This document discusses accounting entries related to investments. It explains that there are two types of securities - fixed interest securities which provide a fixed rate of return, and variable yield securities where the return can differ year to year. It outlines the basic journal entries for purchasing and selling investments, as well as receiving interest and dividends. The document also discusses the differences between cum-dividend/interest and ex-dividend/interest transactions and provides examples of the accounting entries for these types of investment transactions.

1. INVESTMENT ACCOUNT
Dr. D. Janis Bibiyana
SRM – IST (S&H), Ramapuram,Chennai - 89

2. MEANING OF INVESTMENT
 Investment means either buying or creating an asset with the future expectation
of capital appreciation, dividends (profit), rents, interest earnings, or some
combination of these returns. However, normally, investment inherent with some
form of risk, such as investment in equities, property, and even fixed interest
securities, among other things, are the subject to inflation risk.
 There may be two types of securities −
 Fixed Interest Securities − Holders of fixed interest securities get fixed rate of
interest.
 VariableYield Securities − Under this category, return on investment may differ
from year to year.

3.  On purchase of investment
Investment A/c Dr
To Cash/Bank A/c
(Being Investment made)
Note − Investment account is inclusive
of purchase expenses like stamp duty,
Commission, and brokerage.
 On Sale of investments
Cash/Bank A/c Dr
To Investment A/c
(Being Investment made)
Note − Investment account will be
credited with net realized value of
investment.
Accounting entry on investments

4.  Cash/Bank/Investment A/c Dr
To Dividend/Interest A/c
(Being Interest/dividend received on
investments)
 Note − Investments account will be
credited in case, interest/dividend
accrue and cash/bank account will be
debited (in case) with net realized
value of investment.
INTEREST AND DIVIDEND ACCOUNT

5. INVESTMENTTRANSACTIONS
Two types of investments transactions −
 Cum Dividend or Cum Interest Quotations and
 Ex-Dividend or Ex-Interest Quotations
Interest and dividend on the fixed investments accrued on regular interval, but
payment of those are made only on fixed dates. Dividends are always paid to the persons,
who are shareholder at the time of payouts. Suppose a shareholder sold his shares after
keeping those shares in his hand up to ten months, then dividends on those shares will be
paid to the buyer or we can say, to new shareholder.
A seller at the time of selling shares normally charge value of the accrued dividends
up to the date of sale, and this is called ‘CUM DIVIDEND” or “CUM INTEREST”. Since, the
sale price is inclusive of the value of a share and interest or dividend, therefore at the time
of entry in the books of accounts, normal price of share should be booked in the investment
account and the value of dividend or interest should be debited to dividend or interest
account.

6. On purchase of investment
Investment A/c Dr
Dividend or Interest A/c Dr
To Cash/Bank A/c
(Being Investment made)
On receipt of dividend or interest
Cash/Bank A/c Dr
To Dividend or Interest A/c
(Being dividend or interest received)
for Accrued Interest
Accrued Interest A/c Dr
To Interest A/c
(Being interest accrued)
Accounting Entries
In the Books of Buyer

7. In the Books of Seller
On Sale of investments
Cash/Bank A/c Dr
To Investment A/c
To Dividend or Interest A/c
(Being Investment Sold )
On receipt of dividend or Interest
Cash/Bank A/c Dr
To Dividend or Interest A/c
(Being dividend or interest received)

8. Difference between Cum-dividend and Ex-Dividend
Major differences between them are −
•Cum interest or dividend prices are inclusive of the interest or
dividend accrued at the date of purchase, whereas in case of the ex-
dividend, prices are excluding value of the dividend or interest.
•The purchase price is higher than normal purchase price in case of
Cum-dividend, whereas purchase price is the real price in case of ex-
dividend.
•Nothing is payable additional in case of Cum-Interest, whereas
separate amount of the dividend or interest has to be paid in case of
the ex-dividend or ex-interest.

9. JOURNAL ENTRIES
For purchase of Investment
 1000, 8% government bonds are purchased at Rs. 97 each.The brokerage and stamp duty amount to
Rs. 2 and Re. 1 for each bond respectively
Investment a/c Dr 100000 (1000*97=97000+2000+1000)
To Bank a/c 100000
(Being purchase of 1000 govt. bonds at rs.97 each and brokerage and stamp duty there on)
 Sale of Investment
 800, 8% government bonds are purchased at Rs. 98 each.The brokerage being Re. 1 for each bond.
Bank a/c Dr 77600 (800*98=78400-800)
To Investment 77600
(Being sale of 800 government Bonds at rs. 98 each and the brokerage deducted there on)

10. EX-INTEREST & CUM-INTEREST
 For purchase of Investment at CUM – INTEREST price
 500, 10% debentures of Rs. 100 each are purchased on
1.4.97 at Rs. 96 cum interest, the previous interest date
being 31.12.96
 Investment a/c Dr 46750
 Interest on Investment a/c Dr 1250
 To Bank a/c 48000
CALCULATION
Total amount payable (500*96) 48000
Less Interest included in the price
(500*100=50000*10/100*3/12) 1250
-------------
46750
 For purchase of Investment at EX – INTEREST price
 500, 10% debentures of Rs. 100 each are purchased on
1.4.97 at Rs. 96 ex- interest, the previous interest date
being 31.12.96
 Investment a/c Dr 48000
 Interest on Investment a/c Dr 1250
 To Bank a/c 49250
(48000+1250)

11. SALE OF INVESTMENT
* At Cum- Interest Price
 Bank Dr 48000 (500*96)
 To Investment a/c 46750 (48000-1250)
 To interest on Investment a/c 1250
(Being sale of 500 debentures at Rs. 96 cum-interest
and interest received there on)
* At Ex- Interest Price
 Bank Dr 49250
 To Investment a/c 48000
 To interest on Investment a/c 1250
(Being sale of 500 debentures at Rs. 96 cum-
interest and interest received there on)