Investment Accounting PDF

Investment Accounting w.r.t. AS 13 T.Y.B.Com. Jigna Vyas  Investments  Investments are assets held for earning income by way of dividends, interests and rentals, for capital appreciation or for other benefits to the investing enterprise.  No returns = No Investment Facto...

Investment Accounting w.r.t. AS 13 T.Y.B.Com. Jigna Vyas  Investments  Investments are assets held for earning income by way of dividends, interests and rentals, for capital appreciation or for other benefits to the investing enterprise.  No returns = No Investment Factors to be considered  Liquidity  Security  profitability Types of Investments Investments On the basis of On the basis of Period of Nature of Holding Investments Long term Short term Fixed return Variable return Investment Investment bearing bearing (Non-current) (Current) Securities securities Fixed return bearing Securities  It is the security on which the rate of return is fixed or constant. E.g. Debentures, Bonds, Government securities etc  They earn Interest  Interest is always payable at  a fixed rate i.e. _________ %  on certain date i.e. from _______ date to ______ date and  calculated on certain amount i.e. the nominal value of Investments Transactions  Purchase of Investment  Sale of Investment  Interest - accrued and received  Opening / Closing balance Cost of Investment  It includes purchase price and acquisition charges viz. brokerage, fees, duties etc. Purchase price xx Add: Brokerage xx Add: Fees xx Add: Commission xx Add: Stamp duty xx Total XX Disposal of Investments  It means to disposed off or sale off the Investments and in this case we need to find out profit or loss on sale Gross proceeds (S.P.) xx less: Expenses related to sales xx (Brokerage/ Commission) Net proceeds xx less: Carrying amt. of investment sold xx Profit / Loss on sale xx Brokerage  Brokerage is calculated on Quotation price  It is added to purchase price on purchase of investments  It is deducted from sales price on sale of investments Carrying amount of investments  It means the value at which investments are carried in the books of accounts and shown in Final accounts  It is the book value of investments  Long term investments should be carried at Cost price and current investments should be carried at lower of Cost price and market value/ fair value  Methods  FIFO basis  Weighted average basis  Specific item basis However, AS 13 prescribes Weighted average method. Weighted average cost = Cost of total investments x Face value of investments sold Face value of total investments  Investment in __________ account for the year ended _________ ( Interest payable on ___________) Dr. Cr. Dt. Particulars FV Int Cost/ Dt. Particulars FV Int Cost/ Capital Capital X To Bal b/d XX XX XXX X By C/BK A/c - XX - (Int received) X To C/BK A/c XX XX XXX X By C/BK A/c XX XX XXX (Purchase) (Sale) X To P & L A/c - - XXX X By P & L A/c - - XXX (Profit on sale) (Loss on sale) X To P & L A/c X By Bal c/d XX XX XXX (Bal tfd of Int) Total XX XX XXX Total XX XX XXX Cum-interest Price & Ex-interest Price  Cum-interest Price – When the amount of interest is included in the quotation price. Purchase price/ Sales price + Interest = Quotation price (Cum) Ex-interest Price – When the amount of interest is not included in the quotation price. Purchase price/ Sales price = Quotation price (Ex)  Calculation of Interest  From the last due date till the date of transaction  Eg. The interest due date is 31st December 2019 and if 100, 5 % debentures of Rs. 100 each are purchased on 31st March, 2020, the amount of interest will be _______. From 31st December 2019 to 31st March 2020 = 3 months Therefore, Interest = 10,000 (FV) x 5% x 3 months = Rs. 125  Calculation of Interest The interest due date is 31st March 2019 500, 10 % debentures of Rs. 100 each are sold at Rs. 120 on 31st December, 2019, the amount of interest will be _______ From 31st March 2019 to 31st December 2020 = 9 months Therefore, Interest = 50,000 (FV) x 10% x 9 months = Rs. 3,750 Ex- interest price = 500 x 120 = 60,000 Cum-interest price = 60,000 + 3750 = 63,750  Points to remember  Interest is always calculated on Nominal/Face value  Interest is to be calculated from the last due date till the date of transaction  Do not forget to calculate & record the amount of accrued interest at the beginning & end of the accounting year  Do not forget to Pass the entry for Interest received  In the absence of information, the price i.e. purchase price/ sales price is assumed as Ex-interest price  Only Ex-interest price is to be recorded in Cost/ Capital column  The balance of Interest column is to be transferred to Profit & loss A/c