undefined | unit 3 investment accounting

FA7

Unit – 3Investment Accounting Q1) Elaborate Investment Accounting.A1) The representing speculations happens when assets are paid for a venture instrument. The specific kind of bookkeeping relies upon the goal of the speculator and the relative size of the venture. Contingent upon these components, the accompanying kinds of bookkeeping may apply: Held to development speculation. In the event that the financial specialist means to hold a venture to its development date (which adequately restricts this bookkeeping strategy to obligation instruments) and can do as such, the speculation is named held to development. This venture is at first recorded at cost, with amortization changes from that point to mirror any premium or rebate at which it was bought. The venture may likewise be recorded to mirror any perpetual hindrances. There is no continuous acclimation to advertise an incentive for this kind of venture. This methodology can't be applied to value instruments, since they have no development date. Exchanging security. In the event that the financial specialist expects to undercut its interest in the term for a benefit, the speculation is named an exchanging security. This speculation is at first recorded at cost. Toward the finish of each ensuing bookkeeping period, change the recorded venture to its reasonable incentive as of the finish of the time frame. Any hidden holding gains and misfortunes are to be recorded in working pay. This speculation can be either an obligation or value instrument. Ready to move. This is a speculation that can't be sorted as a held to development or exchanging security. This speculation is at first recorded at cost. Toward the finish of each ensuing bookkeeping period, change the recorded speculation to its reasonable incentive as of the finish of the time frame. Any hidden holding gains and misfortunes are to be recorded in other thorough pay until they have been sold. Value strategy. On the off chance that the speculator has huge working or monetary power over the investee (by and large viewed as at any rate a 20% premium), the value strategy ought to be utilized. This venture is at first recorded at cost. In ensuing periods, the financial specialist perceives a lot of the benefits and misfortunes of the investee, after intra-element benefits and misfortunes have been deducted. Likewise, if the investee issues profits to the financial specialist, the profits are deducted from the speculator's interest in the investee. Q2) Explain Materialness of AS 13 Accounting for Investments with its types.A2) AS 13 Accounting for Investments doesn't manage the accompanying:

The base for perceiving profits, premium, and rentals which are acquired on the speculations that are covered by AS 9

Money or working leases which are covered by AS 19

Interests in retirement advantage plans and extra security undertakings which is covered by AS 15

The accompanying which is framed under the Central or the State Government Act or proclaimed under Companies Act, 2013

Mutual Funds

Investment Funds and related Asset Management Companies

Banks just as open monetary establishments

Types of Investments A. Current Investments - Current Investments will be ventures which by their temperament are promptly feasible and are proposed to be held for not exactly a year from the date when such speculation is finished. B. Long haul Investments - Long-term speculations are ventures other than the current speculations, despite the fact that they may be uninhibitedly attractive. Cost of Investments

Intermediary, obligations, and expenses - The expense of speculations incorporate charges identified with procurement of business, obligations, and charges

Non-money thought – on the off chance that speculations are gained, or halfway procured, by

Issuing shares

Issuing other securities

some other asset,

the expense of obtaining is the reasonable estimation of protections which are given or the resources which are surrendered. The reasonable worth may not basically be same as the standard or ostensible estimation of protections which are given. It very well may be judicious to consider reasonable estimation of such speculation obtained on the off chance that it's more clear

Premium, profit or other receivables – Dividends, premium and other receivables that are regarding the ventures are generally considered as pay, is the ROI (return on the speculation).

Nonetheless, in specific conditions, such inflows mean a recuperation of the expense and doesn't shape part of the pay. On the off chance that it's hard to do such assignments, cost of speculation is normally decreased to the degree of profits receivable just on the off chance that they address unmistakably the recuperation of a bit of the expense

Right Shares – on the off chance that correct offers offered are accordingly bought in for, cost of such right offers is then added to conveying the measure of unique holding.

In the event that the rights aren't bought in for, notwithstanding, are sold, deal continues from the offer of such rights are moved to P/L articulation. Yet, where a venture is obtained on a cum-right premise and market estimation of the speculation following turning out to be ex-right is not exactly the expense for which such speculation was gained, it very well may be judicious to apply the returns from the offer of rights to lessen conveying the measure of the venture to the market esteem Conveying Amount of Investments Current ventures should be conveyed in fiscal reports at lower of cost and reasonable worth which is resolved either by class of speculation or on an individual speculation premise, in any case, not on the general premise. Long haul ventures should consistently be conveyed in fiscal summaries at their expense. However, when there's a decay, aside from brief, in worth the drawn out speculation, conveying sum is decreased for perceiving such decrease. Venture Property Venture property is speculations that are made in land or structures which aren't imagined to be utilized essentially for use, or in business tasks of, the contributing organization. Speculation Treatment on Disposal On special or removal of the venture, the contrast between the conveying cost and continues from the business net of any costs is moved to P&L. Renaming of Investments Where a drawn out speculation is renamed as a current venture, the exchange is made at conveying sum and lower of cost at the date of such exchange. Where a speculation is renamed from current venture to long haul venture, the exchange is made at the lower of its expense and the reasonable estimation of such venture at the date of such exchange. Q3) What are the Revelations in the Financial Statements of Investment accounting as per accounting standard 13.A3) Revelations in the Financial Statements The beneath referenced are the exposures in the fiscal reports regarding AS 13 Accounting for Investments is appropriate: (a) Bookkeeping arrangements utilized for deciding conveying measure of speculation (b) The sums which are remembered for the benefit and misfortune proclamation for: (I) Dividends, premium, and rentals on the speculations introducing the pay from such long haul and current ventures independently. Net pay should be expressed, measure of TDS (charge deducted at source) included under the Advance Taxes Paid (ii) Benefits and misfortunes on the removal of current speculation and the progressions in conveying the measure of the venture (iii) Benefits and misfortunes on the removal of long haul speculation and the progressions in conveying the measure of the venture (c) Generous restrictions on the privilege of possession, feasibility of the ventures or settlement of pay and continues of removal (d) The aggregate sum of both the cited and unquoted speculations, giving the all-out market estimation of the cited ventures (e) Different exposures as unequivocally as needed by the important rule overseeing the organization. Q4) On first March 1992, XY Corporation Ltd. bought Rs. 30,000, 5% Government Stock at Rs. 95 cum-interest. On first May 1992, the organization sold Rs. 10,000 of Stock at Rs. 97 cum-interest. On fifteenth December 1992, another Rs. 10,000 Stock was sold at Rs. 93 ex-interest. On 31st December 1992, the end date of the monetary year, the market cost of the Stock was Rs. 92. Half-yearly interest is gotten each year as on 30th June and 31st December. Set up a record account in the venture record expecting that the stock exchange book is shut 20 days before the date of installment of interest. Overlook annual duty and financier.A4)In the books of XY Corporation Ltd.5% Govt. Stock Account(Interest Payable: 30th June and 31st December)Dr. Cr.

Date	Particulars	L F	Nominal	Interest	Principal	Date	Principal	L F	Nominal	Interest	Principal
1992 Mar. 1 May 1 Dec. 31 1993 Jan. 1	To Bank A/c -Purchase at cum-interest “ Profit and Loss A/c -Profit on Sale “ Bank A/c -Interest directly paid to the purchaser “ Profit and Loss A/c -Interest for the year transferred To Balance b/d		Rs 30,000	Rs 250 250 896	Rs 28,2501 116	1992 May 1 June 30 Dec. 31	By Bank A/c –Sale at cum-interest “ Bank A/c -Interest ( Rs. 20,000× 5/100 × 6/12) Bank A/c –Sold at Ex-Interest “ Profit and Loss A/c “ Bank A/c -Interest ( Rs. 20,000× 5/100 × 6/12) “ Profit and Loss A/c –Loss on Stock Valuation “ Balance c/d		Rs 10,000 10,000 10,000	Rs 167 500 229 500	Rs 9,533 9,300 117 216 9,200
			30,000	1,396	28,336				30,000	1,396	28,336
			10,000	-	9,200

Workings:

Purchase and Interest on 1.3.1992 Rs

Purchase at Cum-Interest 28,500

(Rs. 30,000 × 95/100)

Less: Interest (Rs. 30,000 × 5/100 × 2/12) 250

28,250

2. Sale and Interest on 1.5.1992 Rs

Sale at Cum-Interest

(Rs. 10,000 × 97/100) 9,700

Less: Interest (Rs. 10,000 × 5/100 × 4/12) 167

9,553

3. Sale and Interest on 15.12.1992

Sale at Ex-Interest

(Rs. 10,000 × 93/100) 9,300

Interest (Rs. 10,000 × 5/100 × 51/2 / 12) 229

4. It must be remembered that although the stock was sold on 15.12.1992, the name of the buyer was not recorded in Stock Register due to closing of a stock transfer book, i.e., we received the interest and later on we paid to the buyer personally.

Q5) On fifteenth March O.P. Ltd. bought Rs. 1,00,000, 9 percent Govt. Stock (interest payable on first April, first July, first October and first January) at 88½ cum-interest. On first August Rs. 20,000 stock is sold at 89 cum-interest and on first September Rs. 30,000 stock is sold at 88¼ Ex-interest. On 31st December, the date of the Balance Sheet, the market cost was Rs. 90. Show the record of the Investment for the year, disregarding Income Tax, Brokerage and so on and making distributions in month.A5)In the books of O.P. Ltd.9% Govt. Stock Account(Interest payable: 1st April and 1st July1st Oct., 1st Jan.)Dr. Cr.

Date	Particulars	L F	Nominal	Interest	Principal	Date	Principal	L F	Nominal	Interest	Principal
… Mar. 15 Aug. 1 Sept. 1 Dec. 31 Jan. 1	To Bank A/c -Purchase at cum-interest “ Profit and Loss A/c -Profit on Sale “ Profit and Loss A/c -Profit on Sale “ Profit and Loss A/c -Interest for the year transferred To Balance b/d		Rs 1,00,000	Rs 1,875 5,423	Rs 86,625 1255 7873	…….. Apr. 1 July. 1 Aug. 1 Sept. 1 Oct. 1 Dec. 31	By Bank A/c –Interest (Rs. 1,00,000 × 9/100 × 3/12) “ Bank A/c –Interest “ Bank A/c –Sold at cum-interest Bank A/c –Sold at ex-Interest “ Bank A/c –Interest “ Balance c/d		Rs 20,000 30,000 50,000	Rs 2,250 2,250 150 450 1,125 1,125	Rs 17,450 26,775 43,312
			1,00,000	7,350	87,537				1,00,000	7,350	87,537
			50,000	1,125	43,312

Workings:

Purchase price and Interest: Rs

Purchase price at cum-interest

( Rs. 10,000 × 881/2 /100) 88,500

Less: Interest ( Rs. 10,000 × 9 /100 × 21/2 /12) 1,875

86,625

2. Selling Price and Interest Rs

Selling Price at Cum-Interest

(Rs. 20,000 × 88/100) 17,600

Less: Interest (Rs. 20,000 × 9/100 × 1/12 150

17,450

3. Statement showing the Profit and Loss on Sale of Investment
Date		Nominal Value	Principal	Selling	Profit	Loss
March. 15 Aug. 1 Sept. 1	Purchase Sale (Rs. 20,000 × 86,625 /1,00,000 ) Sales (Rs. 30,000 × 86,625 / 1,00,000) Balance	1,00,000 20,000 - 80,000 30,000 -	86,625 - 17,325 69,300 - 25,988	- 17,450 26,775	- 125 787	- - -
		50,000	43,312

4. Selling Price and Interest Rs

Sellign Price at ex-Interest

(Rs. 30,000 × 891/4 / 100) 26,775

Interest ( Rs. 30,000 × 881/4 / 100) 450

Q6) On 1.4.2010, Sundar had 25,000 value portions of 'X' Ltd. at a book estimation of ' 15 for every offer (Face esteem ' 10). On 20.6.2010, he bought one more 5,000 portions of the organization at ' 16 for each offer. The heads of 'X' Ltd. declared a reward and rights issue. No profit was payable on these issues. The details of the issue are as per the following: Reward premise 1:6 (Date 16.8.2010). Rights premise 3:7 (Date 31.8.2010) Price ' 15 for every offer. Due date for installment 30.9.2010. Investors can move their privileges in full or to a limited extent. As needs be Sundar offered 33.33% of his privilege to Sekhar for a thought of ' 2 for every offer. Profits: Dividends for the year finished 31.3.2010 at the pace of 20% were proclaimed by X Ltd. what's more, gotten by Sundar on 31.10.2010. Profits for shares procured by him on 20.6.2010 are to be changed against the expense of procurement. On 15.11.2010, Sundar sold 25,000 value shares at a higher cost than expected of ' 5 for each offer. You are needed to plan in the books of Sundar. (1) Investment Account (2) Profit and Loss Account. For your activity, accept that the books are shut on 31.12.2010 and offers are esteemed at normal expense.A6)Books of Sundar Investment Account Equity Shares in X Ltd.

No.

Amount

No.

Amount

1.4.2010

20.6.2010

16.8.2010

30.9.2010

15.11.2010

To Bal b/d

To Bank

To Bonus

To Bank (Rights Shares) To Profit

25,000

5,000

10,000

45,000

3,75,000

80,000

—

1,50,000

50,000

6,55,000

30.9.2010

31.10.2010

15.11.2010

31.12.2010

By Bank (Sale of Rights)

By Bank (dividend

on shares acquired on 20/6/2010)

By Bank (Sale of shares)

By Bal. c/d

25,000

20,000

45,000

10,000

3,75,000

2,60,000

6,55,000

Profit & Loss A/c

To Balance c/d	1,00,000	By Profit transferred	50,000
		By Dividend	50,000
	1,00,000		1,00,000

Working Notes:(1) Bonus Shares = 25,000  5,000 5,000 shares6

(2) Right Shares = 25,000  5,000  5,000  3 = 15,000 shares7(1) Rights shares renounced = 15,000×1/3 = 5,000 shares (4) Dividend received = 25,000×10×20% = 50,000Dividend on shares purchased on 20.6.2010 = 5,000×10×20% = 10,000 is adjusted to Investment A/c(5) Cost of shares on 31.12.20103,75,000  80,000  1,50,000 10,000 10,000  20,000 = 2,60,00045,000 Q7) On 1.4.2010, Sundar had 25,000 value On 1.4.2010, Mr. Krishna Murty bought 1,000 value portions of ' 100 each in TELCO Ltd. @ ' 120 each from a Broker, who charged 2% financier. He caused 50 paise per ' 100 as cost of offers move stamps. On 31.1.2011 Bonus was pronounced in the proportion of 1 : 2. When the record date of extra offers, the offers were cited at ' 175 for every offer and ' 90 for each offer separately. On 31.3.2011 Mr. Krishna Murty sold extra offers to a Broker, who charged 2% financier. Show the Investment Account in the books of Mr. Krishna Murty, who held the offers as Current resources and shutting estimation of speculations will be made at Cost or Market esteem whichever is lower. A7) In the books of Mr. Krishna Investment Account for the year ended 31st March, 2011(Scrip: Equity Shares of TELCO Ltd.)Dr. Cr.

Date

Particulars

Nominal Value (

)

Cost ( )

Date

Particulars

Nominal Value ( )

Cost ( )

1.4.2010

Bank A/c

1,00,000

1,23,000

31.3.2011

Bank A/c

50,000

44,100

31.1.2011

31.3.2011

To To

Bonus shares Profit & loss A/c

50,000



1,50,000



3,100 1,26,100

31.3.2011

Balance c/d

1,00,000

1,50,000

82,000

1,26,100

Working Notes:(i) Cost of equity shares purchased on 1.4.2010 = 1,000  120 + 2% of 1,20,000 +½% of 1,20,000 = 1,23,000(ii) Sale proceeds of equity shares sold on 31st March, 2011 = 500  90 – 2% of 45,000 = 44,100.(iii) Profit on sale of bonus shares on 31st March, 2011= Sales proceeds – Average cost Sales proceeds = 44,100Average cost = (1,23,000  50,000)/1,50,000 = 41,000 Profit = 44,100 – 41,000 = 3,100.(iv) Valuation of equity shares on 31st March, 2011Cost = ( 1,23,000 × 1,00,000)/1,50,000 = 82,000)Market Value = 1,000 shares × 90 = 90,000Closing balance has been valued at 82,000 being lower than the market value. Q8) Mr. X bought 500 value portions of ' 100 each in Omega Co. Ltd. for ' 62,500 comprehensive of financier and stamp obligation. A few years after the fact the organization made plans to underwrite its benefits and to issue to the holders of value shares, one value reward share for each offer held by them. Preceding capitalisation, the portions of Omega Co. Ltd. were cited at ' 175 for each offer. After the capitalisation, the offers were cited at ' 92.50 per share. Mr. X. sold the extra offers and got at ' 90 for each offer. Set up the Investment Account in X's books on normal expense premise.A8) Investment Account in the books of A [Equity shares in Omega Co. Ltd.]

	Nominal Value	Cost		Nominal Value	Cost

To Cash	50,000	62,500	By Cash Sale	50,000	45,000
To Bonus shares	50,000		By Balance c/d	50,000	31,250
To P & L A/c		13,750
	1,00,000	76,250		1,00,000	76,250
To Balance b/d	50,000	31,250

Note : The total cost of 1,000 share including bonus is 62,500 Therefore, cost of 500 shares (carried forward) is 500  62,500 = 31,2501,000. Cost being lower than the market price, shares are carried forward at cost. Q9) On first January 1994, X Ltd. held as speculation Rs. 50,000, 6% Government Stock costing Rs. 47,000 On 31st March, an acquisition of Rs. 2,00,000 of same Government Stock was made at Rs. 95 cum-interest. On first July, the organization sold Rs. 1,00,000 stock Rs. 96. On first October, a further Rs. 70,000 of the speculation was sold at Rs. 98 cum-interest. The market cost of the stock on 31.12.94 was Rs. 99 (ex-interest). Half yearly interest is payable on 30th June and 31st December consistently. Set up the Investment Ledger of the organization disregarding personal assessment and business.A9)In the books of X Ltd.6% of Govt. Stock Account(Interest payable: 30th June and 31st Decenber)Dr. Cr.

Date	Particulars	LF	Nominal	Interest	Principal	Date	Particulars	LF	Nominal	Interest	Principal
1994 Jan. 1 Mar. 31 July. 31 Oct. 1 Dec. 31 1995 Jan.1	To Balance b/d “ Bank A/c –Purchase at cum-Interest “ Profit and Loss A/c -Profit on Sale “ Profit and Loss A/c -Profit on Sale “ Profit and Loss A/c -Interest for the year transferred To Balance b/d		Rs 50,000 2,00,000	Rs - 3,000 7,950	Rs 47,000 1,87,000 2,250 2,100	1994 June. 30 July. 1 Oct. 1 Dec. 31	By Bank A/c –Interest (Rs, 2,50,000 × 6/100 × 6/12) “ Bank A/c –Sale at Ex-Interest “ Bank A/c -Sale at Cum-Interest “ Bank A/c -Interest (Rs. 80,000 × 6/100 × 6/12) “ Balance c/d		Rs 1,00,000 70,000 80,000	Rs 7,500 - 1,050 2,400 -	Rs - - 96,000 67,556 74,800
			2,50,000	10,950	2,38,350				2,50,000	10,950	2,38,350
			80,000	-	74,800

Workings:

Purchase and Interest on 30.3.1994 Rs

Purchase at Cum-Interest

(Rs. 2,00,000 × 95/100) 1,90,000

Less: Interest (Rs. 2,00,000 × 6/100 × 3/12) 3,000

3 . FIFO method is followed here. As per market price, the value of stock should be Rs. 80,000 × 99/100 = Rs. 79,200 which is more than the cost price of Rs. 74,800, hence, cost price is taken as it is lower.

1,87,000

2. Statement showing the Profit and Loss on Sale of Investment:
Date		Nominal Rs	Principal Rs	Selling Rs	Profit Rs	Loss Rs
1.1.1994 31.3.1994 1.7.1994 1.10.1994 31.12.1999	Balance Purchase Sale (50,000 × 1,87,000 / 2,00,000) Sale (70,000 × 1,87,000 / 2,00,000) Balance	50,000 2,00,000 2,50,000 50,000 50,000	47,000 1,87,000 2,34,000 47,000 93,750 46,750	- 96,000 67,550	- 2,250 2,100	- - -
		1,50,000 70,000 -	1,40,250 - 65,450
		80,000	74,800

10) On first January 1994, X Ltd. held as theory Rs. 50,000, 6% Government Stock costing Rs. 47,000 On 31st March, a procurement of Rs. 2,00,000 of same Government Stock was made at Rs. 95 cum-interest. On first July, the association sold Rs. 1,00,000 stock Rs. 96. On first October, a further Rs. 70,000 of the theory was sold at Rs. 98 cum-interest. The market cost of the stock on 31.12.94 was Rs. 99 (ex-interest). Half yearly interest is payable on 30th June and 31st December reliably. Set up the Investment Ledger of the association dismissing individual evaluation and business.A10)In the books of X Ltd.Investment Account Dr. Cr.

Date	Particulars	Nominal	Interest	Principal	Date	Particulars	Nominal	Interest	Principal
1995 Jan. 1 May. 15 Jan. 15 Dec. 31 1996 Jan.1	To Balance b/d “ Bonus Shares (10,000 + 2 = 5,000 × Rs. 10) “ Bank A/c (Share Application money @ Rs7 on 2,000 shares) “ Bank A/c (Share Call money @ Rs. 6 on 2,000 shares) “ Profit and Loss A/c (Dividend transferred ) (bal.fig.) To Balance b/d	Rs 1,00,000 50,000 20,000 - -	Rs - - - - 29,000	Rs 1,25,000 - 14,000 12,000 -	1995 May. 25 Oct. 15 Dec. 31	By Bank A/c (4,000 Right Shares sold @ Rs. 2) “ Bank A/c (Dividend received @ 20% on Rs. 1,00,000) “ Balance c/d	Rs - - 1,70,000	Rs - 20,000 -	Rs 8,000 - 1,43,000
		1,70,000	20,000	1,51,000			1,70,000	20,000	1,51,000
		1,70,000	-	1,43,000

Note: 1. Total Right 10,000 × 3/5 = Rs. 6,000 – Rights exercised 2,000 = Rights Sold 4,000.

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