The more prudent and appropriate method is to carry investments individually at the lower of cost and fair value. Alternatively, investments may be carried at the lower of cost and fair value computed category-wise i.e., equity shares, preference shares, convertible debentures, etc. AS 13, do not permit valuation of current investments on overall (or global) basis.
Unreliable Investments Ltd. Has two options, either to value lower of cost and fair value individually or at the most category wise but not on global basis.
Thus, Unreliable Investments Ltd. Can value current investments individually. In that case, diminution for equity will come to Rs.50,000 and for debentures to Rs.1,00,000. If it opts to value category wise, diminution for equity will be Rs. Nil, whereas for debentures a diminution of Rs.95,000 will have to be provided. Provision of Rs.75,000 made by Unreliable Investments Ltd. Is not appropriate.
If the above investments were considered as long-term investments, then carrying amount would differ. Long term investments are carried at cost. However, when there is a decline, other than temporary, in the value of a long-term investment, the carrying amount is reduced to recognise the decline. The carrying amount of long-term investments is determined on an individual investment basis. Value of investment are obtained by reference to market value, the investee’s assets and results, the expected cash flows, type and extent of the investor’s, stake, etc.
Thus, Unreliable Investments Ltd. Will value its long-term investments at cost unless the decline in value is other than temporary. If O Ltd. Is not a healthy company and that the chances of full redemption are weak, then provision of Rs.1,00,000 may be called for as a diminution in value of long-term investment.
Q6) What is the Accounting for Investments?
A6) The accounting for investments occurs when funds are paid for an investment instrument. The exact type of accounting depends on the intent of the investor and the proportional size of the investment. Depending on these factors, the following types of accounting may apply:
Held to maturity investment.
If the investor intends to hold an investment to its maturity date (which effectively limits this accounting method to debt instruments) and has the ability to do so, the investment is classified as held to maturity. This investment is initially recorded at cost, with amortization adjustments thereafter to reflect any premium or discount at which it was purchased. The investment may also be written down to reflect any permanent impairments. There is no ongoing adjustment to market value for this type of investment. This approach cannot be applied to equity instruments, since they have no maturity date.
Trading security.
If the investor intends to sell its investment in the short-term for a profit, the investment is classified as a trading security. This investment is initially recorded at cost. At the end of each subsequent accounting period, adjust the recorded investment to its fair value as of the end of the period. Any unrealized holding gains and losses are to be recorded in operating income. This investment can be either a debt or equity instrument.
Available for sale.
This is an investment that cannot be categorized as a held to maturity or trading security. This investment is initially recorded at cost. At the end of each subsequent accounting period, adjust the recorded investment to its fair value as of the end of the period. Any unrealized holding gains and losses are to be recorded in other comprehensive income until they have been sold.
Equity method.
If the investor has significant operating or financial control over the investee (generally considered to be at least a 20% interest), the equity method should be used. This investment is initially recorded at cost. In subsequent periods, the investor recognizes its share of the profits and losses of the investee, after intra-entity profits and losses have been deducted. Also, if the investee issues dividends to the investor, the dividends are deducted from the investor's investment in the investee.
Q7) Write short note on Realized Gains and Losses.
A7) An important concept in the accounting for investments is whether a gain or loss has been realized. A realized gain is achieved by the sale of an investment, as is a realized loss. Conversely, an unrealized gain or loss is associated with a change in the fair value of an investment that is still owned by the investor.
There are other circumstances than the outright sale of an investment that are considered realized losses. When this happens, a realized loss is recognized in the income statement and the carrying amount of the investment is written down by a corresponding amount. For example, when there is a permanent loss on a held security, the entire amount of the loss is considered a realized loss, and is written off. A permanent loss is typically related to the bankruptcy or liquidity problems of an investee.
An unrealized gain or loss is not subject to immediate taxation. This gain or loss is only recognized for tax purposes when it is realized through the sale of the underlying security. This means that there may be a difference between the tax basis of securities and their carrying amount in the accounting records of the investor, which is considered a temporary difference.
Q8) Write short note on Current Investments.
A8) A current Investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made.
Example: A Ltd. Acquired 1,000 shares of B Ltd. On 1st April, 20X2 with an intention to hold them for a period of 15 months. Suggest the classification of such investment (in accordance with AS 13) as on 31st March, 20X3.
Investment in 1,000 shares is not a current investment because it is intended to be held for more than one year from the investment date even though the remaining period as on the reporting date may be less than one year.
- The carrying amount for current investments is the lower of cost and fair value.
- Fair Value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction. Under appropriate circumstances, market value or net realisable value provides an evidence of fair value.
- Market Value is the amount obtainable from the sale of an investment in an open
- Market, net of expenses necessarily to be incurred on or before disposal.
- Any reduction to fair value and any reversals of such reductions are included in the statement of profit and loss.
Q9) (Basic Question on Fixed Interest Securities)
On 1.2.2009, Mr. Akbar purchased 9% Debentures of Rs. 100 each of M/s Alpha Oil Limited having Face Value of Rs. 16,000 @ Rs 95 (Cum-Interest).
On 1.4.2009 they sold debentures having face value of Rs. 6,000 @ Rs 92 (ex-interest).
On 1.8.2009 they again sold debentures having face value of Rs. 4,000 @ Rs 101 (cum-interest).
On 1-11-2009, they further purchased debentures of Rs. 18,000 @ Rs 103 (ex-interest)
The interest on debentures is payable on June 30 and December 31 every year. On 31-12-2009 the Debentures on hand was valued @ Market Price of Rs 104.
Prepare 9% Debentures Account in the books of Mr. Akbar for the period ended 31.12.2009. Prepare Investment Account with detailed working under Weighted Average Method.
A9) In the books of Mr. Akbar
Date |
Particulars | FV (Rs.) | Interest | Cost | Date |
Particulars | FV (Rs.) | Interest | Cost |
1 Feb | To Bank A/c (WN3) | 16,000 | 120 | 15,080 | 1 Apr | By Bank(WN4) | 6,000 | 135 | 5,520 |
1 Aug | To P & L A/c(WN6) |
|
| 240 | 1 Apr | To P & L A/c (WN4) |
|
| 135 |
1 Nov | To Bank A/c(WN7) | 18,000 | 540 | 18,540 | 30 Jun | By Bank(WN5) |
| 450 |
|
|
|
|
|
| 1 Aug | By Bank(WN6) | 4,000 | 30 | 4,010 |
|
|
|
|
| 31 Dec | By Bank(WN8) |
| 1,080 |
|
31 Dec | To P & L A/c (Bal) |
| 1,035 |
| 31 Dec | By Balance c/d | 24,000 |
| 24,195 |
|
|
|
|
|
|
|
|
|
|
| Total | 34,000 | 1,695 | 33,860 |
| Total | 34,000 | 1,695 | 33,860 |
Investment in 9% Debentures of M/s Alpha Oil Ltd for the year ended 31st Dec, 2009
Working Notes:
- Time Line
Month | JAN | FEB | MAR | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC |
Date | ||||||||||||
1ST |
| P |
| S |
|
|
| S |
|
| P |
|
15TH |
|
|
|
|
|
|
|
|
|
|
|
|
30TH/31ST |
|
|
|
|
| I |
|
|
|
|
| I & V |
Where: O- Opening, P- Purchased, S- Sale, I- Interest, V- Valuation
2. Record of Investment Date-wise
Particulars | Face Value or Number | Cost |
Purchased | 16,000 | 15,080 |
Less: Sold(Cross Multiply to get the cost)(15080x6000 /16000) | 6,000 | 5,655 |
Balance | 10,000 | 9,425 |
Less: Sold(Cross Multiply to get the cost)(4000 x 9425 / 10000) | 4,000 | 3,770 |
Balance | 6,000 | 5,655 |
Add: Purchase | 18,000 | 18,540 |
Balance | 24,000 | 24,195 |
Other calculations:
3. Purchased Cum-Interest |
|
Cum Interest Price(16000 / 100 x 95) | 15,200 |
Less: Interest (16000 x 9% x 1/12) | (120) |
Ex-Interest Price | 15,080 |
|
|
4. Sale Ex Interest |
|
Ex Interest Selling Price(6000 / 100 x 92) | 5,520 |
Interest on such debentures(6000 x 9% x 3/12) | 135 |
Profit/Loss on Sale- |
|
Selling Price | 5,520 |
Less: Cost(From the record table) | (5655) |
Loss | 135 |
|
|
5. Interest on 30th June |
|
Balance on 30th June is FV Rs 10000, hence Interest (10000 x 9% x 6/12) | 450 |
|
|
6. Sale Cum Interest |
|
Cum Interest Selling Price(4000 / 100 x 101) | 4,040 |
Less: Interest (4000 x 9% x 1/12) | (30) |
Ex Interest Selling Price | 4,010 |
Less: Cost(From the record table) | (3,770) |
Profit | 240 |
|
|
7. Purchase Ex Interest |
|
Ex Interest Purchase Price(18000 / 100 x 103) | 18,540 |
Interest(18000 x 9% x 4/12) | 540 |
|
|
8. Interest on 31st Dec |
|
Balance on 31st Dec is FV Rs 24000, hence Interest (24000 x 9% x 6/12) | 1,080 |
|
|
9. Valuation on 31st Dec |
|
Actual Cost of Investment (from the record table) | 24,195 |
Market Price given Rs 104(24000 / 100x 104) | 24,960 |
Whichever is Lower | 24,195 |
Q10) (Basic Question on Fixed Interest Securities)
Manan Finance Limited gives you the following details for the Accounting Year from 1.4.2009 relating to 6% Govt. Of India Securities of Rs. 100 each:
Apr. 1: Balance Rs. 78,750 having Face Value of Rs. 75,000.
June 30: Sale of Rs. 45,000 @ Rs. 107 cum-interest.
Aug 31: Purchase of Rs. 30,000 @ 103 cum-interest.
Nov. 30: Purchase of Rs. 15,000 @ 104 ex-interest.
Jan. 31: Sale of Rs. 22,500 @ 105 ex-interest.
Interest is payable on 30th September and 31st March every year. Market Price of Securities as at 31st March was Rs. 106. Prepare Investment Account under Weighted Average Method.
A10) In the books of Manan Finance Ltd
Investment in 6% Govt. Of India Securities for the year ended 31st March, 2010
Date |
Particulars | FV (Rs.) | Interest | Cost | Date |
Particulars | FV (Rs.) | Interest | Cost |
1 Apr | To Balance b/d (WN3) | 75,000 | - | 78,750 | 30 Jun | By Bank A/c(WN4) | 45,000 | 675 | 47,475 |
30 Jun | To P & L A/c(WN4) |
|
| 225 | 30 Sep | By Bank A/c(WN6) |
| 1,800 |
|
31 Aug | To Bank A/c(WN5) | 30,000 | 750 | 30,150 | 31 Jan | By Bank A/c(WN8) | 22,500 | 450 | 23,625 |
30 Nov | To Bank A/c(WN7) | 15,000 | 150 | 15,600 | 31 Mar | By Bank A/c(WN9) |
| 1,575 |
|
31 Jan | To P & L A/c(WN8) |
|
| 450 |
|
|
|
|
|
31 Mar | To P & L A/c(Bal) |
| 3,600 |
| 31 Mar | By Balance c/d (WN10) | 52,500 | - | 54,075 |
|
|
|
|
|
|
|
|
|
|
| Total | 1,20,000 | 4,500 | 1,25,175 |
| Total | 1,20,000 | 4,500 | 1,25,175 |
Working Notes:
- Time Line
Month | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC | JAN | FEB | MAR |
Date | ||||||||||||
1ST | O |
|
|
|
|
|
|
|
|
|
|
|
15TH |
|
|
|
|
|
|
|
|
|
|
|
|
30TH/31ST |
|
| S |
| P | I |
| P |
| S |
| I & V |
Where: O- Opening, P- Purchased, S- Sale, I- Interest, V- Valuation
2. Record of Investment Date-wise
Particulars | Face Value or Number | Cost |
Opening Balance | 75,000 | 78,750 |
Less: Sold(Cross Multiply to get the cost)(45000 x 78750 / 75000) | 45,000 | 47,250 |
Balance | 30,000 | 31,500 |
Add: Purchase | 30,000 | 30,150 |
Balance | 60,000 | 61,650 |
Add: Purchase | 15,000 | 15,600 |
Balance | 75,000 | 77,250 |
Less: Sold(Cross Multiply to get the cost)(22500 x 77250 / 75000) | 22,500 | 23,175 |
Balance | 52,500 | 54,075 |
Other calculations:
3. Opening Balance |
|
Cost given | 78,750 |
Interest outstanding is NIL (last interest paid was on 31st March, 2009 and we are on 1st April, 2009 i.e no period difference) | NIL |
|
|
4. Sale Cum Interest |
|
Cum Interest Selling Price(45000 / 100 x 107) | 48,150 |
Less: Interest (45000 x 6% x 3/12) | (675) |
Ex Interest Selling Price | 47,475 |
Less: Cost(From the record table) | 47,250 |
Profit | 225 |
|
|
5. Purchase Cum Interest |
|
Cum Interest Purchase Price(30000 / 100 x 103) | 30,900 |
Less: Interest (30000 x 6% x 5/12) | (750) |
Ex Interest Purchase Price | 30,150 |
|
|
6. Interest on 30th Sep |
|
Balance on 30th Sep is FV Rs 60000, hence Interest (60000 x 6% x 6/12) | 1,800 |
|
|
7. Purchase Ex Interest |
|
Ex Interest Purchase Price(15000 / 100 x 104) | 15,600 |
Interest(15000 x 6% x 2/12) | 150 |
|
|
8. Sale Ex Interest |
|
Ex Interest Sale Price(22500 / 100 x 105) | 23,625 |
Interest(22500 x 6% x 4/12) | 450 |
Profit/Loss on Sale- |
|
Selling Price | 23,625 |
Less: Cost(From the record table) | (23,175) |
Profit | 450 |
|
|
9. Interest on 31st March |
|
Balance on 31st March is FV Rs 52500, hence Interest (52500 x 6% x 6/12) | 1,575 |
|
|
|
|
10. Valuation on 31st March |
|
Actual Cost of Investment (from the record table) | 54,075 |
Market Price given Rs 106 (52500 / 100 x 106) | 55,650 |
Whichever is Lower | 54,075 |
Q10) (Interest received on different dates)
On 1.2.2009, Mr. Babu purchased 9% Debentures of Rs. 100 each of M/s Alpha Oil Limited having Face Value of Rs. 16,000 @ Rs 95 (Cum-Interest).
On 1.4.2009 they sold debentures having face value of Rs. 6,000 @ Rs 92 (ex-interest).
On 1.8.2009 they again sold debentures having face value of Rs. 4,000 @ Rs 101 (cum-interest).
On 1-11-2009, they further purchased debentures of Rs. 18,000 @ Rs 103 (ex-interest)
The interest on debentures is payable on June 30 (received on 15th July) and December 31 (received on 15th January) every year. On 31-12-2009 the Debentures on hand was valued @ Market Price of Rs 104.
Prepare 9% Debentures Account in the books of Mr. Babu for the period ended 31.12.2009. Prepare Investment Account with detailed working under Weighted Average Method.
A11)
In the books of Mr. Babu
Investment in 9% Debentures of M/s Alpha Oil Ltd for the year ended 31st Dec, 2009
Date |
Particulars | FV (Rs.) | Interest | Cost | Date |
Particulars | FV (Rs.) | Interest | Cost |
1 Feb | To Bank A/c (WN3) | 16,000 | 120 | 15,080 | 1 Apr | By Bank(WN4) | 6,000 | 135 | 5,520 |
1 Aug | To P & L A/c(WN6) |
|
| 240 | 1 Apr | To P & L A/c (WN4) |
|
| 135 |
1 Nov | To Bank A/c(WN7) | 18,000 | 540 | 18,540 | 15 Jul | By Bank(WN5) |
| 450 |
|
|
|
|
|
| 1 Aug | By Bank(WN6) | 4,000 | 30 | 4,010 |
|
|
|
|
| 31 Dec | By Accrued interest (WN8) |
| 1,080 |
|
31 Dec | To P & L A/c (Bal) |
| 1,035 |
| 31 Dec | By Balance c/d (WN9) | 24,000 |
| 24,195 |
|
|
|
|
|
|
|
|
|
|
| Total | 34,000 | 1,695 | 33,860 |
| Total | 34,000 | 1,695 | 33,860 |
Working Notes:
- Time Line
Month | JAN | FEB | MAR | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC |
Date | ||||||||||||
1ST |
| P |
| S |
|
|
| S |
|
| P |
|
15TH |
|
|
|
|
|
|
|
|
|
|
|
|
30TH/31ST |
|
|
|
|
| I |
|
|
|
|
| I & V |
Where: O- Opening, P- Purchased, S- Sale, I- Interest, V- Valuation
2. Record of Investment Date-wise
Particulars | Face Value or Number | Cost |
Purchased | 16,000 | 15,080 |
Less: Sold(Cross Multiply to get the cost)(15080x6000 /16000) | 6,000 | 5,655 |
Balance | 10,000 | 9,425 |
Less: Sold(Cross Multiply to get the cost)(4000 x 9425 / 10000) | 4,000 | 3,770 |
Balance | 6,000 | 5,655 |
Add: Purchase | 18,000 | 18,540 |
Balance | 24,000 | 24,195 |
Other calculations:
3. Purchased Cum-Interest |
|
Cum Interest Price(16000 / 100 x 95) | 15,200 |
Less: Interest (16000 x 9% x 1/12) | (120) |
Ex-Interest Price | 15,080 |
|
|
4. Sale Ex Interest |
|
Ex Interest Selling Price(6000 / 100 x 92) | 5,520 |
Interest on such debentures(6000 x 9% x 3/12) | 135 |
Profit/Loss on Sale- |
|
Selling Price | 5,520 |
Less: Cost(From the record table) | (5655) |
Loss | 135 |
|
|
5. Interest on 30th June (Received in 15th July) |
|
Balance on 30th June is FV Rs 10000, hence Interest (10000 x 9% x 6/12) | 450 |
|
|
6. Sale Cum Interest |
|
Cum Interest Selling Price(4000 / 100 x 101) | 4,040 |
Less: Interest (4000 x 9% x 1/12) | (30) |
Ex Interest Selling Price | 4,010 |
Less: Cost(From the record table) | (3,770) |
Profit | 240 |
|
|
7. Purchase Ex Interest |
|
Ex Interest Purchase Price(18000 / 100 x 103) | 18,540 |
Interest(18000 x 9% x 4/12) | 540 |
|
|
8. Interest on 31st Dec (accrued interest) |
|
Balance on 31st Dec is FV Rs 24000, hence Interest (24000 x 9% x 6/12) | 1,080 |
|
|
9. Valuation on 31st Dec |
|
Actual Cost of Investment (from the record table) | 24,195 |
Market Price given Rs 104(24000 / 100x 104) | 24,960 |
Whichever is Lower | 24,195 |
Q11) (Loss on Valuation)
Mrs. Akanksha gives you the following details for the Accounting Year from 1.4.2009 relating to 6% Govt. Of India Securities of Rs. 100 each:
Apr. 1: Balance Rs. 78,750 having Face Value of Rs. 75,000.
June 30: Sale of Rs. 45,000 @ Rs. 107 cum-interest.
Aug 31: Purchase of Rs. 30,000 @ 103 cum-interest.
Nov. 30: Purchase of Rs. 15,000 @ 104 ex-interest.
Jan. 31: Sale of Rs. 22,500 @ 105 ex-interest.
Interest is payable on 30th September and 31st March every year. Market Price of Securities as at 31st March was Rs. 102. Prepare Investment Account under Weighted Average Method.
A12)
In the books of Mrs. Akanksha
Investment in 6% Govt. Of India Securities for the year ended 31st March, 2010
Date |
Particulars | FV (Rs.) | Interest | Cost | Date |
Particulars | FV (Rs.) | Interest | Cost |
1 Apr | To Balance b/d (WN3) | 75,000 | - | 78,750 | 30 Jun | By Bank A/c(WN4) | 45,000 | 675 | 47,475 |
30 Jun | To P & L A/c(WN4) |
|
| 225 | 30 Sep | By Bank A/c(WN6) |
| 1,800 |
|
31 Aug | To Bank A/c(WN5) | 30,000 | 750 | 30,150 | 31 Jan | By Bank A/c(WN8) | 22,500 | 450 | 23,625 |
30 Nov | To Bank A/c(WN7) | 15,000 | 150 | 15,600 | 31 Mar | By Bank A/c(WN9) |
| 1,575 |
|
31 Jan | To P & L A/c(WN8) |
|
| 450 | 31 Mar | By P & L A/c (loss on valuation) |
|
| 525 |
31 Mar | To P & L A/c(Bal) |
| 3,600 |
| 31 Mar | By Balance c/d (WN10) | 52,500 | - | 53,550 |
|
|
|
|
|
|
|
|
|
|
| Total | 1,20,000 | 4,500 | 1,25,175 |
| Total | 1,20,000 | 4,500 | 1,25,175 |
Working Notes:
- Time Line
Month | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC | JAN | FEB | MAR |
Date | ||||||||||||
1ST | O |
|
|
|
|
|
|
|
|
|
|
|
15TH |
|
|
|
|
|
|
|
|
|
|
|
|
30TH/31ST |
|
| S |
| P | I |
| P |
| S |
| I & V |
Where: O- Opening, P- Purchased, S- Sale, I- Interest, V- Valuation
2. Record of Investment Date-wise
Particulars | Face Value or Number | Cost |
Opening Balance | 75,000 | 78,750 |
Less: Sold(Cross Multiply to get the cost)(45000 x 78750 / 75000) | 45,000 | 47,250 |
Balance | 30,000 | 31,500 |
Add: Purchase | 30,000 | 30,150 |
Balance | 60,000 | 61,650 |
Add: Purchase | 15,000 | 15,600 |
Balance | 75,000 | 77,250 |
Less: Sold(Cross Multiply to get the cost)(22500 x 77250 / 75000) | 22,500 | 23,175 |
Balance | 52,500 | 54,075 |
Other calculations:
3. Opening Balance |
|
Cost given | 78,750 |
Interest outstanding is NIL (last interest paid was on 31st March, 2009 and we are on 1st April, 2009 i.e no period difference) | NIL |
|
|
4. Sale Cum Interest |
|
Cum Interest Selling Price(45000 / 100 x 107) | 48,150 |
Less: Interest (45000 x 6% x 3/12) | (675) |
Ex Interest Selling Price | 47,475 |
Less: Cost(From the record table) | 47,250 |
Profit | 225 |
|
|
5. Purchase Cum Interest |
|
Cum Interest Purchase Price(30000 / 100 x 103) | 30,900 |
Less: Interest (30000 x 6% x 5/12) | (750) |
Ex Interest Purchase Price | 30,150 |
|
|
6. Interest on 30th Sep |
|
Balance on 30th Sep is FV Rs 60000, hence Interest (60000 x 6% x 6/12) | 1,800 |
|
|
7. Purchase Ex Interest |
|
Ex Interest Purchase Price(15000 / 100 x 104) | 15,600 |
Interest(15000 x 6% x 2/12) | 150 |
|
|
8. Sale Ex Interest |
|
Ex Interest Sale Price(22500 / 100 x 105) | 23,625 |
Interest(22500 x 6% x 4/12) | 450 |
Profit/Loss on Sale- |
|
Selling Price | 23,625 |
Less: Cost(From the record table) | (23,175) |
Profit | 450 |
|
|
9. Interest on 31st March |
|
Balance on 31st March is FV Rs 52500, hence Interest (52500 x 6% x 6/12) | 1,575 |
|
|
10. Valuation on 31st March |
|
Actual Cost of Investment (from the record table) | 54,075 |
Market Price given Rs 106 (52500 / 100 x 102) | 53,550 |
Whichever is Lower | 53,550 |
Loss on Valuation (as market price is less than the cost) | 525 |
Q12) (Basic Question on Investment in Shares)
On 1st April 2008 Miss Shilpa had 50,000 equity shares of X Ltd. At a cost of Rs. 15 per share (Face value of Rs. 10). On 1-7-2008 she purchased another 10,000 shares of the company at Rs. 16 per share.
The directors of X Ltd. Announced a bonus and right issue as follows:
Bonus on 1-8-2008 on 1:6 basis
Rights on 1-9-2008 on 3:7 basis @ price Rs. 14.
Due date of payment 30-9-2008
Shareholders can transfer their rights in full or in part.
Accordingly, Shilpa sold 1/3rd of her entitlement to Miss Richa for a consideration of Rs. 2 per share.
Dividends for the Year ended 31st March 2008 at the rate of 20% was declared by the company and received by Miss Shilpa on 31-10-2008. Dividends for shares acquired by her on 1-7-2008 are to be adjusted against cost of purchase. On 15-11-2008 Miss Shilpa sold 50,000 equity shares at a premium of Rs. 5 shares.
You are requested to prepare Investment A/c in the books of Miss Shilpa. Books of Accounts are closed on 31st March 2009 and shares are valued at Average Cost.
A13)
In the books of Miss Shilpa
Investment in Equity Shares of X Ltd for the year ended 31st March, 2009
Date |
Particulars | No of Shares | Cost | Date |
Particulars | No of Shares | Cost |
1 Apr | To Balance b/d (WN3) | 50,000 | 7,50,000 | 31 Oct | By Bank A/c (WN4) |
| 20,000 |
1 Jul | To Bank A/c(WN4) | 10,000 | 1,60,000 | 15 Nov | By Bank A/c(WN8) | 50,000 | 7,50,000 |
1 Aug | To Bonus Shares (WN5) | 10,000 | - |
|
|
|
|
30 Sep | To Bank A/c (WN6) (Right Shares) | 20,000 | 2,80,000 |
|
|
|
|
15 Nov | To P & L A/c(WN8) |
| 1,00,000 |
|
|
|
|
|
|
|
| 31 Mar | By Balance c/d (WN9) | 40,000 | 5,20,000 |
|
|
|
|
|
|
|
|
| Total | 90,000 | 12,90,000 |
| Total | 90,000 | 12,90,000 |
Dividend A/c
Date | Particulars | Amount | Date | Particulars | Amount |
|
|
| 31 Oct | By Bank A/c (50,000 x 10 x 20%) | 1,00,000 |
31 Mar | To P & L A/c (Bal trf) | 1,00,000 |
|
|
|
| Total | 1,00,000 |
| Total | 1,00,000 |
Note: Dividend is calculated on Opening Balance because this dividend is of last year received in current year. And last year the balance shares were 50,000.
Extract of Profit & Loss A/c
Particulars | Amount | Particulars | Amount |
|
|
|
|
|
| By Dividend Received | 1,00,000 |
|
| By Sale of Rights (WN7) | 20,000 |
|
| By Profit on Sale of shares(WN8) | 1,00,000 |
|
|
|
|
Working Notes:
- Time Line
Month | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC | JAN | FEB | MAR |
Date | ||||||||||||
1ST | O |
|
| P | B |
|
|
|
|
|
|
|
15TH |
|
|
|
|
|
|
| S |
|
|
|
|
30TH/31ST |
|
|
|
|
| R | D |
|
|
|
| V |
Where: O- Opening, P- Purchased, B- Bonus, R- Right Shares, S- Sale, D- Dividend, V- Valuation
2. Record of Cost of Investment (Date-wise)
Particulars | Number of Shares | Cost |
Opening Balance | 50,000 | 7,50,000 |
Add: Purchase | 10,000 | 1,60,000 |
Less: Adjustment for Dividend |
| (20,000) |
Balance | 60,000 | 8,90,000 |
Add: Bonus(1:6) | 10,000 | - |
Balance | 70,000 | 8,90,000 |
Add: Right Shares(from WN6) | 20,000 | 2,80,000 |
Balance | 90,000 | 11,70,000 |
Less: Sale(50,000 x 1,17,000/90,000) | 50,000 | 6,50,000 |
Balance | 40,000 | 5,20,000 |
Other calculations:
3. Opening (50,000 shares x Rs 15) | 7,50,000 |
|
|
4. Purchase (10,000 shares x Rs 16) | 1,60,000 |
Adjustment for Dividend on 31st October @ 20%(10,000 x Rs 10 x 20%) | 20,000 |
|
|
5. Bonus (1 share for every 6 shares held) |
|
No of shares before bonus issue | 60,000 |
Bonus shares (60000 / 6 x 1) | 10,000 |
Cost of Bonus Shares | NIL |
|
|
6. Right Shares (3 share for every 7 shares held) |
|
No of shares before rights issue | 70,000 |
Right shares (70000 / 7 x 3) | 30,000 |
Rights entitlement sold (1/3 x 30000) | 10,000 |
Rights shares subscribed for | 20,000 |
x Purchase price | 14 |
Cost of Right shares | 2,80,000 |
|
|
7. Sale of Right Shares (10,000 shares x Rs 2) (recorded in P & L A/c- Cr Side) | 20,000 |
|
|
8. Sale of Shares |
|
Selling Price [50,000 shares x Rs 15 (10+5)] | 7,50,000 |
Less: Cost (from the record table) | 6,50,000 |
Profit on Sale | 1,00,000 |
|
|
9. Valuation (on Average cost) i.e from the record table | 5,20,000 |
Q13) (Basic Question on Investment in Shares & Valuation)
On 1st April 2008 Miss Shilpa had 50,000 equity shares of X Ltd. At a cost of Rs. 15 per share (Face value of Rs. 10). On 1-7-2008 she purchased another 10,000 shares of the company at Rs. 16 per share.
The directors of X Ltd. Announced a bonus and right issue as follows:
Bonus on 1-8-2008 on 1:6 basis
Rights on 1-9-2008 on 3:7 basis @ price Rs. 14.
Due date of payment 30-9-2008
Shareholders can transfer their rights in full or in part.
Accordingly, Shilpa sold 1/3rd of her entitlement to Miss Richa for a consideration of Rs. 2 per share.
Dividends for the Year ended 31st March 2008 at the rate of 20% was declared by the company and received by Miss Shilpa on 31-10-2008. Dividends for shares acquired by her on 1-7-2008 are to be adjusted against cost of purchase. On 15-11-2008 Miss Shilpa sold 50,000 equity shares at a premium of Rs. 5 shares.
You are requested to prepare Investment A/c in the books of Miss Shilpa. Books of Accounts are closed on 31st March 2009 and the market price of shares at the year end was Rs 14 per share.
A14)
In the books of Miss Shilpa
Investment in Equity Shares of X Ltd for the year ended 31st March, 2009
Date |
Particulars | No of Shares | Cost | Date |
Particulars | No of Shares | Cost |
1 Apr | To Balance b/d (WN3) | 50,000 | 7,50,000 | 31 Oct | By Bank A/c (WN4) |
| 20,000 |
1 Jul | To Bank A/c(WN4) | 10,000 | 1,60,000 | 15 Nov | By Bank A/c(WN8) | 50,000 | 7,50,000 |
1 Aug | To Bonus Shares (WN5) | 10,000 | - |
|
|
|
|
30 Sep | To Bank A/c (WN6) (Right Shares) | 20,000 | 2,80,000 |
|
|
|
|
15 Nov | To P & L A/c(WN8) |
| 1,00,000 |
|
|
|
|
|
|
|
| 31 Mar | By Balance c/d (WN9) | 40,000 | 5,20,000 |
|
|
|
|
|
|
|
|
| Total | 90,000 | 12,90,000 |
| Total | 90,000 | 12,90,000 |
Dividend A/c
Date | Particulars | Amount | Date | Particulars | Amount |
|
|
| 31 Oct | By Bank A/c (50,000 x 10 x 20%) | 1,00,000 |
31 Mar | To P & L A/c (Bal trf) | 1,00,000 |
|
|
|
| Total | 1,00,000 |
| Total | 1,00,000 |
Note: Dividend is calculated on Opening Balance because this dividend is of last year received in current year. And last year the balance shares were 50,000.
Extract of Profit & Loss A/c
Particulars | Amount | Particulars | Amount |
|
|
|
|
|
| By Dividend Received | 1,00,000 |
|
| By Sale of Rights (WN7) | 20,000 |
|
| By Profit on Sale of shares(WN8) | 1,00,000 |
|
|
|
|
Working Notes:
- Time Line
Month | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC | JAN | FEB | MAR |
Date | ||||||||||||
1ST | O |
|
| P | B |
|
|
|
|
|
|
|
15TH |
|
|
|
|
|
|
| S |
|
|
|
|
30TH/31ST |
|
|
|
|
| R | D |
|
|
|
| V |
Where: O- Opening, P- Purchased, B- Bonus, R- Right Shares, S- Sale, D- Dividend, V- Valuation
2. Record of Cost of Investment (Date-wise)
Particulars | Number of Shares | Cost |
Opening Balance | 50,000 | 7,50,000 |
Add: Purchase | 10,000 | 1,60,000 |
Less: Adjustment for Dividend |
| (20,000) |
Balance | 60,000 | 8,90,000 |
Add: Bonus(1:6) | 10,000 | - |
Balance | 70,000 | 8,90,000 |
Add: Right Shares(from WN6) | 20,000 | 2,80,000 |
Balance | 90,000 | 11,70,000 |
Less: Sale(50,000 x 1,17,000/90,000) | 50,000 | 6,50,000 |
Balance | 40,000 | 5,20,000 |
Other calculations:
3. Opening (50,000 shares x Rs 15) | 7,50,000 |
|
|
4. Purchase (10,000 shares x Rs 16) | 1,60,000 |
Adjustment for Dividend on 31st October @ 20%(10,000 x Rs 10 x 20%) | 20,000 |
|
|
5. Bonus (1 share for every 6 shares held) |
|
No of shares before bonus issue | 60,000 |
Bonus shares (60000 / 6 x 1) | 10,000 |
Cost of Bonus Shares | NIL |
|
|
6. Right Shares (3 share for every 7 shares held) |
|
No of shares before rights issue | 70,000 |
Right shares (70000 / 7 x 3) | 30,000 |
Rights entitlement sold (1/3 x 30000) | 10,000 |
Rights shares subscribed for | 20,000 |
x Purchase price | 14 |
Cost of Right shares | 2,80,000 |
|
|
7. Sale of Right Shares (10,000 shares x Rs 2) (recorded in P & L A/c- Cr Side) | 20,000 |
|
|
8. Sale of Shares |
|
Selling Price [50,000 shares x Rs 15 (10+5)] | 7,50,000 |
Less: Cost (from the record table) | 6,50,000 |
Profit on Sale | 1,00,000 |
|
|
9. Valuation of Shares |
|
Cost (from the record table) | 5,20,000 |
Market Price (40,000 x 14) | 5,60,000 |
Whichever is lower | 5,20,000 |
Q14) (Loss on Valuation)
On 1st April 2008 Miss Shilpa had 50,000 equity shares of X Ltd. At a cost of Rs. 15 per share (Face value of Rs. 10). On 1-7-2008 she purchased another 10,000 shares of the company at Rs. 16 per share.
The directors of X Ltd. Announced a bonus and right issue as follows:
Bonus on 1-8-2008 on 1:6 basis
Rights on 1-9-2008 on 3:7 basis @ price Rs. 14.
Due date of payment 30-9-2008
Shareholders can transfer their rights in full or in part.
Accordingly, Shilpa sold 1/3rd of her entitlement to Miss Richa for a consideration of Rs. 2 per share.
Dividends for the Year ended 31st March 2008 at the rate of 20% was declared by the company and received by Miss Shilpa on 31-10-2008. Dividends for shares acquired by her on 1-7-2008 are to be adjusted against cost of purchase. On 15-11-2008 Miss Shilpa sold 50,000 equity shares at a premium of Rs. 5 shares.
You are requested to prepare Investment A/c in the books of Miss Shilpa. Books of Accounts are closed on 31st March 2009 and the market price of shares at the yearend was Rs 11 per share.
A15)
In the books of Miss Shilpa
Investment in Equity Shares of X Ltd for the year ended 31st March, 2009
Date |
Particulars | No of Shares | Cost | Date |
Particulars | No of Shares | Cost |
1 Apr | To Balance b/d (WN3) | 50,000 | 7,50,000 | 31 Oct | By Bank A/c (WN4) |
| 20,000 |
1 Jul | To Bank A/c(WN4) | 10,000 | 1,60,000 | 15 Nov | By Bank A/c(WN8) | 50,000 | 7,50,000 |
1 Aug | To Bonus Shares (WN5) | 10,000 | - |
|
|
|
|
30 Sep | To Bank A/c (WN6) (Right Shares) | 20,000 | 2,80,000 | 31 Mar | By P & L A/c(WN9) |
| 80,000 |
15 Nov | To P & L A/c(WN8) |
| 1,00,000 | 31 Mar | By Balance c/d (WN9) | 40,000 | 4,40,000 |
|
|
|
|
|
|
|
|
| Total | 90,000 | 12,90,000 |
| Total | 90,000 | 12,90,000 |
Dividend A/c
Date | Particulars | Amount | Date | Particulars | Amount |
|
|
| 31 Oct | By Bank A/c (50,000 x 10 x 20%) | 1,00,000 |
31 Mar | To P & L A/c (Bal trf) | 1,00,000 |
|
|
|
| Total | 1,00,000 |
| Total | 1,00,000 |
Note: Dividend is calculated on Opening Balance because this dividend is of last year received in current year. And last year the balance shares were 50,000.
Extract of Profit & Loss A/c
Particulars | Amount | Particulars | Amount |
|
|
|
|
To Loss on Valuation | 80,000 | By Dividend Received | 1,00,000 |
|
| By Sale of Rights (WN7) | 20,000 |
|
| By Profit on Sale of shares(WN8) | 1,00,000 |
Working Notes:
- Time Line
Month | APR | MAY | JUNE | JUL | AUG | SEP | OCT | NOV | DEC | JAN | FEB | MAR |
Date | ||||||||||||
1ST | O |
|
| P | B |
|
|
|
|
|
|
|
15TH |
|
|
|
|
|
|
| S |
|
|
|
|
30TH/31ST |
|
|
|
|
| R | D |
|
|
|
| V |
Where: O- Opening, P- Purchased, B- Bonus, R- Right Shares, S- Sale, D- Dividend, V- Valuation
2. Record of Cost of Investment (Date-wise)
Particulars | Number of Shares | Cost |
Opening Balance | 50,000 | 7,50,000 |
Add: Purchase | 10,000 | 1,60,000 |
Less: Adjustment for Dividend |
| (20,000) |
Balance | 60,000 | 8,90,000 |
Add: Bonus(1:6) | 10,000 | - |
Balance | 70,000 | 8,90,000 |
Add: Right Shares(from WN6) | 20,000 | 2,80,000 |
Balance | 90,000 | 11,70,000 |
Less: Sale(50,000 x 1,17,000/90,000) | 50,000 | 6,50,000 |
Balance | 40,000 | 5,20,000 |
Other calculations:
3. Opening (50,000 shares x Rs 15) | 7,50,000 |
|
|
4. Purchase (10,000 shares x Rs 16) | 1,60,000 |
Adjustment for Dividend on 31st October @ 20%(10,000 x Rs 10 x 20%) | 20,000 |
|
|
5. Bonus (1 share for every 6 shares held) |
|
No of shares before bonus issue | 60,000 |
Bonus shares (60000 / 6 x 1) | 10,000 |
Cost of Bonus Shares | NIL |
|
|
6. Right Shares (3 share for every 7 shares held) |
|
No of shares before rights issue | 70,000 |
Right shares (70000 / 7 x 3) | 30,000 |
Rights entitlement sold (1/3 x 30000) | 10,000 |
Rights shares subscribed for | 20,000 |
x Purchase price | 14 |
Cost of Right shares | 2,80,000 |
|
|
7. Sale of Right Shares (10,000 shares x Rs 2) (recorded in P & L A/c- Cr Side) | 20,000 |
|
|
8. Sale of Shares |
|
Selling Price [50,000 shares x Rs 15 (10+5)] | 7,50,000 |
Less: Cost (from the record table) | 6,50,000 |
Profit on Sale | 1,00,000 |
|
|
9. Valuation of Shares |
|
Cost (from the record table) | 5,20,000 |
Market Price (40,000 x 11) | 4,40,000 |
Whichever is lower | 4,40,000 |
Loss on valuation (520000-440000) | 80,000 |
Q15) In 20X1, M/s. Wye Ltd. Issued 12% fully paid debentures of 100 each, interest being payable half yearly on 30th September and 31st March of every accounting year.
On 1st December, 20X2, M/s. Bull & Bear purchased 10,000 of these debentures at 101 cum-interest price, also paying brokerage @ 1% of cum-interest amount of the purchase. On 1st March, 20X3 the firm sold all of these debentures at 106 cum-interest price, again paying brokerage @ 1 % of cum-interest amount. Prepare Investment Account in the books of M/s. Bull & Bear for the period 1st December, 20X2 to 1st March, 20X3.
A16) In the books of M/s Bull & Bear INVESTMENT ACCOUNT
For the period from 1st December 20X2 to 1st March, 20X3 (Scrip: 12% Debentures of M/s. Wye Ltd.)
Date | Particulars | Nominal Value () | Interest | Cost () | Date | Particulars | Nominal Value () | Interest | Cost () |
1.12.20X2 | To Bank A/c (W.N.1) | 10,00,000 | 20,000 | 10,00,100 | 1.03.20X3 | By Bank A/c (W.N.2) | 10,00,000 | 50,000 | 9,99,400 |
1.3.20X3 | To Profit & loss A/c* (b.f.) |
| 30,000 |
| 1.3.20X3 | By Profit & loss A/c (b.f.) |
|
| 700 |
|
| 10,00,000 | 50,000 | 10,00,100 |
|
| 10,00,000 | 50,000 | 10,00,100 |
This represents income for M/s. Bull & Bear for the period 1st December, 20X2 to 1st March, 20X3, i.e., interest for three months- 1st December, 20X2 to 28 February, 20X3).
Working Notes :
1. Cost of 12% debentures purchased on 1.12.20X2
Cost Value (10,000 × 101) = 10,10,000
Add: Brokerage (1% of 10,10,000) = 10,100
Less: Cum Interest (10,000 x 100 x 12% x 2/12) = (20,000)
Total
2. Sale proceeds of 12% debentures sold Sales Price (10,000 × 106) =
= 10,00,100
10,60,000
Less: Brokerage (1% of 10,60,000) = (10,600)
Less: Cum Interest (10,000 x 100 x12% x 5/12) = (50,000)
Total = 9,99,400
Q16) On 1.4.20X1, 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 31.1.20X2, Bonus was declared in the ratio of 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 31.3.20X2, 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.
A17)
In the books of Murti
(Investment Account)
| Particulars | Nominal Value () | Cost () | Date | Particulars | Nominal Value () | Cost () |
1.4.20X1 | To Bank A/c (W.N.1) | 1,00,000 | 1,23,000 | 31.3.20X2 | By Bank A/c (W.N.2) | 50,000 | 44,100 |
31.1.20X2 | To Bonus shares (W.N.5) | 50,000 | — | 31.3.20X2 | By Balance c/d (W.N.4) | 1,00,000 | 82,000 |
31.3.20X2 | To Profit & loss A/c (W.N.3) |
| 3,100 |
|
|
|
|
|
|  1,50,000 |
 1,26,100 |
|
|
 1,50,000 |  1,26,100 |
Working Notes:
- Cost of equity shares purchased on 1.4.20X1 = (1,000 × 120) + (2% of
1,20,000) + (½% of 1,20,000) = 1,23,000
2. Sale proceeds of equity shares (bonus) sold on 31st March, 20X2= (500 ×
90) – (2% of 45,000) = 44,100.
3. Profit on sale of bonus shares on 31st March, 20X2
= Sales proceeds – Average cost Sales proceeds = 44,100
Average cost = (1,23,000 /1,50,000) x 50,000 = 41,000 Profit = 44,100 – 41,000 = 3,100.
4. Valuation of equity shares on 31st March, 20X2 Cost = ( 1,23,000/1,50,000) x 1,00,000 = 82,000 Market Value = 1,000 shares × 90 = 90,000
Closing balance has been valued at 82,000 being lower than the market value.
5. Bonus shares do not have any cost.
Q17) Mr. X purchased 500 equity shares of 100 each in Omega Co. Ltd. For 62,500 inclusive of brokerage and stamp duty. Some years later the company resolved to capitalise its profits and to issue to the holders of equity shares, one equity bonus share for every share held by them. Prior to capitalisation, the shares of Omega Co. Ltd. Were quoted at 175 per share. After the capitalisation, the shares were quoted at 92.50 per share. Mr. X. Sold the bonus shares and received at 90 per share.
Prepare the Investment Account in X’s books on average cost basis.
A18)
Particulars | Nominal Value | Cost | Particulars | Nominal Value | Cost |
|
| ||||
To Cash | 50,000 | 62,500 | By Cash - Sale (500 x 90) | 50,000 | 45,000 |
To Bonus shares (W.N.1) | 50,000 | – | By Balance c/d (W.N. 3) | 50,000 | 31,250 |
To P & L A/c (W.N. 2) | – | 13,750 |
|
|
|
| 1,00,000 | 76,250 |
| 1,00,000 | 76,250 |
To Balance b/d | 50,000 | 31,250 |
|
|
|
A10.
Working Notes:
- Bonus shares do not have any cost.
- Profit on sale of bonus shares
= Sales proceeds – Average cost Sales proceeds = 45,000
Average cost = 500 × 62,500 = 31,250
Profit = 45,000 – 31,250 = 13,750.
3. Valuation of Closing Balance of Shares at the end of year the total cost of 1,000 share including bonus is 62,500
Therefore, cost of 500 shares (carried forward) is 500 × 62,500 = 31,250
Market price of 500 shares = 92.50 x 500 = 46,250
Cost being lower than the market price, therefore shares carried forward at cost.
