Module 4 investment accounts

M O D U L E 4
M A H E S H M T
A S S T . P R O F E S S O R O F C O M M E R C E
K N M G O V T . A R T S A N D S C I E N C E C O L L E G E , K A N J I R A M K U L A M
INVESTMENT ACCOUNTS

Investment Accounts
 An investment account is a separate account
maintained for each scrip in the investment ledger of
investing company showing different transactions in
the scrip separately. It also records interest received .
Interest accrued etc. for each scrip.
 When the number of investments carried is large, a
separate ledger is prepared for recording all
investment transactions.

Journal entries-
purchase or sale on the date of payment of interest
1. When investment is purchased at interest date
Investment a/c Dr. xxxx
To, Bank a/c xxxx
( Quoted price X no. of investments + Brokerage)
2. When interest/ dividend is received after purchase
Bank a/c Dr. xxxx
To, interest /Dividend a/c xxxx

Journal entries- Investment Accounts
3. When investment is sold at interest date
Bank a/c Dr. xxxx
To, Investment a/c xxxx
( Quoted price X no. of investments - Brokerage)
4. For transfer of interest / dividend to the profit and
loss account at the end of the year.
Interest /Dividend a/c Dr. xxxx
To, Profit and Loss a/c xxxx

Journal entries- Investment Accounts
5. At the end of the year, the balance of investment is to be
valued at ‘cost’ or ‘market price’ which ever is lower.
This value will be carried forward to the next period
6. The balance of investment account represents the profit of
loss on sale of investment ,
a) if it shows a credit balance, it will be ‘profit’. Entry will be
To, Profit and loss a/c xxxx
b) if it shows a debit balance, it will be ‘loss’. Entry will be
Profit and loss a/c Dr. xxxx
To, Investment a/c xxxx

Format of investment ledger
----% debenture/bond/share accoun t
Date Particulars Nominal
value
Int./
Div
Principal
value
Date Partic
ulars
Nomina
l value
Int./
Div
Principal
value
1.1/
20
To, Bank 10000 xxx 9500
9500
31.12 Bal
P&l
(loss
)
10000 xxxx 9000
500
9500

On 1st January 2016 Chand Ltd. Purchased 1,000 12% debentures of Tata
Ltd. of Rs.100 each @Rs.95. On 1st July 2016, 600 debentures were sold at
Rs.98 each. Debenture interest payable half yearly on 30thJune and 31st
December. Prepare the account of 12% Debentures in Tata Ltd. In the
books of Chand Ltd. Assuming the accounting year ends on 31st December.
Market price of debentures on 31st December is 2015
12% Tata Debenture account (int. payable on 30th june &31 dec)
Date Particular
s
Nominal
value
Int./
Div
Principal
value
value
Int.
/
Div
Princ
value
1.1.16
1.7.16
To ,
Bank
To, p&l
To, P&L
100,000
8,400
95,000
1,800
30.6.16
1.7.16
31.12.1
6
By, bank
By , bank
By , bank
By, Balan
c/d
60,000
40000
6,00
0
2,40
0
Xxx
58,80
38,0
100,000 8,400 96,800 100000 8,40
0
96,8
1. Interest for 6 months = 100,000 X 12/100 X 6/12 = 6,000
2. Sale of 600 debenture @98 each = 600 X 98 =58,800
3. Interest fro 6 months = 40000 X 12/100 X6/12 = 2400
4. PROFIT/LOSS ON SALE = sale –cost = (600X98)-(600X95) 0r 3x600=1800
5. 5. balance 400 x95 =38,000

On 1st January 2015 NASDAQ Ltd. Purchased 1,000 15% debentures
of HDFC Ltd. of Rs.100 each @Rs.96. On 1st July 2015, 500
debentures were sold at Rs.99 each. Debenture interest payable half
yearly on 30thJune and 31st December.
Prepare the account of 15% Debentures in NASDAQA Ltd. .
Assuming the accounting year ends on 31st December. Market price
of debentures on 31st December is Rs.98
15% debentures account
te Particulars Nominal
value
Int./
Div
Principal
value
Date Particulars Nomina
l value
Int./
Div
Principa
l value
1.15
.12.
To , Bank
To, P&L
100000
11250
96000
1500
30.6.15
1.7.15
31.12.15
By, bank
By , bank
By , bank
By, Balan
c/d
50000
50000
7500
3750
49,500
48000
100000 11250 97500 100000 11250 97500

purchase or sale before the date of payment of
interest
 When investments are purchased or sold before the due
date of interest , it is necessary to identify whether
quotation price includes the interest up to the date of
purchase or not.
 Date of interest 30th June and 31st December 2020
 Date of purchase 1st April 2020
( so it is necessary to check the price includes interest from
1st January to 31st march 2020 or not)
If it includes interest, we refer cum interest –cumulative
interest
If price does not include interest- it will be referred as Ex-
interest/Exclusive of interest
In case of ex-interest ,interest has to be calculated
separately.

Cum dividend/ cum interest quotations
 Cum dividend/ cum interest quotations is one which
the quoted price includes the accrued dividend or
interest from the last interest or dividend date to the
date of transaction.
 It means that the quotation is cumulative or inclusive
of accrued interest or dividend as the case may be.
 The quotation ,cum –interest , includes cost and
interest accrued up to the date of purchase. When
interest becomes due, it would be the right of the
buyer to claim that.

Cum dividend/ cum interest purchases
calculation of interest accrued
1. Calculate the period from that last date of interest to
the date of purchase.
2. Calculate the interest accrued
Accrued interest = Rate of interest X period x face value
12 (Months)/365(Days)
3. Calculate Cost
Cost = (quotation price x No. of securities purchased) –
accrued interest

Journal entries-
purchase before the date of payment of interest
1. When investment is purchased at cum-interest
Investment a/c Dr. xxxx (cost)
interest a/c Dr. Xxxx ( accrues int.)
To, Bank a/c xxxx (QP)
2. When interest/ dividend is received on the due date
after purchase
Bank a/c Dr. xxxx
(total amount of interest for that period)
Interest= Nominal Value of investment X ROI/100 X Period/12

On 31st March 2015, Capital finance Ltd. Purchased 2,000 6%
government stock of the face value of Rs.100 each @Rs.95 cum
interest.
Half yearly interest payable on 30thJune and 31st December every
year.
Prepare investment ledger of Capital finance Ltd. For its financial
year ended 31st December 2015,
6% Government stocks account
value
Int./
Div
Principal
value
value
Int./
Div
Principal
value
1/3/1
5
31/12
/15
To,Bank
To, P& L
2,00,000 3,000
9,000
1,87,000 30.6.15
31.12.1
5
By, bank
By,
Bank
Balan
c/d
--
---
2,00,000
6,000
6,000
---
---
1,87,000
2,00,000 12,000 1,87,000 2,00,000 12,000 1,87,000

Ex- dividend/ Ex- interest quotations
 Ex- dividend/ ex- interest quotations is one which the
quoted price does not include the accrued dividend or
interest from the last interest or dividend date to the
date of transaction.
 It means that the quotation is exclusive of accrued
interest or dividend as the case may be.
 The quotation ,ex –interest only covers the cost of
investments and buyer is liable to pay additional
amount as interest accrued up to the date of purchase.

 Interest on fixed interest bearing security accrues on
specific due dates and the holder of the security is
entitled to get whole amount of interest that accrues
on the date irrespective of his period of holding.
 Important points to remember in this regard:-
1) In respect of government securities and debentures,
the price quotes id ex-interest unless otherwise
stated.
2) In respect of non-government securities and
debentures, it is cum-interest unless otherwise
stated.

Accounting treatment
 When securities are purchased “ex-interest’, the
quotation price does not contain any accrued interest.
The seller will get quotation price + accrued interest.
 Investment account is debited (principal value
column) with quotation price + brokerage if any.
 Accrued interest has to be calculated seperately and
debited to investment account ( int/ div. column)
Bank account is credited with quotation price +
brokerage (if any) + accrued interest.
On receipt of interest on due dates, interest account
will be credited with whole amount.

Journal entries-
purchase before the date of payment of interest
1. When investment is purchased at Ex-interest
Investment a/c Dr. xxxx (quotation price)
interest a/c Dr. xxxx ( accrues int.)
To, Bank a/c xxxx (QP + accrued interest)
2. When first interest/ dividend is received on due date
after purchase
Bank a/c Dr. xxxx
(total amount of interest for that period)
Interest= Nominal Value of investment X ROI/100 X Period/12

On 1st March 2016, Jaya finance Ltd. Purchased 3,000 12% Govt. bonds of
Rs.100 each @Rs.96 ex- interest.
Half yearly interest payable on 30thJune and 31st December every year.
Prepare investment ledger of Jaya finance Ltd. For its financial year ended
31st December 2016, also give journal entries in the books of jaya
financeLtd.
12% government bonds account
value
Int./
Div
Principal
value
value
Int./
Div
Princip
al value
1.3.
16
31.1
2.16
To,Bank
To, P& L
3,00,000 6,000
30,000
2,88,000 30.6.16
31.12.1
6
By, bank
By, Bank
By,
Bal. c/d
---
---
3,00,000
18,000
18,000
2,88,000
3,00,000 36,000 2,88,000 3,00,000 36,000 2,88,000
1. Amount payable = 3,000 x96=288000 , Period= 2/12
2. Interest for 2 months = face value(3,00,000 x 12/100 x 2/12= 6,000
3. Cost = qp 2,88,000 – 6,000 = 2,82,000
4. Interest on 30.6.16 and 31.12 2016 = 3,00,000 x 12/100 x 6/12 =18,000

Cum –interest/ cum-dividend sales
When securities are sold “cum-interest” , the sale
proceeds consists of accrued interest also.
 Interest account will be credited with the accrued
interest and investment account will be credited with
the balance amount ie, quotation price x no. of
investment – accrued interest
Bank account will be debited with quotation price

Journal entries-
sale before the date of payment of interest
1. When investment is sold at cum-interest
Bank a/c xxxx (QP)
To, Investment a/c xxxx (QP- Interest)
To, Interest a/c xxxx ( accrues int.)
2. At the end of the year, profit/loss on sale of investment
is transferred to profit and loss account
a) If there is profit on sale of investment
a) if there is loss on sale of investment
profit and loss a/c Dr. xxxx
To, Investment a/c xxxx .

Journal entries-
1000 ,10% debentures of rs.100 each sold at 96 cum-interest 0n 31.3.2021/ last
date 31.12.2020
1. When investment is sold at cum-interest
Bank a/c xxxx (QP) 1000x96=96000
To, Investment a/c xxxx (QP- Interest)(96000-2500) 93500
To, Interest a/c xxxx ( accrues int.)(100000x10/100x3/12) 2500
a) if there is loss on sale of investment

On 1st April 2013, Janatha Ltd. has Rs. 3,00,000, 6% govt. stock at Rs.94 each
(FV 100)Half yearly interest payable on 31ST March and 3oth September every
year.The company sold Rs.90,000 of the stock of RS.95 cum-interest on 1st June
2013. draw up 6% Govt. stock account in the Investment ledger of the company for
the year ended 31st March 2014. Ignore brokerage and income tax. The stock was
quoted at Rs.96 ex-interest at the stock exchange on that date
value
Int./
Div
Principal
value
value
Int./
Div
Princip
al value
2013
¼
31.3.
14
To, bal
To, p&l
3,00,000
13,500
2,82,000 1/6/13
30.9.13
31.3.14
By, Bank
By, bank
By.bank
By, bal
c/d
90,000
2,10,000
900
6,300
6,300
84,600
1,97,400
3,00,000 13500 2,82,000 3,00,000 13,500 2,82,000
1. No. of stock = 3,00,000/100=3,000, 2) 94x3,000 = 2,82,000
2. quotation price= 95x900=85,500
3. accrued interest for 2 months= 90,000 x 6/100 x 2/12 =900
4. Actual sale value = total price- interest ( 85,500-900)= 84,600
5. Interest 0n 30.9.13for ( 3000-900)2100 govt stock= 210000x6/100x6/12= 6,300
6. Value of investment on 31.3.2104 @94 each = 94x2100=197400

Ex –interest/ Ex-dividend sales
When securities are sold “Ex-interest” , the sale
proceeds does not include accrued interest.
 Investment account will be credited with the
quotation price and interest account will be credited
with accrued interest.
Bank account will be debited with quotation price
plus accrued interest upto the date of sale .

Journal entries-
1. When investment is sold at ex-interest
Bank a/c xxxx (QP+ accured interest)
To, Investment a/c xxxx (QP)
To, Interest a/c xxxx ( accrues int.)
a) if theres is loss on sale of investment

On 1st April 2013, Janatha Ltd. has Rs. 3,00,000, 6% govt. stock at Rs.94 each
(FV 100)Half yearly interest payable on 31ST March and 3oth September every
year.The company sold Rs.90,000 of the stock of RS.95 ex-interest on 1st June
2013. draw up 6% Govt. stock account in the Investment ledger of the company for
the year ended 31st March 2014. Ignore brokerage and income tax. The stock was
quoted at Rs.96 ex-interest at the stock exchange on that date
value
Int./
Div
Principal
value
value
Int./
Div
Princip
al value
2013
¼
31.3.
14
To, bal
To, p&l
3,00,000
13,500
2,82,000
900
1/6/13
30.9.13
31.3.14
By, Bank
By, bank
By.bank
By, bal
c/d
90,000
210000
900
6,300
6,300
85,500
197400
300000 13,500 2,82,900 3,00,000 13,500 2,82,900
1. No. of stock = 3,00,000/100=3,000, 2) 94x3,000 = 2,82,000
2. sale quotation price= 95x900=85,500,
3. accrued interest for 2 months= 90,000 x 6/100 x 2/12 =900
4. Actual sale value = total price- interest ( 85,500-900)= 84,600
5. Interest 0n 30.9.13for ( 3000-900)2100 govt stock= 210000x6/100x6/12= 6,300
6. Value of investment on 31.3.2104 @94 each = 94x2100=197400

J Ltd. Hold 400, 12% debentures of RS.100 each in A Ltd. As on 1st April 2015 at a
cost of Rs.50,000. interest payable on 30th June and 31st December. On 1st June
2015, 200 debentures are purchased cum-interest at Rs.21,400. on 1st November
2015,300 debentures are sold ex-interest at Rs.28,650. On 30th November 2015,
200 debentures are purchased ex-interest for Rs.19,200. On 31st December 2015,
300 Debentures are sold cum-interest for Rs.32,250. prepare investment account,
by applying FIFO method and debentures were quoted at par on 31st March 2016.
12% Debentures in A Ltd.
value
Int./
Div
Principal
value
value
Int./
Div
Principal
value
1.4.15
1.6.15
30.11.
15
31.3.1
6
To, bal b/d
To, Bank
TO, Bank
To, p&l
40,000
20000
20000
1200
1000
1000
5200
50,000
20,400
19,200
30.6.15
1.11.15
31.12.1
5
31.3.16
By. Bank
By, Bank
By. P& L
By, bank
By, p&l
By, bank
By, bal c/d
30000
30,000
20,000
3,600
1,200
1,800
1,200
600
28,650
8850
30450
2450
19,200
80000 8400 89600 80000 8400 89600

Working note-Illustration 6
 FIFO= FIRST IN FIRST OUT
 Interest accrued on 1.4.15 = 40,000 x12/100x 3/12 =1200
 Calculate Interest included in purchase price of Rs.21400
 Interest= 20000 x12/100x 5/12=1,000
 Purchase price excluding interest=21,400-1000=20,400
 Interest due on 30.6.15= 60,000 x 12/100x6/12= 3,600
 Interest on 1.11.15= 30000 x12/100x 4/12 = 1200
 Profit/loss =sale price-cost= 28,650-37,500=-8850
 Cost of 300 debentures = 50000/400 x300=37,500
 Interest(purchase) 30.11.2015= 20000 x12/100 x5/12 =1000
 Interest (sale)=30000 x12/100x6/12 =1800
 Value of sale =32,250-1800= 30450
 c

 Cost of investment sold on 31.12.2015
 Value/cost of first 100 debentures =50,000/400 x100 =12,500
 Cost of next 200 debentures =20,400
cost of 300 debentures sold on 31.12.2015 = 12,500+20,400=32,900
Profit/loss on sale = sale price –cost price = 30,450-32900= -2450
Interest due on 31.12.15 =20,000x12/100x6/12= 1200
Accrued interest on 31.3.2016 = 20,000 x 12 /100 x 3/12 = 600

Mr.invester gives the following data of his holding in 16% Debentures of Rs.100
each of Y Ltd. Held as current assets. Books closes on every 31st December.
Interest on 30th September and 31st march.
1.1.15 opening balance – Face value Rs.60,000, cost Rs.59,000
1.3.15 100 debentures purchased ex-interest at Rs.98
1.7.15 sold 200 debentures ex-interest at Rs.100
1.10.15 Purchased 50 Debentures at Rs.98 cum-interest
1.11.15 sold 200 debentures ex-interest at Rs.99
brokerage of 1% is to be paid on every transaction . MV was Rs.99
prepare investment account by applying FIFO Method
value
Int./
Div
Principal
value
Date Particulars Nomi
nal
value
Int./
Div
Principa
l value
1.1.15
1.3.15
To, bal
b/d
To, bank
60000
10000
2400 59000
9898

 Interest = 60,000 x 16/100 x3/12 =2400
 Purchase price = 100 x 98=9800 + 1% 0f 9800 =
 9800 + 98= 9898

Bonus shares
“Shares issued to the existing shareholders out of
accumulated profits in the proportion of shares held by
them without receipt of anything as consideration from
them is called bonus issue/shares”
 Company may pay bonus either in cash or in kind.
 Bonus paid in cash may affect the company’s working
capital position as it creates cash outflow.
 In order to avoid outflow of cash and at the same time to
satisfy the shareholders , the company may issue bonus
shares.
 Bonus may either be by making partly paid up shares
fully paid or by issuing fully paid shares .

Bonus shares – Accounting treatment
 Bonus shares are issued by capitalizing free reserves.
A business receives bonus shares on the basis of
existing holding, at no cost.
Therefore , only the nominal value column of the
investment account needs amendment.
The total nominal value of shares received as bonus
will appear in nominal value column only and
nothing is recorded in the cost column.
In effect , the average cost of the existing shares is
reduced.

on April 1,2013, Mr. Subramanium has 20,000 equity shares in X Ltd.
Face value of the shares was Rs.10 each but their book value was Rs.16 per share.
On June 1, 2013 Mr.Subramanium purchased 5,000 Equity shares in X
Ltd.at Rs.14 each.
On June 30,2013, the Directors of X Ltd. Announced a bonus issue. Bonus
was declared at the rate of one Equity share for every five shares held and these
shares were received on August 2,2013
Show investment account up to August 2,2013.
In the books of Mr. Subramanium- investment in equity shares of X ltd a/c
value
Int./
Div
Principal
value
Date Particu
lars
Nominal
value
Int./
Div
Princip
al value
1.4.13
1.6.13
2.8.13
To, Bal b/d
To, Bank
To, Bonus
2,00,000
50,000
50,000
3,20,000
70,000
--------
calculation for number of bonus shares receivable for Mr. Subramanium
No. of bonus shares = total no. of shares held by Mr. Subramaniumx1/5
25000x1/5 =5,000

Right shares /Right Issue-
sec. 62 Companies Act, 2013
“The issue of shares by an existing company to the
existing shareholders on right basis in proportion to
their present holdings is known as Right shares/Issue.”
When company decides to increase its subscribed capital
by issue of additional shares , at any time after the expiry
of two years of its formation or one year after the first
allotment of shares, whichever is earlier, such shares
must first be offered to existing equity shareholders of
the company in proportion to the capital paid up on
those shares. The shares so offered are known as ‘RIGHT
SHARES.

Right shares /Right Issue-
ACCOUNTING TREATMENT
 Right issue is an invitation to the existing shareholders to
buy new shares in proportion to their existing
shareholding.
 Issue of Right shares is a pre-emptive right to buy new
shares at a price which is lesser than the market price.
 Such shares may be purchased by the shareholder or the
right may be renunciated in favour of a third party for a
consideration.
 If shares are purchased, the number of shares and
amount paid will be entered in the nominal value column
and principal value column respectively.
 If such shares are sold, only the amount received will be
entered in the principal column.

on April 1,2013, Mr. Subramanium has 20,000 equity shares in X Ltd.
Face value of the shares was Rs.10 each but their book value was Rs.16 per share.
On June 1, 2013 Mr.Subramanium purchased 5,000 Equity shares in X
Ltd.at Rs.14 each.
On June 30,2013, the Directors of X Ltd. Announced a RIGHT issue. right
was declared at the rate of one Equity share for every five shares held and these
shares were received on August 2,2013. amount payable is 12 per share. He had
taken half of his entitlement and balance renunciated for rs.2 each
Show investment account up to August 2,2013.
In the books of Mr. Subramanium- investment in equity shares of X ltd a/c
value
Int./
Div
Principal
value
Date Particu
lars
Nomina
l value
Int./
Div
Princip
al value
1.4.13
1.6.13
2.8.13
To, Bal b/d
To, Bank
To, Bank
2,00,000
50,000
25,000
3,20,000
70,000
30,000
--------
1.8.13 bank 5000
calculation for number of right shares receivable for Mr. Subramanium
No. of right shares = total no. of shares held by Mr. Subramaniumx1/5
25000x1/5 =5,000
No. of right shares taken by subramanium= 5,000 x1/2=2500
Amount payable =2500x12= 30,000
Amount received against renunciated shares= 2500 x 2=5000

Illustration 9
 Rajaram carried out the following transactions in the shares of Bright Ltd.
a) On 1st April,2015 he purchased 20,000 equity shares of Rs.1 each fully
paid up for Rs.30,000.
b) On 15th May,2015 Rajaram sold 4,000 shares for Rs.7,600.
c) At a meeting on 15th June 2015, the company decided.
i) to make a bonus issue of one fully paid share for every four bonus shares
held on 1st June 2015, and
ii) to give its members the right to apply for one share for every five shares
held on 1st June 2015 at a price of Rs.1.50 per share of which 75 paise is
payable on or before 15th July,2015 and the balance 75 paise per share on or
before 15th September 2015
The shares issued under (i) and (ii) were not to rank for dividend for the year
ending 31st December 2015

Illustration 9
d) Rajaram received his bonus shares and took up 2,000 shares under the
right issue, paying the sums thereon when due and selling the rights to the
remaining shares at 40 paise per share , the proceeds were received on 3oth
September 2015
e) on 15th March 2016, he received a dividend from Bright Ltd. Of 15 per
cent in respect of the year ended 31st December 2015
f) On 3oth march , he received Rs.14,000 for sale of 10,000 shares.
you are required to record these transactions in the investment
Account in Rajaram’s books for the year ended 31st March 2016, transferring
any profits or losses on these transactions.

value
Int./
Div
Principa
l value
value
Int./
Div
Principal
value
1.4.15
15.5.15
15.6.15
15.7.15
30.9.15
30.3.16
31.3.16
To, bank
To, p& l a/c
To, bonus
To, bank
To, bank
To, p&l a/c
To, p& l a.c
20,000
4000
2000
--
2400
30,000
1600
---------
1500
1500
1945
15.5.15
30.9.15
15.3.16
30.3.16
31.3.16
By, Bank
By, Bank
By, bank
By, bank
By, bal c/d
4000
10,000
12,000
2400
7600
480
14,000
14465
26,000 2400 36,545 26,000 2400 36,545
In the books of Rajaram
investment account (shares in Bright Ltd.)

Thank you
 Assignment /Homework
 All practical problems ON MODULE 4
INVESTMENT ACCOUNTS to be completed and
upload the same to Google classroom on or before
7.9.2021

Working note –illustration 9
 Cost of an equity share =30000/20000 x 4000 =6,000
Profit/loss on sale = sale price-cost= 7600-6000=1600
No. of bonus shares to be issued =16000x1/4=4,000
No. of right shares receivable= 16,000 x1/5= 3200
Amount payable for 2000 right shares (15.7.15) =2000 x .75=1500
Amount payable for right shares on 30.9.15= 2000x.75= 1500
Amount received against shares under renunciation= 1200 x .40 =480
Dividend for the period ending 31.12.2015= 16,000x15/100=2400
Cost of 22,000 shares = 30,000/20000x16000=24,000+3000-480= 26,520
Cost of 10,000 shares = 26,520/22,000 x10,000= 12055
Profit /loss on sale = sale value –cost= 14,000 – 12055 = 1945
Value of investment on 31.3.1`6 of 12000 shares = 26,520/22,000 x 12000 =14465

Module 4 investment accounts

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