CA Inter Accounts | Investment Accounts

03. INVESTMENT ACCOUNTS

Attempt Wise Analysis

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Investment Accounts 10 10 10 10 10 20 10

Investment Accounts
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15

10 10 10 10 10 10
10

0
May 2018 Nov 2018 May 2019 Nov 2019 Dec 2020 Jan 2021 July 2021 Dec 2021

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 CA Inter Accounts | Investment Accounts 3.1

3. INVESTMENT ACCOUNTS
Q. No. R1 R2 R3 Special Point
Class Work
1 Additional Question
2 Additional Question
3 Additional Question
4 Additional Question
5 Additional Question
6 ICAI Illustration 2
7 ICAI Illustration 6
8 ICAI Illustration 7
9 Additional Question
10 ICAI Illustration 10
11 ICAI Illustration 9
MCMR
1 ICAI Illustration 1
2 ICAI Illustration 3
3 ICAI Illustration 4
4 ICAI Illustration 5
5 ICAI Illustration 11
6 ICAI Illustration 8
7 RTP May 18 / Mock Test Oct
21 Series 2
8 RTP Nov 18
9 Exam Nov 18
10 Exam May 18
11 Mock Test Paper 1 / ICAI
Illustration 10
12 Mock Test Paper 2
13 RTP May 19
14 RTP Nov 19

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 CA Inter Accounts | Investment Accounts 3.2

15 Exam Nov 19
16 RTP Nov 20
17 RTP Nov 20
18 Exam Nov 20
19 Exam Jan 21
20 RTP May 21
21 RTP Nov 21
22 Exam July 21
23 Exam Dec 21
24 ICAI Practical Question 1
25 ICAI Practical Question 5 /
Mock Test Oct 21 Series 1
Test In Time…Pass In Time
1 ICAI Practical Question 2
2 ICAI Practical Question 3
3 ICAI Practical Question 4

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 CA Inter Accounts | Investment Accounts 3.3

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 CA Inter Accounts | Investment Accounts 3.4

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 CA Inter Accounts | Investment Accounts 3.5

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 CA Inter Accounts | Investment Accounts 3.6

OBJECTIVES
• Prescribe Accounting Treatment of various investments in the financial statements of the
Enterprises
• Disclosure of Investments

1. DEFINITIONS
Investments: Investments are assets held by an enterprise for earning income by way of dividends,
interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise.
Assets held as stock-in-trade are not ‘investments’.
Current investment: A current investment is an investment that is by nature readily realisable
and is intended to be held for not more than one year from the date on which such investment
is made.
Long term investment: A long term investment is an investment other than a current investment.
Investment property: An investment property is an investment in land or buildings that are not
intended to be occupied substantially for use by, or in the operations of, the investing enterprise.
It will be accounted as long term investment.
Fair Value: Fair value is amount for which an asset could be exchanged or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction. Market value or NRV
provides an evidence of fair values

2. WHEN AS 13 IS NOT APPLICABLE ?

• The bases for recognition of interest, dividend and rental (covered in AS 9)
• Operating or Finance lease (covered in AS 19)
• Investment of retirement benefit plans and life insurance enterprises (IRDA guidelines)
• Mutual funds (guidance note)
• Venture capital Funds
• Banks and Public Financial Institutions (RBI guidelines)

3. COST OF INVESTMENT
The cost of an investment should include acquisition charges such as brokerage, fees and
duties.
• Acquisition cost
• Brokerage
• Fees
• Duties

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 CA Inter Accounts | Investment Accounts 3.7

Where acquisition of shares of a Co-op. society or company is necessary for owing a property,
the cost of such shares should also be added to the cost of property.

How should cost of an investment be determined

Cost of an investment can be determined in the following manner:

Cost of an investment

Purchase price Incidental expenses

(e.g. brokerage, fees, duties etc)

How to compute purchase price: calculation of purchase price does not involve complexities
when actual cash has been paid for acquiring the investments. However, when this is not the
case, certain basis need to be adopted for computing purchase price. Under such
circumstances, AS 13 prescribes the following guidelines for computing purchase price:

4. INVESTMENT ACQUIRED BY ISSUE OF SHARES OR OTHER SECURITIES

If an investment is acquired by issuing share or other securities then the fair value of security
issued will be taken as cost of acquisition.

5. INVESTMENT ACQUIRED IN EXCHANGE FOR ANOTHER ASSET

If the investment is acquired by giving any other asset then fair value of the asset given up
or the fair value of investment acquired if it is more clearly evident will be considered as cost
of acquisition.

6. ADJUSTMENT TO CARRYING AMOUNT OF INVESTMENT

Interest, dividends and rentals receivables in connection with an investment are generally
regarded as income, being the return on the investment. However, pre-acquisition interest and
dividends on equity which are declared from pre-acquisition profits are deducted from the cost
of investment. Such inflows represent recovery of cost and do not form part of income.

7. ADJUSTMENT TO CARRYING AMOUNT OF INVESTMENT

When rights shares offered are subscribed for
CASE 1:
The cost of the right shares is added to the carrying amount of the
original holding.

CASE 2: If rights are not subscribed for but are sold in the market

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 CA Inter Accounts | Investment Accounts 3.8

Investments are acquired on cum-rights basis and the market value of

Situation a: investments immediately after their becoming ex-right is LOWER than
the cost for which they were acquired,
Apply the sale proceeds of rights to reduce the carrying amount of such
Treatment:
investments to the market value.
Investments are acquired on cum-rights basis and market value of
Situation b: investments immediately after their becoming ex-right is HIGHER than
the cost for which they were acquired,

Treatment: The sale proceeds of rights should be recognised in P & L A/C.

Situation C: where the investments are acquired on any other basis

Treatment: The sale proceeds are taken to the profit and loss statement.

8. VALUATION OF INVESTMENT
Current Investment Long term Investment
• Should be valued at lower of cost or fair • Should be valued at cost
value
• Determined either on an individual • Provision for diminution shall be made
basis(preferred as more prudent) or by to recognise a decline, other than
category of investment (like equity, temporary, in the value of the
preference, convertible debenture, etc.) investments,
• Global(overall) basis should not be • Such reduction being determined and
adopted. made for each investment individually.

• Comparison between Cost and Fair value • Global (overall)basis should not be
and not carrying amount and fair value. adopted.

At what value should investments be carried in the balance sheet

Carrying amount of investments when investments is a

Current Investment Long-Term Investment

Lower of Cost
(i) Cost and
(ii) Fair value

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 CA Inter Accounts | Investment Accounts 3.9

9. CHANGES IN CARRYING AMOUNTS OF INVESTMENTS

The reduction in carrying amount is reversed when there is a rise in the value of the investment,
or if the reasons for the reduction no longer exist. If will apply to both current investment and
long term investment. Any reduction in the carrying amount and any reversal of such reduction
should be charged or credited to the profit and loss statement.

10.DISPOSAL OF INVESTMENTS:
On disposal of an investment, the difference between the carrying amount and net disposal
proceeds should be charged (if loss) or credited (if profit) to the profit and loss statement.

11. HOW TO DETERMINE PROFITS

When part of the holding of an investment is sold then carrying amount for the part sold will
be calculated on average cost basis. If investment were held as stock-in-trade then the
calculation can be by FIFO or average formula.

12. RE-CLASSIFICATION FROM LONG TERM INVESTMENT (LTI) TO

CURRENT INCESTMENT (CI)
If LTI is transferred to CI →It will be at lower of cost and carrying amount (book value) at
the date of transfer.

13. RE-CLASSIFICATION FROM CURRENT INVESTMENT (CI) TO LONG

TERM INVESTMENT (LTI)
If CI is transferred to LTI→ It will be at lower of cost and fair value at the date of transfer.

14. DISCLOSURE:
a. The accounting policies for determination of carrying amount of investments, and
b. An enterprise should disclose current investments and long-term investments distinctly in
its financial statements.
Current and long-term investments should be further classified as may be required by the
statue governing it, otherwise classification as follows shall be made.
- Government or Trust securities
- Shares, debentures or bonds
- Investment Properties
- Others – specifying nature.
c. The amounts included in profit and loss statement for :

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 CA Inter Accounts | Investment Accounts 3.10

(i) Interest, dividends (showing separately dividends from subsidiary companies), and
rentals on investments showing separately such income from long-term and current
investments. Gross income should be stated, the amount of income-tax deducted at
source being included under Advance Taxes paid;
(ii) Profits and losses on disposal of current investments and changes in the carrying
amount of such investments;
(iii) Profits and losses on disposal of long term investments and changes in the carrying
amount of such investments;
d. Significant restrictions on the right of ownership, realisability of investments or the
remittance of income and proceeds of disposal;
e. The aggregated amount of quoted and unquoted investments, giving the aggregate market
value of quoted investments;

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 CA Inter Accounts | Investment Accounts 3.11

Let’s Get Started….With Class Work

1. Mr. lnvestor furnishes the following details relating to his holding in 6% Government Bonds-
1.01.2010 Opening balance F.V. Rs. 60,000 –Cost Rs. 59,000
1.03.2010 100 units purchased Ex-Interest at Rs. 98
1.07.2010 Sold 200 Ex-Interest out of the original holding at Rs. 100
1.10.2010 Purchased 50 units at Rs. 98 cum interest
1.11.2010 Sold 200 units Ex-interest at Rs. 99 out of the original holdings.
Interest dates are 30th September and 31st March, Mr. lnvestor closes his books every 31st
December, Show the Investment account as it would appear in his Books (applying FIFO
Method).

2. Calcutta Investments hold 400 12% Debentures of Rs. 100 each in Acme Ltd., as on 1st April,
2010 at a cost of Rs. 50,000. Interest is payable on 30th June and 31st December each year.
On 1st June 2010 200 debenture are purchased cum interest at Rs. 21,400. On 1st November,
2010 300 debenture are sold ex-interest at Rs. 28,650. On 30th November, 2010 200 debentures
are purchased ex-interest at Rs. 19,200. On 31st December, 2010. 300 debentures are sold cum-
interest, for Rs. 32,250.
Prepare investment account valuing closing stock as on 31st March, 2011 at cost (applying FIFO
Method) or market price whichever is lower. The debentures were quoted at par on 31st March,
2011.

3. Jaipur Investment Ltd., hold 1,000, 15% Debentures of Rs. 100 each in Udaipur Industries Ltd.,
as on 1st April, 2010 at cost of Rs. 1,05,000 Interest is payable on 30th June and 31st December
each year. On 1st May 2010, 500 debentures are purchased cum-interest at Rs. 53,500. On 1st
November, 2010 600 debentures are sold ex-interest at Rs. 57,300. On 30th November, 2010 400
debentures are purchased ex-interest at Rs. 38,400. On 31st December, 2010 400 debenture are
sold cum-interest for Rs. 55,000 ..
Prepare investment accounting valuing holding on 31st March, 2011 at cost (applying FIFO
Method.)

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 CA Inter Accounts | Investment Accounts 3.12

4. Mr. Madhukant held 100 6% stock @ Rs. 102 on 1.1.2010 on which interest is payable half
yearly on 30th June and 31st December. The following were his transactions in the same stock
during the year ended 31.12.2010
01.03.2010 Bought 200 stock ex-interest @ Rs. 104.
31.08.2010 Sold 100 stock ex-interest @ Rs. 106.
01.10.2010 Bought 300 stock cum-interest @ Rs. 105.
30.11.2010 Sold 200 stock cum-interest @ Rs. 107.
Assuming brokerage @ ¼% draw up the investment account in the books of Mr. Madhukant,
Calculate Profit/loss on sale on the basis of average cost as on the date of sale. Ignore income
tax and stamp duty.

5. Tee Ltd. Purchased on 1st May, 2011 13.5% Convertible Debentures in Dee Ltd. Of face value of
Rs. 5,00,000 @ 105; Interest on the debentures is payable each year on 31st March and 30th
September. The accounting year adopted by Tee Ltd. is the calendar year. The following other
transactions were entered into in 2011 by Tee Ltd. In regard to these debentures:
Aug. 1 Purchased Rs. 2,50,000 Debentures @ 107 cum interest.
Oct. 1 Sale of Rs. 2,00,000 Debentures @ 103.
Dec. Receipt of 10,000 Equity Shares in Dee Ltd. Of Rs. 10 each in conversion of 20%
31 of the Debentures held.
The market value of the Debentures and Equity shares in Dee Ltd. at the end of 2011 was 106
and Rs.15 respectively. Prepare the Debenture Investment Account in the books of Tee Ltd. on
Average Cost basis.

6. ICAI Illustration No 2
On 1-4-2012, Mr. Krishna purchased 1,000 equity shares of Rs. 100 each in Vidya Ltd. @ Rs.
120 each from a Broker, who charged 2% brokerage. He incurred 50 paise per Rs. 100 as cost
of shares transfer stamps. On 31.1.2013 Bonus was declared in the ratio of 1 : 2. Before and
after the record date of bonus shares, the shares were quoted at Rs. 175 per share and Rs. 90

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 CA Inter Accounts | Investment Accounts 3.13

per share respectively. On 31.3.2013 Mr. Krishna sold bonus shares to a Broker, who charged
2% brokerage. Show the Investment Account in the books of Mr. Krishna who held the shares
as Current assets and closing value of investments shall be made at Cost (applying weighted
average Method) or Market value whichever is lower.

7. ICAI Illustration No 6
On 1.4.2010 Sundar had 25,000 equity shares of X Ltd. At a book value of Rs. 15 per share (face
value Rs. 10). On 20.6.2010, he purchased another 5,000 shares of the Co. at Rs. 16 per share.
The Directors of X Ltd. announced a bonus and rights issues. The terms of the issue are as
follows :
Bonus basis 1: 6 (Date 16.8.2010)
Rights basis 3: 7 ( Date 31.8.2010 ) Price Rs. 15 per share. Due date for payment 30.9.2010
Shareholders can transfer their rights in full or in part. Accordingly Sundar sold 33 1/ 3 % of
his entitlement to Sekhar for consideration of Rs. 2 per share.
Dividends: Dividends for the year ended 31.3.2010 at the rate of 20 % were declared by X Ltd.
and received by Sundar on 31.10.2010. Dividends for shares acquired by him on 20.6.2010 are to
be adjusted against the cost of purchase.
On 15.11.2010, Sundar sold 25,000 equity shares at a premium of Rs. 5 per share. You are required
to prepare in the books of Sundar:
1. Investment Account.
2. Profit and Loss Account.
For your exercise, assume that the books are closed on 31.12.2010 and shares are valued at
average cost.

8. ICAI Illustration No 7
On 1st April, 2010 Singh had 20,000 equity shares in X Limited. Face value of the shares was Rs.
10 each but their book value was Rs. 16 per share. On 1st June 2010, Singh purchased 5,000 more
equity shares in the company at a premium of Rs. 4 per share. On 30th June 2010 the Directors
of X Limited, announced a bonus and right issue. Bonus was declared at the rate of one equity
share for every five shares held and these shares were received on 2 nd August, 2010.
The terms of the right issue were:
a. Right shares to be issued to the existing holders on 10th August 2010.

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 CA Inter Accounts | Investment Accounts 3.14

b. Right issue would entitle the holders to subscribe to additional equity shares in the company
@ 1 share per every 3 held at Rs. 15 per share. The whole sum being payable by 30 th
September, 2010.
c. Existing share holders may to the extent of their entitlement either fully or in part, transfer
their rights to outsiders.
d. Singh exercised his option under the rights issue for 50% of his entitlements and the
balance of rights sold to Anant for a consideration of Rs. 1.50 per right.
e. Dividends for the year ended 31st March 2010 @ 15% were declared by the company and
received by Singh on 20th October, 2010.
f. On 1st November 2010 Singh sold 20,000 equity shares at a premium of Rs. 3 per share
g. Market price of shares as on 31st December 2010 was Rs. 14.
Show the investment account as it would appeared in Singh's books as on 31.12.2010 and value
the shares held on that date.

9. On 1st April, 2010” XY and Co. held 9% debentures in Mumbai Ltd., of the face value of Rs.
10,000 at cost of Rs. 8,000. Market value on that date was Rs. 9,000. Interest is payable on 31 st
December every year. On 1st December, 2010 debentures of nominal value of Rs. 6,000 were
purchased for Rs. 5,000 ex-interest and on 31st December, 2010 debentures of nominal value of
Rs. 2,000 were sold cum interest for Rs. 1,900. On 1st January, 2011 debentures of nominal value
of Rs. 6,000 were bought at Rs. 5,800. The market value of the debentures on 31st March, 2011
was at Rs. 90.
Make out Investment Account in the books of XY and Company showing profit or loss on sale
of Investment. Stock on 31st March each year is valued at lower of cost (applying FIFO Method)
or market price.

10. ICAI Illustration No 9

Smart Investments made the following investments in the year 20X1-X2 : 12% State
Government Bonds having nominal value Rs. 100
01.04.20X1 Opening Balance (1200 bonds) book value of Rs. 126,000
12th April Purchased 2,000 bonds @ Rs. 100 cum interest
30.09.20X1 Sold 1,500 bonds at Rs.105 ex interest
Interest on the bonds is received on 30th June and 31st Dec. each year.

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 CA Inter Accounts | Investment Accounts 3.15

Equity Shares of X Ltd.

15.04.20X1 Purchased 5,000 equity shares @ Rs. 200 on cum right basis Brokerage of 1%
was paid in addition (Nominal Value of shares Rs. 10)
03.06.20X1 The company announced a bonus issue of 2 shares for every 5 shares held.
16.08.20X1 The company made a rights issue of 1 share for every 7 shares held at Rs.
250 per share. The entire money was payable by 31.08.20X1.
22.8.20X1 Rights to the extent of 20% was sold @ Rs. 60. The remaining rights were
subscribed.
02.09.20X1 Dividend @ 15% for the year ended 31.03.20X1 was received on 16.09.20X1
15.12.20X1 Sold 3,000 shares @ Rs. 300. Brokerage of 1% was incurred extra.
15.01.20X2 Received interim dividend @ 10% for the year 20X1 –X2
31.03.20X2 The shares were quoted in the stock exchange @ Rs. 220
Prepare Investment Accounts in the books of Smart Investments. Assume that the average
cost method is followed.

11. ICAI Illustration No 8

The following transactions of Nidhi took place during the year ended 31st March 2014:
1st April Purchased `12,00,000, 8% bonds at ` 80.50 cum-interest. Interest is
payable on 1st November and 1st May.
12th April Purchased 1,00,000 equity shares of ` 10 each in X Ltd. For ` 40,00,000
1st May Received half-year's interest on 8% bonds.
15th May X Ltd. made a bonus issue of three equity shares for every two held. Nidhi
sold 1,25,000 bonus shares for ` 20 each.
1st October Sold ` 3,00,000, 8% bonds at ` 81 ex-interest.
1st November Received half-year's bond interest.
1st December Received 18% dividend on equity shares in X Ltd.
Prepare the relevant investment account in the books of Nidhi for the year ended 31st March,
2014.

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 CA Inter Accounts | Investment Accounts 3.16

‘My Career My Responsibility’

Career requires Action, Responsibility, and Ownership from you. You are the most
important factor in whether you experience career growth and development. The most
important issue about your career is taking responsibility for your own career.

1. ICAI Material Illustration No 1

In 2011, 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, 2012, 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, 2013 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, 2012 to 1st March, 2013.
Answer:
In the books of M/s. Bull & Bear
Investment Account
For the period from 1st December, 2012 to 1st March, 2013
12% Debenture in M/S Wye Ltd
Date Particulars NV INT Rs. Date Particulars NV INT Rs.
1-12-12 To Bank 10,00,000 20,000 10,00,100 1-3-13 By Bank 10,00,000 50,000 9,99,400
1-3-13 To P & L A/c 30,000 1-3-13 By P & L A/c 700
Total 10,00,000 50,000 10,00,100 Total 10,00,000 50,000 10,00,100
# Purchases include 1% brokerage on cum interest price
Calculation of interest:
Date Face value Period No. of months Ex. Int. Int. Cum. Int.
From To 12%
1-12-12 10,00,000 01-10-2012 01-12-2012 2 9,90,000 20,000 10,10,000
1-3-13 10,00,000 01-10-2013 01-03-2013 5 10,10,000 50,000 10,60,000

2. ICAI Material Illustration No 3

Mr. X purchased 500 equity shares of Rs.100 each in Omega Co. Ltd. for Rs. 62,500 inclusive of brokerage
and stamp duty. Some years later the company resolved to capitalize 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 Rs. 175 per share. After the capitalisation, the shares
were quoted at Rs. 92.50 per share. Mr. X. sold the bonus shares and received at Rs. 90 per share.
Prepare the Investment Account in X’s books on average cost basis.

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 CA Inter Accounts | Investment Accounts 3.17

Answer :
In the books of A
Investment Account
[Scrip: Equity shares in Omega Co. Ltd.]
Nominal Cost Nominal Cost
Value Value
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
Total 1,00,000 76,250 Total 1,00,000 76,250
To Balance b/d 50,000 31,250
# Cost of closing stock = 62500*50000/100000 = Rs. 31250
# Balancing figure is the profit

3. ICAI Material Illustration No 4

On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of ` 100 each in V Ltd. @
Rs. 120 each from a broker, who charged 2% brokerage. He incurred 50 paisa per
Rs.100 as cost of shares transfer stamps. On 31-01-2012 bonus was declared in the ratio of 1 : 2. Before
and after the record date of bonus shares, the shares were quoted at Rs.175 per share and
` 90 per share respectively. On 31-03-2012, Mr. T. Shekharan sold bonus shares to a broker, who charged
2% brokerage.
Show the Investment Account in the books of T. Shekharan, who held the shares as Current Assets
and closing value of investments shall be made at cost or market value whichever is lower.
Answer:
In the books of T Shekharan
Investment in V Ltd. A/c
Date Particulars NV Rs. Date Particulars NV Rs.
1/4/11 To Bank 5,00,000 6,15,000 31/3/12 By Bank 2,50,000 2,20,500
31/1/12 To Bonus Issue 2,50,000 Nil 31/3/12 By Bal. c/d 5,00,000 4,10,000
31/3/11 To P & L A/c 15,500
Total 7,50,000 6,30,500 Total 7,50,000 6,30,500
Cost of Shares = (5,00,000/7,50,000) x 6,15,000
*(5,000 x 120) x 102.5% = 6,15,000
# Add/deduct the brokerage cost as explained in above questions.
# Closing stock(cost) = 615000*500000/750000 = 410000
Closing stock (MV) = 500000*90/100 = 450000

4. ICAI Material Illustration No 5

On 1st April, 2011, Rajat has 50,000 equity shares of P Ltd. at a book value of ` 15 per share (face value
` 10 each). He provides you the further information:
1) On 20th June, 2011 he purchased another 10,000 shares of P Ltd. at ` 16 per share.
2) On 1st August, 2011, P Ltd. issued one equity bonus share for every six shares held by the
shareholders.
3) On 31st October, 2011, the directors of P Ltd. announced a right issue which entitle s the holders to
subscribe three shares for every seven shares at ` 15 per share. Shareholders can transfer their
rights in full or in part.
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 CA Inter Accounts | Investment Accounts 3.18

Rajat sold 1/3rd of entitlement to Umang for a consideration of ` 2 per share and subscribed the rest
on 5th November, 2011.
You are required to prepare Investment A/c in the books of Rajat for the year ending 31st March, 2012.
Answer:
In the books of Rajat
Investment in P Ltd. A/c
Date Particular NV INT Rs. Date Particulars NV INT Rs.
1/4/11 To Bal. b/d 5,00,000 7,50,000 31/3/12 By Bal. c/d 9,00,000 12,10,000
20/6/11 To Bank 1,00,000 1,60,000 (Bal Fig)
1/8/11 To Bonus Issue 1,00,000 Nil
5/11/11 To Bank 2,00,000 3,00,000

Total 9,00,000 12,10,000 Total 9,00,000 12,10,000

# Bonus shares = 50000 + 10000/6 = 10000 shares
# Right shares = 50000+10000+10000/7 = 30000 shares
# Right shares = 30000*2/3 = 20000 shares
# Since nothing is sold, all the shares purchased are the closing stock.

5. ICAI Material Illustration No 10 (Very Important)

Mr. Brown has made following transactions during the financial year 2011-12:
Date Particulars
01.05.2011 Purchased 24,000 12% Bonds of ` 100 each at ` 84 cum-interest. Interest is payable
on 30th September and 31st March every year.
15.06.2011 Purchased 1,50,000 equity shares of ` 10 each in Alpha Limited for ` 25 each through
a broker, who charged brokerage @ 2%.
10.07.2011 Purchased 60,000 equity shares of ` 10 each in Beeta Limited for ` 44 each through a
broker, who charged brokerage @2%.
14.10.2011 Alpha Limited made a bonus issue of two shares for every three shares held.
31.10.2011 Sold 80,000 shares in Alpha Limited for ` 22 each.
01.01.2012 Received 15% interim dividend on equity shares of Alpha Limited.
15.01.2012 Beeta Limited made a right issue of one equity share for every four shares held at `
5 per share. Mr. Brown exercised his option for 40% of his entitlements and sold the
balance rights in the market at ` 2.25 per share.
01.03.2012 Sold 15,000 12% Bonds at ` 90 ex-interest.
15.03.2012 Received 18% interim dividend on equity shares of Beeta Limited.
Interest on 12% Bonds was duly received on due dates.
Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited and Equity Shares
of Beeta Limited in the books of Mr. Brown for the year ended on 31st March, 2012.
Answer:

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 CA Inter Accounts | Investment Accounts 3.19

In the books of Brown

Investment in 12% Bonds A/c
Date Particulars NV INC Rs. Date Particulars NV INC Rs.
2011 2011
01-May To Bank 24,00,000 24,000 19,92,000 30-Sep By Bank 1,44,000
2012 2012
31-Mar To P & L A/c 2,49,000 1,05,000 01-Mar By Bank 15,00,000 75,000 13,50,000
31-Mar By Bank 54,000
31-Mar By Bal. c/d 9,00,000 7,47,000
Total 24,00,000 2,73,000 20,97,000 Total 24,00,000 2,73,000 20,97,000
9,00,000
Cost of Investment = × 19,92,000 = 7,47,000
24,00,000

Calculation of Interest
Date Face value Period Ex. Int. Int. Cum. Int.
From To No. of 12%
moths
1/5/11 24,00,000 1/4/11 1/5/11 1 19,92,000 24,000 20,16,000
1/3/12 15,00,000 1/10/11 1/3/11 5 13,50,000 75,000 14,25,000
Investment in Alpha Ltd. A/c
Date Particulars NV INC Rs. Date Particulars NV INC Rs.
2011 2011
15-Jun To Bank 15,00,000 38,25,000 31-Oct By Bank 8,00,000 17,60,000
14-Oct To Bonus Issue 10,00,000 Nil 2012
2012 01-Jan By Bank 2,55,000
31-03 To P & L A/c 2,55,000 5,36,000 31-Mar By Bal. c/d 17,00,000 26,01,000
Total 25,00,000 2,55,000 43,61,000 Total 25,00,000 2,55,000 43,61,000

17,00,000
Cost of Shares = × 38,25,000 = 26,01,000
25,00,000
Investment in Beeta Ltd. A/c
Date Particulars NV INC Rs. Date Particulars NV INC Rs.
15-06-11 To Bank 6,00,000 26,92,800 30-06-12

14-10-12 To Bank 60,000 30,000 15-03-12 By Bank 1,18,800

31-03-11 To P & L A/c 1,18,800 31-03-12 By Bal. c/d 6,60,000 27,22,800
Total 6,60,000 1,18,800 27,22,800 Total 6,60,000 1,18,800 27,22,800

6. ICAI Material Illustration No 11

A Limited purchased 5,000 equity shares (face value ` 100 each) of Allianz Limited for ` 105 each on
1st April, 2014. The shares were quoted cum dividend. On 15 th May, 2014, Allianz Limited declared &
paid dividend of 2% for year ended 31 st March, 2014. On 30th June, 2014 Allianz Limited issued bonus
shares in ratio of 1:5. On 1st October, 2014 Allianz Limited issued rights share in the ratio of 1:12 @
45 per share. A limited subscribed to half of the rights issue and the balance was sold at ` 5 per right
entitlement. The company declared interim dividend of 1% on 30th November, 2014. Right shares were
not entitled to dividend. The company sold 3,000 shares on 31st December, 2014 at ` 95 per share. The
company A Ltd. incurred 2% as brokerage while buying and selling shares.
You are required to prepare Investment Account in books of A Ltd.
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 CA Inter Accounts | Investment Accounts 3.20

Answer :
In the books of A Ltd.
Investment in Allianz Ltd.
Date Particulars NV Div Rs. Date Particulars NV Div Rs.

1/4/14 To Bank 5,00,000 5,35,500 15/5/14 By Bank 10,000

30/6/14 To Bonus 1,00,000 Nil 1/10/14

1/10/14 To Bank 25,000 11,250 30/11/14 By Bank 6,000

31/12/14 To P&L A/c 21,660 31/12/14 By Bank 3,00,000 2,79,300

31/3/15 To P&L A/c 6000 31/3/15 By Bal. c/d 3,25,000 2,79,110

Total 6,25,000 6,000 5,68,410 Total 6,25,000 6,000 5,68,410

3,25,000
Cost of Shares = × (5,35,500 + 11,250 − 10,000) = 2,279,110
6,25,000

# Bonus shares = 5000/5 = 1000

# Right shares = 6000/12 = 500 shares
Right subscribed= 500/2 = 250 shares

7. RTP May 2018

Alpha Ltd. purchased 5,000, 13.5% Debentures of Face Value of ` 100 each of Pergot Ltd. on 1st May
2017 @ ` 105 on cum interest basis. The interest on these instruments is payable on 31st & 30th of
March & September respectively. On August 1st 2017 the company again purchased 2,500 of such
debentures @ ` 102.50 each on cum interest basis. On October 1st, 2017 the company sold 2,000
Debentures @ ` 103 each on ex- interest basis. The market value of the debentures as at the close
of the year was ` 106. You are required to prepare the Investment in Debentures Account in the books
of Alpha Ltd. for the year ended 31st Dec. 2017 on Average Cost Basis.
Answer :
Books of Alpha Ltd.
Investment in 13.5% Debentures in Pergot Ltd. Account (Interest
payable on 31st March & 30th September)
Date Particulars Nominal Interest Amount Date Particulars Nominal Interest Amount
2017 ` ` ` 2017 ` ` `
May 1 To Bank 5,00,000 5,625 5,19,375 Sept.30 By Bank 50,625
(6 months Int)
Aug.1 To Bank 2,50,000 11,250 2,45,000 Oct.1 By Bank 2,00,000 2,06,000
Oct.1 To P&L A/c 2,167
Dec.31 To P&L A/c 52,313 Dec.31 By Balance c/d 5,50,000 18,563 5,60,542
7,50,000 69,188 7,66,542 7,50,000 69,188 7,66,542
Note: Cost being lower than Market Value the debentures are carried forward at Cost.
Working Notes:
1. Interest paid on ` 5,00,000 purchased on May 1st, 2017 for the month of April 2017, as part of
purchase price: 5,00,000 x 13.5% x 1/12 = ` 5,625
a. Interest received on 30th Sept. 2017

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 CA Inter Accounts | Investment Accounts 3.21

On ` 5,00,000 = 5,00,000 x 13.5% x ½ 33,750

On ` 2,50,000 = 2,50,000 x 13.5% x ½ 16,875
Total ` 50,625
b. Interest paid on ` 2,50,000 purchased on Aug. 1st 2017 for April 2017 to July 2017 as part of
purchase price:
2,50,000 x 13.5% x 4/12 ` 11,250

Loss on Sale of Debentures Cost of acquisition

(` 5,19,375 + ` 2,45,000) x ` 2,00,000/` 7,50,000 2,03,833

Less: Sale Price (2,000 x 103) 2,06,000
Profit on sale ` 2,167
c. Cost of Balance Debentures
(` 5,19,375 + ` 2,45,000) x ` 5,50,000/` 7,50,000 ` 5,60,542

d. Interest on Closing Debentures for period Oct.-Dec. 2017 carried forward (accrued interest)
` 5,50,000 x 13.5% x 3/12 ` 18,563

8. RTP Nov 2018

Akash Ltd. had 4,000 equity share of X Limited, at a book value of ` 15 per share (face value of ` 10
each) on 1st April 2017. On 1st September 2017, Akash Ltd. acquired 1,000 equity shares of X Limited
at a premium of ` 4 per share. X Limited announced a bonus and right issue for existing shareholders.
The terms of bonus and right issue were -
(1) Bonus was declared, at the rate of two equity shares for every five equity shares held on 30th
September, 2017.
(2) Right shares are to be issued to the existing shareholders on 1 st December, 2017. The company
issued two right shares for every seven shares held at 25% premium. No dividend was payable
on these shares. The whole sum being payable by 31st December, 2017.
(3) Existing shareholders were entitled to transfer their rights to outsiders, either wholly or in
part.
(4) Akash Ltd. exercised its option under the issue for 50% of its entitlements and sold the
remaining rights for ` 8 per share.
(5) Dividend for the year ended 31st March 2017, at the rate of 20% was declared by the
company and received by Akash Ltd., on 20th January 2018.
(6) On 1st February 2018, Akash Ltd., sold half of its shareholdings at a premium of ` 4 per
share.
(7) The market price of share on 31.03.2018 was ` 13 per share.
You are required to prepare the Investment Account of Akash Ltd. for the year ended 31st
March, 2018 and determine the value of share held on that date assuming the investment as
current investment. Consider average cost basis for ascertainment of cost for equity share sold.

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 CA Inter Accounts | Investment Accounts 3.22

Answer
Date Particulars No. of Dividend Amount Date Particulars No. of Dividend Amount
shares shares
2017 ` ` ` 2018 ` ` `
April 1 To Balance b/d 4,000 - 60,000 Jan. 20 By Bank (dividend) 8,000 2,000
Sept 1 To Bank 1,000 - 14,000 Feb. 1 By Bank 4,000 56,000
Sept.30 To Bonus Issue 2,000 — Mar. 31 By Balance c/d 4,000 42,250
Dec.1 To Bank (Right) 1,000 - 12,500

2018 2018
Feb. 1 To P & L A/c 13,750
Mar.31 To P & L A/c
(Dividend 8,000
income)

8,000 8,000 1,00,250 8,000 8,000 1,00,250

1 April To Balance b/d 4,000 42,250

Working Notes:
1. Cost of shares sold —
Particulars `
Amount paid for 8,000 shares 86,500
(` 60,000 + ` 14,000 + ` 12,500)
Less: Dividend on shares purchased on 1st Sept, 2017 (2,000)
Cost of 8,000 shares 84,500
Cost of 4,000 shares (Average cost basis*) 42,250
Sale proceeds (4,000 shares @ 14/-) 56,000
Profit on sale 13,750
* For ascertainment of cost for equity shares sold, average cost basis has been applied.

2. Value of investment at the end of the year

Closing balance will be valued based on lower of cost (` 42,250) or net realizable value (`13 x
4,000). Thus investment will be valued at ` 42,250.

3. Calculation of sale of right entitlement

1,000 shares x ` 8 per share = ` 8,000

Amount received from sale of rights will be credited to P & L A/c as per AS 13

‘Accounting for Investments’.

4. Dividend received on investment held as on 1 st April, 2017

= 4,000 shares x ` 10 x 20%

= ` 8,000 will be transferred to Profit and Loss A/c

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 CA Inter Accounts | Investment Accounts 3.23

5. Dividend received on shares purchased on 1 st Sep. 2017

= 1,000 shares x ` 10 x 20% = ` 2,000 will be adjusted to Investment A/c

Note: It is presumed that no dividend is received on bonus shares as bonus shares are declared
on 30th Sept., 2017 and dividend pertains to the year ended 31.3.2017.

9. ICAI Question Paper Nov 2018

Following transactions of Nisha took place during the financial year 2017-18:
1st April 2017 Purchased ` 9,000 8% bonds of ` 100 each at ` 80.50 cum-interest. Interest is
payable on 1st Nov and 1st May
1st May 2017 Received half year’s interest on 8% bonds.
10th July 2017 Purchased 12,000 equity shares of ` 10 each in Moon Ltd. For ` 44 each through
a broker, who charged brokerage @ 2%.
1st Oct 2017 Sold 2250 8% bonds at `81 Ex-interest.
1st Nov 2017 Received half year’s interest on 8% bonds.
15th Jan 2018 Moon Ltd. Made a rights issue of one equity share for every four Equity shares
held at ` 5 per share. Nisha exercised the option for 40% of her entitlements
and sold the balance rights in the market at ` 2.25 per share.
15th March 2018 Received 18% interim dividend on equity shares of Moon Ltd.
Prepare separate investment account for 8% bonds and equity shares of Moon Ltd. In the books of
Nisha for the year ended on 31st March 2018. Assume that the average cost method is followed.

Answer
In the books of Nisha
8% Bonds for the year ended 31st March 2018
Date Particulars No Inc Rs. Date Particulars No Inc Rs.
1 Apr 17 To Bank A/c 9,000 30,000 6,94,500 1 May 17 By Bank-Int 36,000
1 Oct 17 To P & L A/c 8,625 1 Oct 17 By Bank A/c 2,250 7,500 1,82,500
(W.N. 1)
31 Mar 18 To P & L A/c 40,500 1 Nov 18 By Bank-Int 27,000
31 Mar 18 By Balance c/d 6,750 5,20,875
(W.N. 2)
9,000 70,500 7,03,125 9,000 70,500 7,03,125

Investment in Equity shares of Moon Ltd. for the year ended 31st March, 2018
Date Particulars No Income Amount Date Particulars No Income Amount
10 July 17 To Bank A/c 12,000 - 5,38,560 15 March By Bank- 23,760
18 Dividend
15 Jan 18 To Bank A/c 1,200 6,000
(W.N. 3)
31 Mar 18 To P & L A/c 23,760
31 Mar 18 By Balance 13,200 5,44,560
c/d (Bal fig)
13,200 23,760 5,44,560 13,200 23,760 5,44,560

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 CA Inter Accounts | Investment Accounts 3.24

* Considering that dividend was received on right shares also

Working Notes:
1. Profit on sale of Bonds
Sales Price 1,82,250
Less Cost of Bonds Sold (6,94,500/9,000) x 2,250 (1,73,625)
Profit on Sale 8,625

2. Closing Balances as on 31.03.2018 of 8% Bonds

(6,94,500/9,000) x 6,750 = 5,20,875

3. Calculation of Right Shares Subscribed by Moon Ltd.

Right Shares = 12,000/4 x 1= 3,000 shares
Shares subscribed by Nisha = 3,000 x 40%= 1,200 shares
Value of right shares subscribed = 1,200 shares @ ` 5 per share = ` 6,000

4. Calculation of sale of right entitlement by Moon Ltd.

No. of right shares sold = 3,000 – 1,200 = 1,800 rights for ` 4,050
Note: As per para 13 of AS 13, sale proceeds of rights are to be credited to P & L A/c.

10. ICAI Question Paper May 2018

Mr. Vijay entered into the following transactions of purchase and sale of equity shares of JP Power
Ltd. The shares have paid up value of ` 10 per share.
Date No. of Shares Terms
01.01.2016 600 Buy @ ` 20 per share
15.03.2016 900 Buy @ ` 25 per share
20.05.2016 1000 Buy @ ` 23 per share
25.07.2016 2500 Bonus Shares received
20.12.2016 1500 Sale @ ` 22 per share
01.02.2017 1000 Sale @ ` 24 per share
Addition information:

(1) On 15.09.2016 dividend @ ` 3 per share was received for the year ended 31.03.2016.
(2) On 12.11.2016 company made a right issue of equity shares in the ratio of one share for five
shares held on payment of ` 20 per share. He subscribed to 60% of the shares and renounced
the remaining shares on receipt of the premium of ` 3 per share.
(3) Shares are to be valued on weighted average cost basis.
You are required to prepare Investment Account for the year ended 31.03.2016 and 31.03.2017.

Answer

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 CA Inter Accounts | Investment Accounts 3.25

Investment in Equity shares of JP Power Ltd.

Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
` ` ` `
1.1.16 To Bank A/c 600 12,000 31.3.16 By Balance c/d 1,500 34,500

15.3.16 To Bank A/c 900 22,500 ____ ______

1,500 34,500 1,500 34,500

1.4.16 To Balance b/d 1,500 34,500 15.9.16 By Bank - 4,500 3,000

dividend
20.5.16 To Bank A/c 1,000 23,000 20.12.16 By Bank 1,500 33,000

25.7.16 To Bonus shares 2,500 _ 1.2.17 By Bank 1,000 24,000

12.11.16 To Bank A/c 600 12,000 31.3.17 By Balance c/d 3,100 36,812.50*

20.12.16 To P& L A/c (profit

on sale) 15,187.50*
1.2.17 To P& L A/c (profit 12,125
on sale)
31.3.17 To P & L A/c 4,500
(dividend)
5,600 4,500 96,812.50 5,600 4,500 96,812.50
Working Notes:

1. Calculation of Weighted average cost of equity shares

600 shares purchased at ` 12,000
900 shares purchased at ` 22,500
1,000 shares purchased at ` 23,000
2,500 shares at nil cost
600 right shares purchased at ` 12,000
Total cost of 5,600 shares is ` 66,500
[` 69,500 less ` 3,000 (pre-acquisition dividend received on 1,000 shares purchased on 20.5.17].
Hence, weighted average cost per share will be considered as ` 11.875 per share (66,500/5,600).

2. It has been considered that no dividend was received on bonus shares as the dividend pertains
to the year ended 31st March, 2016.

3. Calculation of right shares subscribed by Vijay

Right Shares (considering that right shares have been granted on Bonus shares also) = 5,000/5
x 1= 1,000 shares
Shares subscribed = 1,000 x 60%= 600 shares
Value of right shares subscribed = 600 shares @ ` 20 per share = ` 12,000
Calculation of sale of right renouncement
No. of right shares sold = 1,000 x 40% = 400 shares
Sale value of right = 400 shares x ` 3 per share = ` 1,200
Note: As per para 13 of AS 13, sale proceeds of rights is to be credited to P & L A/c.

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 CA Inter Accounts | Investment Accounts 3.26

4. Profit on sale of equity shares

As on 20.12.16 Rs.
Sales price (1,500 shares at ` 22) 33,000.00
Less: Cost of shares sold (1,500 x ` 11.875) (17,812.50)
Profit on sale 15,187.50
As on 1. 2.17
Sales price (1,000 shares at ` 24) 24,000
Less: Cost of shares sold (1,000 x ` 11.875) (11,875)
Profit on sale 12,125
Balance of 3,100 shares as on 31.3.17 will be valued at ` 36,812.50 (at rate of ` 11.875 per share)

11. Mock Test Paper 1

Smart Investments made the following investments in the year 2017-18: 12% State Government
Bonds having face value Rs. 100
Date Particulars
01.04.2017 Opening Balance (1200 bonds) book value of Rs. 1,26,000
02.05.2017 Purchased 2,000 bonds @ Rs. 100 cum interest
30.09.2017 Sold 1,500 bonds at Rs. 105 ex interest
Interest on the bonds is received on 30th June and 31st Dec. each year.

Equity Shares of X Ltd. Particulars

15.04.2017 Purchased 5,000 equity shares @ Rs. 200 on cum right basis
Brokerage of 1% was paid in addition (Face Value of shares Rs. 10)
03.06.2017 The company announced a bonus issue of 2 shares for every 5 shares
held.
16.08.2017 The company made a rights issue of 1 share for every 7 shares held at
Rs. 250 per share.
The entire money was payable by 31.08.2017.
22.8.2017 Rights to the extent of 20% was sold @ Rs. 60. The remaining rights
were subscribed.
02.09.2017 Dividend @ 15% for the year ended 31.03.2017 was received on
16.09.2017
15.12.2017 Sold 3,000 shares @ Rs. 300. Brokerage of 1% was incurred extra.
15.01.2018 Received interim dividend @ 10% for the year 2017-18
31.03.2018 The shares were quoted in the stock exchange @ Rs. 220
Prepare Investment Accounts in the books of Smart Investments. Assume that the average cost
method is followed.

Answer

In the books of Smart Investments

12% Govt. Bonds for the year ended 31st March, 2018
Date Particulars No. Income Amount Date Particulars Nos. Income Amount
1.4.17 To balance b/d 1,200 3,600 1,26,000 30.6.17 By Bank A/c (Interest) - 19,200 -
(3,200 x 100 x 12%
x 6/12)
2.5.17 To Bank A/c 2,000 8,000 1,92,000 30.9.17 By Bank A/c 1,500 4,500 1,57,500

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 CA Inter Accounts | Investment Accounts 3.27

31.3.18 To P & L A/c 27,400 31.12.17 By Bank A/c (Interest) - 10,200 -

(Interest) (1,700 x 100 x 12%
x 6/12)
To P & L A/c 8,437.50 31.3.18 By Bal. c/d 1,700 5,100 1,68,937.50
(Profit on Sale)
3,200 39,000 3,26,437.50 3,200 39,000 3,26,437.50

Investments in Equity shares of X Ltd. for year ended 31.3.2018

Date Particulars Nos. Income Amount Date Particulars Nos. Income Amount
15.4.17 To Bank A/c 5,000 10,10,000
3.6.17 To Bonus Issue 2,000 - - 16.9.17 By Bank (Dividend) - - 7,500
31.8.17 To Bank A/c 800 2,00,000 15.12.17 By Bank (Sale) 3,000 - 8,91,000
31.3.18 To P & L A/c 4,800 4,28,500 15.1.18 By Bank (interim 4,800
dividend)
31.3.18 By Bal. c/d 4,800 7,40,000
7,800 4,800 16,38,500 7,800 4,800 16,38,500
Working Notes:
1. Profit on sale of bonds on 30.9.17
= Sales proceeds – Average cost
Sales proceeds = Rs. 1,57,500
Average cost = Rs. [(1,26,000+1,92,000) x 1,500/3,200] = 1,49,062.50 Profit
=1,57,500– Rs. 1,49,062.50=Rs. 8,437.50

2. Valuation of bonds on 31st March, 2018

Cost =Rs. 3,18,000/3,200 x1,700
= 1,68,937.50

3. Cost of equity shares purchased on 15/4/2017

= Cost + Brokerage
= (5,000 x Rs. 200) + 1% of (5,000 x Rs. 200)
= Rs. 10,10,000

4. Sale proceeds of equity shares on 15/12/2017

= Sale price – Brokerage
= (3,000 x Rs. 300) – 1% of (3,000 x Rs. 300)
= Rs. 8,91,000.

5. Profit on sale of shares on 15/12/2017

= Sales proceeds – Average cost
Sales proceeds = Rs. 8,91,000
Average cost = Rs. [(10,10,000+2,00,000-7,500) x 3,000/7,800]
= Rs. [12,02,500 x 3,000/7,800]
= 4,62,500 Profit
= Rs. 8,91,000 – Rs. 4,62,500=Rs. 4,28,500.

6. Valuation of equity shares on 31st March, 2018

Cost =Rs. [12,02,500 x 4,800/7,800] = Rs. 7,40,000
Market Value = 4,800 shares ×Rs. 220 =Rs. 10,56,000

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 CA Inter Accounts | Investment Accounts 3.28

Closing stock of equity shares has been valued at Rs. 7,40,000 i.e. cost being lower than the market
value.
Note: If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the
profit and loss statement as per para 13 of AS 13 “Accounting for Investments”

12. Mock test Paper 2

Meera carried out the following transactions in the shares of Kumar Ltd.:
(1) On 1st April, 2017 she purchased 40,000 equity shares of Rs. 1 each fully paid up for Rs.
60,000.
(2) On 15th May 2017, Meera sold 8,000 shares for Rs. 15,200.
(3) At a meeting on 15th June 2017, the company decided:
(i) To make a bonus issue of one fully paid up share for every four shares held on 1st
June 2017, and
(ii) To give its members the right to apply for one share for every five shares held on 1st June
2017 at a price of Rs. 1.50 per share of which 75 paise is payable on or before 15th July
2017 and the balance, 75 paise per share, on or before 15 th September, 2017.
The shares issued under (i) and (ii) were not to rank for dividend for the year
ending 31st December 2017.
(a) Meera received her bonus shares and took up 4000 shares under the right issue, paying
the sum thereon when due and selling the rights of the remaining shares at 40 paise per
share; the proceeds were received on 30th September 2017.
(b) On 15th March 2018, she received a dividend from Kumar Ltd. of 15 per cent in respect
of the year ended 31st Dec 2017.
(c) On 30th March, 2018 she received Rs. 28,000 from the sale of 20,000 shares.
You are required to record these transactions in the Investment Account in Meera’s books for
the year ended 31st March 2018 transferring any profits or losses on these transactions to
Profit and Loss account. Apply average cost basis.
Expenses and tax to be ignored.
Answer
In the books of Meera Investment Account (Shares in Kumar Limited)
Date Particulars No. of Income Amount Date Particulars No. of Income Amount
shares Shares
April 1 To Bank 40,000 - 60,000 May By Bank (Sale) 8,000 - 15,200
(Purchases)
May To Profit & 3,200
Loss A/c
(W.N.1)
June To Bonus Issue 8,000 Nil
July To Bank @ 4,000 3000 2018 Bank (Dividend 4800
75p. paid on Mar.15 @ 15% on
4,000 shares) Rs.32,000)
Sept To Bank @ 3000 Mar.30 By Bank (Sale) 20,000 28,000
75p. paid on
4,000 shares)
2018 To Profit & 3455 Mar.31 By Balance c/d 24000 29,455
Mar.31 Loss A/c (
𝟐𝟒, 𝟎𝟎𝟎
× 𝟓𝟒, 𝟎𝟎𝟎)
𝟒𝟒, 𝟎𝟎𝟎
(W.N.2)
To Profit & 4800
Loss A/c
52,000 4800 72,655 52,000 4800 72,655

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 CA Inter Accounts | Investment Accounts 3.29

Working Notes:
(1) Profit on Sale on 15-5-2017:
Cost of 8,000 shares @ Rs.1.50 Rs. 12,000
Less: Sales price Rs. 15,200
Profit Rs. 3,200
(2) Cost of 20,000 shares sold:
Cost of 44,000 shares (48,000 + 6,000) Rs. 54,000
Cost of 20,000 shares Rs. 24,545
𝐑𝐬.𝟓𝟒,𝟎𝟎𝟎
(𝟒𝟒,𝟎𝟎𝟎 𝐬𝐡𝐚𝐫𝐞𝐬 × 𝟐𝟎, 𝟎𝟎𝟎 𝐬𝐡𝐚𝐫𝐞𝐬)
Profit on sale of 20,000 shares (Rs. 28,000 – Rs. 24,545) Rs. 3,455

13. RTP May 19 Q8

A Ltd. purchased on 1st April, 2018 8% convertible debenture in C Ltd. of face value of `2,00,000 @ `
108. On 1st July, 2018 A Ltd. purchased another ` 1,00,000 debenture @ ` 112 cum interest.
On 1st October, 2018 ` 80,000 debenture was sold @ ` 105. On 1st December, 2018, C Ltd. give option for
conversion of 8% convertible debentures into equity share of ` 10 each. A Ltd. receive 5,000 equity share
in C Ltd. in conversion of 25% debenture held on that date. The market price of debenture and equity
share in C Ltd. at the end of year 2018 is ` 110 and ` 15 respectively.

Interest on debenture is payable each year on 31st March, and 30th September. The accounting
year of A Ltd. is calendar year.

Prepare investment account in the books of A Ltd. on average cost basis.

Answer
Investment Account for the year ending on 31st December, 2018
Scrip : 8% Convertible Debentures in C Ltd.
[Interest Payable on 31st March and 30th September]

Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
value Value
(`) (`) (`) (`) (`) (`)
1.4.18 To Bank A/c 2,00,000 - 2,16,000 30.09.18 By Bank A/c - 12,000 -
1.7.18 To Bank A/c 1,00,000 2,000 1,10,000 [`3,00,000x8%x
(W.N.1) (6/12)]
31.12.18 To P&L A/c - 14,033 - 1.10.18 By Bank A/c 80,000 84,000
[Interest] 1.10.18 By P&L A/c (loss) 2,933
(W.N.1)
1.12.18 By Bank A/c 733
(Accrued interest)
(55,000 x .08x 2/12)
1.12.18 By Equity shares 55,000 59,767
in C Ltd.
(W.N. 3 and 4)
31.12.18 By Balance c/d 1,65,000 3,300 1,79,300
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 CA Inter Accounts | Investment Accounts 3.30

(W.N.5)
3,00,000 16,033 3,26,000 3,00,000 16,033 3,26,000

SCRIP: Equity Shares in C LTD.

Date Particulars Cost (`) Date Particulars Cost (`)
1.12.18 To 8 % debentures 59,767 31.12.18 By balance c/d 59,767
Working Notes:
(i) Cost of Debenture purchased on 1st July = `1,12,000 – `2,000 (Interest) `1,10,000
(ii) Cost of Debentures sold on 1st Oct. = (`2,16,000 + `1,10,000) x 80,000/3,00,000 ` 86,933
(iii) Loss on sale of Debentures = ` 86,933– `84,000 `2,933

Nominal value of debentures converted into equity shares [(` 3,00,000 – 80,000) x.25] ` 55,000
Interest received before the conversion of debentures
Interest on 25% of total debentures = 55,000 x 8% x 2/12 ` 733
(iv) Cost of Debentures converted (` 2,16,000 + `1,10,000) x 55,000/3,00,000 ` 59,767
(v) Cost of closing balance of Debentures = (` 2,16,000 + `1,10,000) x 1,65,000 / 3,00,000 ` 1,79,300
(vi) Closing balance of Debentures has been valued at cost.
(vii) 5,000 equity Shares in C Ltd. will be valued at cost of ` 59,767 being lower than the market
value ` 75,000 (` 15 x5,000)

Note: It is assumed that interest on debentures, which are converted into cash, has been received at the
time of conversion.

14. RTP NOV 19

A Pvt. Ltd. follows the calendar year for accounting purposes. The company purchased 5,000 (nos.)
13.5% Convertible Debentures of Face Value of ` 100 each of P Ltd. on 1st May 2018 @ ` 105 on cum
interest basis. The interest on these instruments is payable on 31st March & 30th September
respectively. On August 1st 2018 the company again purchased 2,500 of such debentures @ ` 102.50
each on cum interest basis. On 1st October, 2018 the company sold 2,000 Debentures @ ` 103 each.
On 31st December, 2018 the company received 10,000 equity shares of ` 10 each in P Ltd. on conversion
of 20% of its holdings. Interest for 3 months on converted debentures was also received on 31.12.2018.
The market value of the debentures and equity shares as at the close of the year were ` 106 and ` 9
respectively. Prepare the Debenture Investment Account & Equity Shares Investment Account in the
books of A Pvt. Ltd. for the year 2018 on Average Cost Basis.
Solution:

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 CA Inter Accounts | Investment Accounts 3.31

Books of A Pvt. Ltd.

Investment in 13.5% Convertible Debentures in P Ltd. Account (Interest payable 31st March & 30th
September)
Date Particulars Nominal Interest Amount Date Particulars Nominal Interest Amount
` ` ` ` ` `
2018 2018
May 1 To Bank 5,00,000 5,625 5,19,375 Sept. 30 By Bank (6 50,625
months Int)
Aug.1 To Bank 2,50,000 11,250 2,45,000 Oct.1 By Bank 2,00,000 2,06,000
Oct.1 To P&L A/c 2,167
Dec. 31 To P&L A/c 52,313 Dec. 31 By Equity 1,10,000 1,12,108
share
Dec. 31 By Bank 3,713
(See note1)
Dec. 31 By Balance
c/d 4,40,000 14,850 4,48,434
7,50,000 69,188 7,66,542 7,50,000 69,188 7,66,542
Note 1: ` 3,713 received on 31.12.2018 represents interest on the debentures converted till date of
conversion.
Note 2: Cost being lower than Market Value the debentures are carried forward at Cost.
Investment in Equity shares in P Ltd. Account
Date Particulars Nominal Amount Date Particulars Nominal Amount
` ` ` `
2018 2018

Dec 31 To 13.5% Deb. 1,00,000 1,12,108 Dec.31 By P&L A/c 22,108

Dec.31 By Bal. c/d 1,00,000 90,000

1,00,000 1,12,108 1,00,000 1,12,108
Note 1: Cost being higher than Market Value the shares are carried forward at Market Value.
Working Notes:
1. Interest paid on ` 5,00,000 purchased on May 1st, 2018 for the month of April 2018, as part of
purchase price: 5,00,000 x 13.5% x 1/12 = ` 5,625
2. Interest received on 30th Sept. 2018
On ` 5,00,000 = 5,00,000 x 13.5% x ½ = 33,750
On ` 2,50,000 = 2,50,000 x 13.5% x ½ = 16,875
Total ` 50,625
3. Interest paid on ` 2,50,000 purchased on Aug. 1st 2018 for April 2018 to July 2018 as part of
purchase price:
2,50,000 x 13.5% x 4/12 = ` 11,250
4. Loss on Sale of Debentures Cost of acquisition
(` 5,19,375 + ` 2,45,000) x ` 2,00,000/` 7,50,000 = 2,03,833
Less: Sale Price (2,000 x 103) = 2,06,000
Profit on sale = ` 2,167

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 CA Inter Accounts | Investment Accounts 3.32

5. Interest on 1,100 Debentures (being those converted) for 3 months i.e. Oct-Dec. 2018 1,10,000 x
13.5% x 3/12 = ` 3,713
6. Cost of Debentures converted to Equity Shares
(` 5,19,375 + ` 2,45,000) x 1,10,000/7,50,000= ` 1,12,108
7. Cost of Balance Debentures
(` 5,19,375 + ` 2,45,000) x ` 4,40,000/` 7,50,000 = ` 4,48,434
8. Interest on Closing Debentures for period Oct.- Dec. 2018 carried forward (accrued interest)
` 4,40,000 x 13.5% x 3/12 = ` 14,850

15. QP Nov 19
Mr. Harish provides the following details relating to his holding in 10% debentures (face value of ` 100
each) of Exe Ltd., held as current assets:

1.4.2018 Opening balance - 12,500 debentures, cost ` 12,25,000

1.6.2018 Purchased 9,000 debentures @ ` 98 each ex-interest
1.11.2018 Purchased 12,000 debentures @ ` 115 each cum interest
31.1.2019 Sold 13,500 debentures @ ` 110 each cum-interest
31.3.2019 Market value of debentures @ ` 115 each
Due dates of interest are 30th June and 31st December.
Brokerage at 1% is to be paid for each transaction. Mr, Harsh closes his books on 31.3.2019. Show
investment account as it would appear in his books assuming FIFO method is followed.

16. (RTP Nov 20)

In 2018, Royal 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, 2019, M/s. Kumar purchased
10,000 of these debentures at ` 101 (cum-interest) price. On 1st March, 2020 the firm sold all of these
debentures at ` 106 (cum-interest) price.
You are required to prepare Investment (Debentures) Account in the books of M/s. Kumar for the period
1st December, 2019 to 1st March, 2020.

Answer

Investment Account in the books of M/s Kumar for the period

from 1st December 2019 to 1st March, 2020
(Scrip: 12% Debentures of Royal Ltd.)

Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value (`) Value (`)
(`) (`)
1.12.2019 To Bank A/c 10,00,000 20,000 9,90,000 1.03.2020 By Bank A/c 10,00,000 50,000 10,10,000
(W.N.1) (W.N.2)

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 CA Inter Accounts | Investment Accounts 3.33

1.3.2020 To Profit & 30,000 20,000

loss A/c
10,00,000 50,000 10,10,000 10,00,000 50,000 10,10,000

Working Notes:
(i) Cost of 12% debentures purchased on 1.12.2019 `

Cost Value (10,000 X `101) = 10,10,000

Less: Interest (10,000 x 100 x12% x 2/12) = (20,000)
Total = 9,90,000
(ii) Sale proceeds of 12% debentures sold on 1st March, 2020 `
Sales Price (10,000 x `106) = 10,60,000
Less: Interest (10,000 x 100 x12% x 5/12) = (50,000)
Total = 10,10,000

17. (RTP Nov 20)

Mr. X acquires 200 shares of a company on cum-right basis for ` 60,000. He subsequently receives an offer
of right to acquire fresh shares in the company in the proportion of 1:1 at ` 105 each. He does not subscribe
but sells all the rights for ` 15,000. The market value of the shares after their becoming ex-rights has also
gone down to ` 50,000. What should be the accounting treatment in this case?
Answer
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. In this case, the amount of the ex-right market value of 200
shares bought by X immediately after the declaration of rights falls to `50,000. In this case, out of sale
proceeds of ` 15,000, ` 10,000 may be applied to reduce the carrying amount to bring it to the market value
`50,000 and ` 5,000 would be credited to the profit and loss account.

18. QP Nov 20

On 1st April 2019 Mr. H had 30,000 equity shares of ABC Ltd. At a book value of ` 18 per share
(Nominal Value ` 10 per share). On 10th June 2019, H purchased another 10,000 equity shares of
the ABC Ltd. At ` 16 per share through a broker who charged 1.5% brokerage.
The directors of ABC Ltd. Announced a bonus and a right issue. The terms of the issues were
as follows.
i. Bonus share were declared at the rate of one equity share for every four shares held on
15th July 2019.
ii. Right shares were to be issued to the existing equity shareholders on 31st Aug 2019. The
company decides to issue one right share for every five equity share held at 20% premium
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 CA Inter Accounts | Investment Accounts 3.34

and the due date for payment will be 30th Sep 2019. Shareholders were entitled to transfer
their rights in full or in part.
iii. No dividend was payable on these issues.
Mr. H subscribed 60% of the rights entitlements and sold the remaining rights for
consideration of ` 5 per share.
Dividends for the year ending 31st March 2019 was declared by ABC Ltd. At the rate of
20% and received by Mr. H on 31st Oct 2019.
On 15th Jan 2020 Mr. H sold half of his shareholdings at ` 17.50 per share and brokerage
was charged @ 1%.

You are required to prepare Investment account in the books of Mr. H for the year ending 31st
March 2020, assuming the shares are valued at average cost.

19. QP Jan 21

P Ltd. had 8,000 equity shares of K Ltd. at a book value of ` 15 per share (face value of ` 10 each)
on 1st April 2019. On 1st Sept. 2019, P Ltd. acquired another 2,000 equity shares of K Ltd. at a
premium of ` 4 per share. K Ltd. announced a bonus and right issue for existing shareholders.
The term of bonus and right issue were:

i. Bonus was declared at the rate of two equity shares for every five shares held on 30th
Sept 2019.
ii. Right shares are to be issued to the existing shareholders on 1 st Dec 2019. The Company
had issued two right shares for every seven shares held at 25% premium on face value.
No dividend was payable on these shares. The whole sum being payable by 31st Dec 2019.
iii. Existing shareholders were entitled to transfer their rights to outsiders either wholly or in
part.
iv. P Ltd. exercised its option under the issue for 50% of its entitlements and sold the
remaining rights for ` 8 per share.
v. Dividend for the year ended 31st march 2019 at the rate of 20% was declared by K Ltd.
and received by P Ltd. on 20th Jan 2020

vi. On 1st Feb 2020 P Ltd. sold half of its shareholdings at a premium of ` 4 per share.

vii. The market price of share on 31st March 2020 was ` 13 per share.
You are required to prepare the Investment Account of P Ltd. for the year ended 31 st March 2020
and determine the value of shares held on that date, assuming the investment. Consider average
cost basis for ascertainment of cost for equity share sold.

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 CA Inter Accounts | Investment Accounts 3.35

20. RTP MAY 21

On 1st April, 2019 Mr. Shyam had an opening balance of 1000 equity shares of X Ltd
` 1,20,000 (face value `100 each).
On 5.04.2019 he further purchased 200 cum-right shares for ` 135 each. On 8.04.2019 the director
of X Ltd announced right issue in the ratio of 1:6.
Mr. Shyam waived off 100% of his entitlement of right issue in the favour of Mr. Rahul at the rate
of ` 20 each.
All the shares held by Shyam had been acquired on cum right basis and the total market price
(ex-right) of all these shares after the declaration of rights got reduced by ` 3,400.
On 10.10.2019 Shyam sold 350 shares for ` 140 each.
31.03.2020 The market price of each share is ` 125 each.
You are required to prepare the Investment account in the books of Mr. Shyam for the year ended
31.03.2020 assuming that the shares are being valued at average cost.

Solution:
In the books of Mr. Shyam
for the year ending on 31-3-2020
(Scrip: Equity Shares of X Limited)
Date Particulars Qty Amount Date Particulars Qty Amount
1.4.2019 To Balance 1000 1,20,000 8.04.2019 By Bank A/c (W.N.1) 3,400
b/d
5.04.2019 To Bank 200 27,000 10.10.2019 By Bank A/c 350 49,000
(200x `135) (350x `140)
10.10.2019 To Profit & 7,117 31.3.2020 By Balance c/d 850 1,01,717
Loss A/c (W.N.3)
(W.N.2)
1200 1,54,117 1200 1,54,117
Working Notes:
1. Sale of Rights ` 4,000
The market price of all shares of X Ltd after shares becoming ex-rights has been reduced by `
3,400
In this case out of sale proceeds of `4,000; ` 3,400 may be applied to reduce the carrying amount
to the market value and ` 600 would be credited to the profit and loss account.
2. Profit on sale of 350 shares

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 CA Inter Accounts | Investment Accounts 3.36

Amount
Sale price of 350 shares (350 shares X 140 each) ` 49,000
Less: Cost of 350 shares [(1,20,000+27,000-3,400) X350]/1200 ` 41,883
Profit ` 7,117
3. Valuation of 850 shares as on 31.03.2020
Particulars Amount
Cost price of 850 shares ` 1,01,717
[(1,20,000 +27,000 -3,400) x 850 /1,200]
Fair Value as on 31.03.2020 [850 X ` 125 each] ` 1,06,250
Cost price or fair value whichever is less ` 1,01,717

21. RTP NOV 21

Following transactions of Meeta took place during the financial year 2020 -21:
1st April, 2020 Purchased ` 4,500 8% bonds of ` 100 each at ` 80.50 cum-interest. Interest
is payable on 1st November and 1st May.
1st May, 2020 Received half year’s interest on 8% bonds.
10 July, 2020 Purchased 6,000 equity shares of ` 10 each in Kamal Limited for ` 44 each
through a broker, who charged brokerage @ 2%.
1st October 2020 Sold 1,125 8% bonds at ` 81 Ex-interest.

1st November, 2020 Received half year’s interest on 8% bonds.

15th January, 2021 Received 18% interim dividend on equity shares of Kamal Limited.

15th March, 2021 Kamal Limited made a rights issue of one equity share for every four Equity
shares held at ` 5 per share. Meeta exercised the option for 40% of her
entitlements and sold the balance rights in the market at ` 2.25 per share.
Prepare separate investment account for 8% bonds and equity shares of Kamal Limited in the
books of Meeta for the year ended on 31st March, 2021. Assume that the average cost method is
followed.

Solution:
In the books of Meeta
8% Bonds for the year ended 31st March, 2021
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 CA Inter Accounts | Investment Accounts 3.37

Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2020 1 May By Bank- - 18,000
1 April, To Bank A/c 4,500 15,000 3,47,250 2020 Interest
Oct. 1
2021 To P & L A/c - - 4,312.50 1 Oct. By Bank A/c 1,125 3,750 91,125
March 31 (W.N.1) 2020
To P & L A/c 20,250 1 Nov. By Bank- 13,500
2021 Interest
2021 By Balance c/d 3,375 - 2,60,437.50
Mar. 31 (W.N.2)
4,500 35,250 3,51,562.50 4,500 35,250 3,51,562.50

Investment in Equity shares of Kamal Ltd. for the year ended 31 st March, 2021
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2020 To Bank A/c 6,000 -- 2,69,280 2021 By Bank – - 10,800
July 10 Jan 15 dividend 2,72,280
2021 To Bank A/c 600 - 3,000 March 31 By Balance c/d 6,600
March 15 (W.N. 3) (bal. fig.)
March 31 To P & L A/c
- 10,800
6,600 10,800 2,72,280 6,600 10,800 2,72,280
Working Notes:
1. Profit on sale of 8% Bonds
Sales price ` 91,125
Less: Cost of bonds sold = 3,47,250/4,500x 1,125 (` 86,812.50)
Profit on sale ` 4,312.50
2. Closing balance as on 31.3.2021 of 8 % Bonds
3,47,250/4,500x 3,375= ` 2,60,437.50
3. Calculation of right shares subscribed by Kamal Ltd.
Right Shares = 6,000/4 x 1= 1,500 shares
Shares subscribed by Meeta = 1,500 x 40%= 600 shares
Value of right shares subscribed = 600 shares @ ` 5 per share = ` 3,000
4. Calculation of sale of right entitlement by Kamal Ltd.
No. of right shares sold = 1,500 – 600 = 900 rights for 2,025
Note: As per para 13 of AS 13, sale proceeds of rights are to be credited to P & L A/c.

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 CA Inter Accounts | Investment Accounts 3.38

22. QP JULY 21
Mr. Z has made following transactions during the financial year 2020-21:
Investment 1: 8% Corporate Bonds having face value ` 100.
Date Particulars
01-06-2020 Purchased 36,000 Bonds at ` 86 cum-interest. Interest is payable on 30th September and
31st March every year
15-02-2021 Sold 24,000 Bonds at ` 92 ex-interest
Interest on the bonds is received on 30th September and 31st March.
Investment 2: Equity Shares of G Ltd having face value ` 10
Date Particulars
01-04-2020 Opening balance 8000 equity shares at a book value of ` 190 per share
01-05-2020 Purchased 7,000 equity shares@ ` 230 on cum right basis; Brokerage of 1% was paid in
addition.
15-06-2020 The company announced a bonus issue of 2 shares for every 5 shares held
01-08-2020 The company made a rights issue of 1 share for every 7 shares held at
` 230 per share. The entire money was payable by 31.08.2020
25-08-2020 Rights to the extent of 30% of his entitlements was sold @ ` 75 per share. The remaining
rights were subscribed.
15-09-2020 Dividend @ ` 6 per share for the year ended 31.03.2020 was received on 16.09.2020. No
dividend payable on Right issue and Bonus issue.
01-12-2020 Sold 7 ,000 shares @ 260 per share. Brokerage of 1% was incurred extra.
25-01-2021 Received interim dividend @ ` 3 per share for the year 2020-21.
31-:03-2021 The shares were quoted in the stock exchange @ ` 260.

Both investments have been classified as Current investment in the books of Mr. Z. On 15th May
2021, Mr. Z decides to reclassify investment in equity shares of Z* Ltd. as Long term Investment.
On 15th May 2021, the shares were quoted in the stock exchange @ ` 180.
You are required to:
1. Prepare Investment Accounts in the books of Mr. Z for the year 2020-21, assuming that
the average cost method is followed.
2. Profit and loss Account for the year 2020-21, based on the above information.
3. Suggest values at which investment in equity shares should be reclassified in accordance
with AS 13.

Solution:
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 CA Inter Accounts | Investment Accounts 3.39

In the books of Mr. Z

Investment in 8% Corporate Bonds Account
For the period 01 April 2020 to 31 March 2021
Date Particulars Nos Interest Amount Date Particulars Nos Interest Amount
(`) (`) (`) (`)
1/6/20 To Bank 36,000 48,000 30,48,000 30/9/20 By Bank A/c 1,44,000
A/c (WN1) (Interest
36,000 x 100 x
8% x 6/12)
15/2/21 To Profit & 1,76,000 15/2/21 By Bank A/c 24,000 72,000 22,08,000
Loss A/c (WN2)
(WN 3)
31/3/21 To Profit & 2,16,000 31/3/21 By Bank A/c 48,000
Loss A/c (Interest12,000
x 100 x 8% x
6/12)
By Balance c/d 12,000 10,16,000
(WN 4)
Total 36,000 2,64,000 32,24,000 Total 36,000 2,64,000 32,24,000
Note: For computing the interest on the bonds sold on 15 Feb 2021, if number of days (138 days)
is taken instead of months, the interest received on 15.02.2021 should be
`72,592 and the total interest transferred to Profit & Loss Account should be ` 2,16,592.
Investment in Equity Shares of G Ltd
For the period 1st April 2020 to 31 March 2021
Date Particulars Nos Dividend Amount Date Particulars Nos Dividend Amount
(`) (`) (`) (`)
01/4/20 To Balance b/d 8,000 15,20,000 16/9/20 By Bank A/c 48,000 42,000
(WN 7)
01/5/20 To Bank A/c 7,000 16,26,100 1/12/20 By Bank A/c 7000 18,01,800
(WN 5) (WN 8)
15/6/20 To Bonus 6,000 25/1/21 By Bank A/c 48,300
Shares (WN 10)
25/8/20 To Bank A/c 2,100 4,83,000
(Right
Shares)
(WN 6)

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 CA Inter Accounts | Investment Accounts 3.40

01/12/20 To Profit & 7,14,800

Loss A/c
(Sale of
shares)
(WN 9)
31/3/21 To Profit & 96,300
Loss A/c
31/3/21 By Balance c/d 16,100 25,00,100
(WN 11)
Total 23,100 96,300 43,43,900 Total 23,100 96,300 43,43,900
Working Notes
1. Computation of the Interest element in the bonds purchased on 01 June 2020
No of Bonds purchased 36,000
Face value per bond ` 100
Face value of the bonds purchased ` 36,00,000
Interest Rate 8%
Interest Amount 36,00,000 x 8% x 2/12
` 48,000
Cum-interest per bond ` 86
Value of bond excluding interest 36,000 x 86 – 48,000
` 30,48,000
2. Computation of the Interest element in the bonds sold on 15 Feb 2021
No of Bonds sold 24,000
Face value per bond ` 100

Face value of the bonds sold ` 24,00,000

Interest Rate 8%
Interest Amount 24,00,000 x 8% x 4.5/12
= ` 72,000
3. Computation of Profit on Sale of Bonds on 15 Feb 2021
No of Bonds sold 24,000
Face value per bond ` 100
Ex- interest Rate per bond ` 92
Sales proceeds ` 22,08,000
Average Cost of Bonds (30,48,000/36,000) x 24,000
` 20,32,000
Profit on sale of bonds Sale Proceeds – Average Cost

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 CA Inter Accounts | Investment Accounts 3.41

22,08,000 – 20,32,000
` 1,76,000
4. Valuation of Bonds as on 31 March 2021
No of Bonds held as on 31 Mar 2021 12,000
Average Cost of Bonds (30,48,000/36,000) x 12,000
` 10,16,000
5. Computation of the cost of the equity shares purchased on 01 May 2020
No of shares purchased 7,000
Cum right price per share ` 230
Cost of purchase ` 16,10,000
Brokerage @1% ` 16,100
Cost including brokerage ` 16,26,100
6. Right Shares
No of Right Shares Issued (8,000+7,000+6,000)/7 = 3,000 shares
No of right shares sold 3,000 shares x 30% = 900 shares
Proceeds from sale of right shares to be credited to 900 shares x ` 75 = ` 67,500
statement of profit & loss
No of right shares subscribed 3,000-900 = 2,100 shares
Amount of right shares subscribed 2,100 x 230 = ` 4,83,000
7. Computation of Dividend Received on 16 Sept 2020
No of shares held during the period of dividend 8,000 shares
Dividend per share `6
Dividend Amount 8,000 x 6 = ` 48,000
No of shares received after the period of dividend (excluding bonus & 7,000 shares
right shares)
Dividend per share `6
Dividend Amount 7,000 x 6 = ` 42,000
The amount of dividend for the period for which the shares were not held by the investor has
been treated as capital receipt. Thus ` 42,000 shall be treated as capital receipt
8. Sale Proceeds for the shares sold on 1st Dec. 2020
No of shares sold 7,000 Shares
Sale price per share ` 260
Proceeds from sale of share 7,000 x 260 = ` 18,20,000
Less: Brokerage @ 1% ` 18,200

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 CA Inter Accounts | Investment Accounts 3.42

Net Sale Proceeds ` 18,01,800

9. Profit on sale of shares on 1st Dec. 2020
Sales Proceeds ` 18,01,800
Average Cost (15,20,000+16,26,100+4,83,000-42,000)/23,100x7000
= ` 10,87,000
Profit on sale of shares Sales Proceeds – Average Cost
= ` 18,01,800-10,87,000
= ` 7,14,800
10. Computation of Amount of Interim Dividend
No of shares held 8,000+7,000+6,000+2,100-7,000
= 16,100
Dividend per share ` 3 per share
Dividend Received 16,100 shares x ` 3 per share
= ` 48,300
11. Valuation of Shares as on 31 March 2021
Cost of Shares (15,20,000 + 16,26,100 + 4,83,000 – 42,000) / 23,100
x 16,100
= 25,00,100
Market Value of Shares ` 260 x 16,100 = ` 41,86,000
Closing stock of equity shares has been value at ` 25,00,100 i.e. cost being lower than its market value.
(II) Profit & Loss Account (Extract)
For the period 01 April 2020 to 31 March 2021

Particulars Amount (`) Particulars Amount (`)

To Balance c/d 12,70,600 By Investment in 8% Corporate Bonds 1,76,000
Account (Profit on sale of bonds)
By Investment in 8% Corporate Bonds 2,16,000
Account (Interest on bonds)
By Sale of Right Shares 67,500
By Investment in Equity Shares of G Ltd (Profit 7,14,800
on sale of shares)
By Investment in Equity Shares of G Ltd 96,300
(Dividend Income)

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 CA Inter Accounts | Investment Accounts 3.43

(III) As per AS 13, when investments are classified from Current Investments to Long term
Investments, transfer is made at Cost and Fair value, whichever is less (as on the date of
transfer). So, in the given case valuation shall be done as follows:
Date of reclassification/transfer – 15 May 2021

Per Unit Cost of 16,100 shares held – ` 25,00,100/16,100 shares – ` 155.29

Market Price/Fair Value per share – ` 180

As the cost per unit is lower than its fair value, the shares are to be transferred at its cost i.e., at
` 155.29 per share on 15 May 2021
Note:
1. In the eight last line of the question, investment in equity shares of G Ltd. was wrongly
printed as Z Ltd. in the question paper. In the above solution, it has been considered as
investment in G Ltd. If considered as Investment in equity shares in Z Ltd. (some other
investment and not investment in G Ltd.), then the cost of the investment for shares in Z
Ltd. will not be available.
2. The entire amount of sale proceeds from rights has been credited to Profit and Loss account
in the above solution. However, the sale proceeds of rights in respect of 7,000 shares
(purchased cum right on 1.5.20) can be applied to reduce the carrying amount of such
investments (without crediting it to profit and loss account) considering that the value of
these shares has reduced after becoming their ex -right. In that case, ` 22,500 (67,500X
7/21) will be applied to reduce the carrying amount of investment and ` 45,000 will be
credited to profit and loss account.

23. QP DEC 21
During the year ended 31st March, 2021, Purple Ltd. entered into the following transactions -:
1st April, 2020 Purchased ` 4,00,000, 10% Govt. Loan (interest payable on 30th April
and 31st October) at ` 70 per cum interest.
1st April,2020 Purchased 6,000 Equity shares of ` 5 each in XY Ltd. for ` 1,26,000.
1st October 2021 Sold ` 80,000, 10% Govt. Loan at 75 ex-interest.
15th January, 2021 XY Ltd. made a bonus issue of four equity shares for every three shares
held. Purple Ltd sold all of the bonus shares for ` 10 each
1st March, 2021 Received dividend @ 22% on shares in XY Ltd. For the year ended 31st
December, 2020.
Prepare Investment accounts in the books of Purple Ltd.

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 CA Inter Accounts | Investment Accounts 3.44

24. ICAI PRACTICAL Q 1

Mr. X acquires 200 shares of a company on cum-right basis for ` 70,000. He subsequently receives
an offer of right to acquire fresh shares in the company in the proportion of 1:1 at ` 107 each. He
does not subscribe but sells all the rights for ` 12,000. The market value of the shares after their
becoming ex-rights has also gone down to ` 60,000. What should be the accounting treatment in
this case?

Solution:
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. In this case, the amount of the ex-right market value
of 200 shares bought by X immediately after the declaration of rights falls to `60,000. In this
case, out of sale proceeds of
` 12,000, ` 10,000 may be applied to reduce the carrying amount to bring it to the market value
and ` 2,000 would be credited to the profit and loss account.

25. ICAI PRACTICAL Q 5 / Mock test Oct 21 Series 1

On 1st April, 20X1, Mr. Vijay had 30,000 Equity shares in X Ltd. at a book value of
` 4,50,000 (Face Value ` 10 per share). On 22nd June, 20X1, he purchased another 5000 shares of
the same company for ` 80,000.
The Directors of X Ltd. announced a bonus of equity shares in the ratio of one share for seven
shares held on 10th August, 20X1.
On 31st August, 20X1 the Company made a right issue in the ratio of three shares for every eight
shares held, on payment of ` 15 per share. Due date for the payment was 30th September, 20X1,
Mr. Vijay subscribed to 2/3rd of the right shares and sold the remaining of his entitlement to Viru
for a consideration of ` 2 per share.
On 31st October, 20X1, Vijay received dividends from X Ltd. @ 20% for the year ended 31st March,
20X1. Dividend for the shares acquired by him on 22nd June, 20X1 to be adjusted against the cost
of purchase.
On 15th November, 20X1 Vijay sold 20,000 Equity shares at a premium of ` 5 per share.
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 CA Inter Accounts | Investment Accounts 3.45

You are required to prepare Investment Account in the books of Mr. Vijay for the year ended 31st
March, 20X2 assuming the shares are being valued at average cost.

Solution:
Investment Account in Books of Vijay
(Scrip: Equity Shares in X Ltd.)
No. Amount No. Amount
` `
1.4.20X1 To Bal b/d To 30,000 4,50,000 31.10.20X1 By Bank — 10,000
(dividend
22.6.20X1 Bank 5,000 80,000 onshares acquired
on 22.6.20X1)
10.8.20X1 To Bonus 5,000 _
30.9.20X1 To Bank 10,000 1,50,000
(Rights
Shares)
15.11.20X1 To P&L A/c 32,000 15.11.20X1 By Bank 20,000 3,00,000
(Profit (Sale of shares)
on sale of
shares)
31.3.20X2 By Bal. c/d 30,000 4,02,000
50,000 7,12,000 50,000 7,12,000
Working Notes:
(1) Bonus Shares = (30,000 + 5,000) / 7 = 5,000 shares
(2) Right Shares = [(30, 000 +5, 000 + 5, 000) / 8] x 3 = 15,000 shares
(3) Rights shares sold = 15,000×1/3 = 5,000 shares
(4) Dividend received = 30,000×10×20% = ` 60,000 will be taken to P&L statement
(5) Dividend on shares purchased on 22.6.20X1 = 5,000×10×20% = ` 10,000 is adjusted to
Investment A/c
(6) Profit on sale of 20,000 shares
= Sales proceeds – Average cost
Sales proceeds = ` 3,00,000
Average cost = [(4, 50, 000 + 80, 000 + 1, 50, 000 - 10, 000)/ 50, 000] × 20, 000 = ` 2,68,000
Profit = ` 3,00,000– ` 2,68,000= ` 32,000.
(7) Cost of shares on 31.3.20X2
[(4, 50, 000 + 80, 000 + 1, 50, 000 - 10, 000)/ 50, 000]× 30, 000 = ` 4,02,000
(8) Sale of rights amounting ` 10,000 (` 2 x 5,000 shares) will not be shown in investment A/c
but will directly be taken to P & L statement.

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 CA Inter Accounts | Investment Accounts 3.46

Nazar Hati Durghatna Ghati…

Test In Time…Pass In Time

1. ICAI Practical Question No 1

On 1st April, 2009, XY Ltd. has 15,000 equity shares of ABC Ltd. at a book value of ` 15 per
share (face value ` 10 per share). On 1st June, 2009, XY Ltd. acquired 5,000 equity shares of
ABC Ltd. for ` 1,00,000. ABC Ltd. announced a bonus and right issue.
(1) Bonus was declared, at the rate of one equity share for every five shares held, on 1 st July
2009.
(2) Right shares are to be issued to the existing shareholders on 1 st September 2009. The
company will issue one right share for every 6 shares at 20% premium. No dividend was
payable on these shares.
(3) Dividend for the year ended 31.3.2009 were declared by ABC Ltd. @ 20%, which was
received by XY Ltd. on 31st October 2009.
XY Ltd.
(i) Took up half the right issue.
(ii) Sold the remaining rights for ` 8 per share.

(iii) Sold half of its share holdings on 1st January 2010 at ` 16.50 per share. Brokerage being
1%.
You are required to prepare Investment account of XY Ltd. for the year ended 31 st March 2010
assuming the shares are being valued at average cost.

2. ICAI Practical Question No 2

The following information is presented by Mr. Z (a stock broker), relating to his holding in 9%
Central Government Bonds.
Opening balance (face value) ` 1,20,000, Cost ` 1,18,000 (Face value of each unit is ` 100).
1.3.2008 Purchased 200 units, ex-interest at ` 98.
1.7.2008 Sold 500 units, ex-interest out of original holding at ` 100.
1.10.2008 Purchased 150 units at ` 98, cum interest.
1.11.2008 Sold 300 units, ex-interest at ` 99 out of original holdings.
Interest dates are 30th September and 31st March. Mr. Z closes his books every 31st
December. Show the investment account as it would appear in his books. Mr. Z follows FIFO
method.

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 CA Inter Accounts | Investment Accounts 3.47

3. ICAI Practical Question No 3

Mr. Purohit furnishes the following details relating to his holding in 8% Debentures (` 100
each) of P Ltd., held as Current assets:
1.4.2009 Opening balance – Face value ` 1,20,000, Cost ` 1,18,000
1.7.2009 100 Debentures purchased ex-interest at ` 98
1.10.2009 Sold 200 Debentures ex-interest at ` 100
1.1.2010 Purchased 50 Debentures at ` 98 cum-interest
1.2.2010 Sold 200 Debentures ex-interest at ` 99
Due dates of interest are 30th September and 31st March.
Mr. Purohit closes his books on 31.3.2010. Brokerage at 1% is to be paid for each
transaction. Show Investment account as it would appear in his books. Assume FIFO method.
Market value of 8% Debentures of P Limited on 31.3.2010 is ` 99.

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 CA Inter Accounts | Investment Accounts 3.48

AS 13
1. RTP Nov 2014
Albert Ltd. has made the following investments:
st
(i) Purchased the following equity shares from stock exchange on 1 June, 2013:
Particulars Cost
Scrip X 1,80,000
Scrip Y 50,000
Scrip Z 1,70,000
4,00,000
st
(ii) Purchased government securities at a cost of ` 5,00,000 on 1 April, 2013.
How will you treat these investments as per applicable AS in the books of the company for
the year ended on 31st March, 2014, if the values of these investments are as follows:
Shares ` `
Scrip X 1,90,000
Scrip Y 40,000
Scrip Z 70,000 3,00,000
Government securities 7,00,000

SOLUTION
As per para 14 and 15 of AS 13 ‘Accounting for Investments’, current investments should be
carried at lower of cost and fair value determined either on an individual investment basis or
by category of investment, but not on an overall (or global) basis. Also as per para 17 of
the standard, long-term investments are carried at cost except 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.
If the investment in shares is intended to be held as current investment then scrip X should
be valued at cost i.e. `1,80,000 (lower of cost and fair value), scrip Y should be valued at fair
value i.e. ` 40,000 (lower of cost and fair value) and scrip Z should be valued at fair value
i.e. ` 70,000 (lower of cost and fair value). The total loss of ` 1,00,000 (` 4,00,000 – `
3,00,000) on scrip’s purchased on 1st June, 2013 is to be charged to profit and loss account
for the year ended 31st March, 2014.
If investment is intended to be held as long term investment then it will continue to be
shown at cost in the balance sheet of the company. However, provision for diminution shall
be made to recognize a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
Value of government securities (purchased on 1stApril, 2013) is to be shown at cost of `
5,00,000 in the balance sheet as on 31.3.2014.
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 CA Inter Accounts | Investment Accounts 3.49

2. RTP May 2015

X Ltd. on 1-1-2015 had made an investment of ` 600 lakhs in the equity shares of Y Ltd. of
which 50% is made in the long term category and the rest as temporary investment. The
realizable value of all such investment on 31-3-2015 became
` 200 lakhs as Y Ltd. lost a case of copyright. How will you recognize the reduction in financial
statements for the year ended on 31-3-2015.
Solution
X limited invested ` 600 lakhs in the equity shares of Y Ltd. Out of the same, the company
intends to hold 50% shares for long term period i.e. ` 300 lakhs and remaining as temporary
(current) investment i.e. ` 300 lakhs. Irrespective of the fact that investment has been held
by X Limited only for 3 months (from 1.1.2015 to 31.3.2015), AS 13 lays emphasis on intention
of the investor to classify the investment as current or long term even though the long term
investment may be readily marketable.
In the given situation, the realizable value of all such investments on 31.3.2015 became ` 200
lakhs i.e. ` 100 lakhs in respect of current investment and ` 100 lakhs in respect of long term
investment.
As per AS 13, ‘Accounting for Investment’, the carrying amount for current investments is the
lower of cost and fair value. In respect of current investments for which an active market exists,
market value generally provides the best evidence of fair value.
Accordingly, the carrying value of investment held as temporary investment should be shown
at realizable value i.e. at ` 100 lakhs. The reduction of ` 200 lakhs in the carrying value of
current investment will be included in the profit and loss account.
Standard further states that long-term investments are usually carried at cost. However, when
there is a decline, other than temporary, in the value of long term investment, the carrying
amount is reduced to recognise the decline.
Here, Y Limited lost a case of copyright which drastically reduced the realisable value of its
shares to one third which is quiet a substantial figure. Losing the case of copyright may
affect the business and the performance of the company in long run. Accordingly, it will be
appropriate to reduce the carrying amount of long term investment by ` 200 lakhs and shown
the investments at ` 100 lakhs, considering the downfall in the value of shares as decline
other than temporary. The reduction of ` 200 lakhs in the carrying value of long term
investment will be included in the profit and loss account.

3. RTP Nov 2015

M/s. Naren Garments Company Limited invested in the shares of another company on 1st
November, 2014 at a cost of ` 3,00,000. It also earlier purchased Gold of ` 3,50,000 and Silver

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 CA Inter Accounts | Investment Accounts 3.50
st st
of `1,50,000 on 1 April, 2014. Market value as on 31 March, 2015 of the above investments is
as follows:
Particulars `
Shares 2,50,000
Gold 5,00,000
Silver 2,80,000
How the above investments will be shown in the books of accounts of M/s Naren Garments
Company Limited for the year ending 31st March, 2015 as per the provisions of AS-13
Accounting for Investments”?
Solution
As per AS 13 “Accounting for Investments”, for Investments in shares – If the Investment is
purchased with an intention to hold for short – term period then it will be shown at the
realizable value of ` 2,50,000 as on 31st March, 2015.
If equity shares are acquired with an intention to hold for long-term period then it will
continue to be shown at cost in the Balance Sheet of the Company. However, provision for
diminution shall be made to recognize a decline, if other than temporary, in the value of
Investments.
As per the Standard, investment acquired for long term period shall be shown at cost. Gold
and Silver are generally purchased with an intention to hold it for long term period until and
otherwise given. Hence the investment in Gold and silver (purchases on 1st April 2014 shall
continue to be shown at cost as on 31st March 2015 i.e. ` 3,50,000 and `1,50,000 respectively,
though their realizable values have been increased. If held as short term then it should be
valued at lower of cost or fair value (Market price)

4. RTP Nov 2016, RTP Nov 2017

Give your comments on the following situations, each being independent of the other.
1. Current Investments are valued at `60 Lakhs, being the cost of acquisition, fair value of
these investments on the Balance Sheet date is ` 48 Lakhs.
2. Current investments were acquired at a cost of ` 86 lakhs whereas their fair market
value as on the Balance Sheet Date was ` 90 lakhs. Due to insufficiency of profits from
operations, the Company would like to recognize the profit on these investments for
‘improving’ its Financial Statements.
Solution
1. As per AS 13 “Accounting for Investments”, current investments should be carried at
cost or fair value, whichever is lower. Here, the current Investment should be carried at
fair value of ` 48 Lakhs, being the lower of ` 60 Lakhs (cost) or ` 48 Lakhs (fair
value). The difference of ` 12 Lakhs should be charged to profit and loss account.
2. Current investment should be carried at cost or fair value, whichever is lower. In the
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 CA Inter Accounts | Investment Accounts 3.51

given case, the current investments should be carried at cost of ` 86 Lakhs, being the
lower of ` 86 Lakhs (cost) or ` 90 Lakhs (fair value).

5. RTP May 2017, RTP Nov 2019

Z Bank has classified its total investment on 31-3-2016 into three categories (a) held to
maturity (b) available for sale (c) held for trading as per the RBI Guidelines.
‘Held to maturity’ investments are carried at acquisition cost less amortised amount.
‘Available for sale’ investments are carried at marked to market. ‘Held for trading’
investments are valued at weekly intervals at market rates. Net depreciation, if any, is
charged to revenue and net appreciation, if any, is ignored. Comment whether the policy of
the bank is in accordance with AS 13?
Solution
As per AS 13 ‘Accounting for Investments’, the accounting standard is not applicable to Bank,
Insurance Company, Mutual Funds. In this case Z Bank is a bank, therefore, AS 13 does not
apply to it. For banks, the RBI has issued guidelines for classification and valuation of its
investment and Z Bank should comply with those RBI Guidelines/Norms. Therefore, though Z
Bank has not followed the provisions of AS 13, yet it would not be said as non-compliance
since, it is complying with the norms stipulated by the RBI.

6. RTP May 2018

How you will deal with the following in the financial statements of the Paridhi Electronics
Ltd. as on 31.3.17 with reference to AS-13?
Paridhi Electronics Ltd. invested in the shares of another unlised company on 1st May 2012 at
a cost of ` 3,00,000 with the intention of holding more than a year. The published accounts of
unlisted company received in January, 2017 reveals that the company has incurred cash losses
with decline in market share and investment of Paridhi Electronics Ltd. may not fetch more
than ` 45,000.
Solution
As per AS 13, “Accounting for Investments” Investments classified as long term investments
should be carried in the financial statements at cost. However, provision for diminution shall
be made to recognise a decline, other than temporary, in the value of the investments, such
reduction being determined and made for each investment individually. The standard also
states that indicators of the value of an investment are obtained by reference to its market
value, the investee's assets and results and the expected cash flows from the investment.
On this basis, the facts of the case given in the question clearly suggest that the provision for
diminution should be made to reduce the carrying amount of shares to ` 45,000 in the financial
statements for the year ended 31st March, 2017 and charge the difference of loss of ` 2,55,000
to profit and loss account.

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 CA Inter Accounts | Investment Accounts 3.52

7. RTP Nov 2018

Active Builders Ltd. invested in the shares of another company on 31st October, 2016 at a cost
of ` 4,50,000. It also earlier purchased Gold of ` 5,00,000 and Silver of ` 2,25,000 on 31st
March, 2014. Market values as on 31st March, 2017 of the above investments are as follows:
Shares ` 3,75,000; Gold ` 7,50,000 and Silver ` 4,35,000.
How will the above investments be shown in the books of account of Active Builders Ltd. for
the year ending 31st March, 2017 as per the provision of AS-13?
Solution
As per AS 13 ‘Accounting for Investments’, if the shares are purchased with an intention to
hold for short-term period then investment will be shown at the realizable value.
If equity shares are acquired with an intention to hold for long term period then it will continue
to be shown at cost in the Balance Sheet of the company. However, provision for diminution
shall be made to recognize a decline, if other than temporary, in the value of the investments.
In the given case, shares purchased on 31 st October, 2016, will be valued at ` 3,75,000 as on
31st March, 2017. Gold and silver are generally purchased with an intention to hold it for long
term period until and unless given otherwise. Hence, the investment in gold and silver
(purchased on 31st March, 2014) shall continue to be shown at cost as on 31st March, 2017
i.e.,` 5,00,000 and ` 2,25,000 respectively, though their realizable values have been increased.
Thus the shares, gold and silver will be shown at ` 3,75,000, ` 5,00,000 and ` 2,25,000
respectively and hence, total investment will be valued at ` 11,00,000 in the books of account
of M/s Active Builders for the year ending 31st March, 2017 as per provisions of AS 13.

8. RTP May 2019 Q20b

Paridhi Electronics Ltd. has current investment (X Ltd.’s shares) purchased for ` 5 lakhs,
which the company want to reclassify as long term investment on 31.3.2018. The market value
of these investments as on date of Balance Sheet was ` 2.5 lakhs. How will you deal with this
as on 31.3.18 with reference to AS-13?
Solution
As per AS 13 ‘Accounting for Investments’, where investments are reclassified from current to
long-term, transfers are made at the lower of cost or fair value at the date of transfer.
In the given case, the market value of the investment (X Ltd. shares) is ` 2.50 lakhs, which is
lower than its cost i.e. ` 5 lakhs. Therefore, the transfer to long term investments should be
made at cost of ` 2.50 lakhs. The loss of ` 2.50 lakhs should be charged to profit and loss
account.

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 CA Inter Accounts | Investment Accounts 3.53

9. QP May 2019
On 15th June, 2018, Y limited wants to re-classify its investments in accordance with
AS 13 (revised). Decide and state the amount of transfer, based on the following information:
A portion of long term investments purchased on 1st March, 2017 are to be re- classified as
current investments. The original cost of these investments was ` 14 lakhs but had been
written down by ` 2 lakhs (to recognise 'other than temporary’ decline in value). The market
value of these investments on 15th June, 2018 was ` 11 lakhs.
Another portion of long term investments purchased on 15th January, 2017 are to be re-
classified as current investments. The original cost of these investments was ` 7 lakhs but had
been written down to ` 5 lakhs (to recognize 'other than temporary' decline in value). The
fair value of these investments on 15th June, 2018 was ` 4.5 lakhs.
A portion of current investments purchased on 15th March, 2018 for ` 7 lakhs are to be re-
classified as long term investments, as the company has decided to retain them. The market
value of these investments on 31st March, 2018 was ` 6 lakhs and fair value on 15th June
2018 was ` 8.5 lakhs,
Another portion of current investments purchased on 7th December, 2017 for ` 4 lakhs are to
be re-classified as long term investments. The market value of these investments was:
on 31st March, 2018 ` 3.5 lakhs
on 15th June, 2018 ` 3.8 lakhs
Solution:
As per AS 13 (Revised) ‘Accounting for Investments’, where long-term investments are
reclassified as current investments, transfers are made at the lower of cost and carrying
amount at the date of transfer; and where investments are reclassified from current to long
term, transfers are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
ii. In this case, carrying amount of investment on the date of transfer is less than the cost;
hence this re-classified current investment should be carried at ` 12 lakhs in the books.
iii. In this case also, carrying amount of investment on the date of transfer is less than the
cost; hence this re-classified current investment should be carried at ` 5 lakhs in the
books.
iv. In this case, reclassification of current investment into long-term investments will be made
at ` 7 lakhs as cost is less than its fair value of ` 8.5 lakhs on the date of transfer.
v. In this case, market value (considered as fair vale) is ` 3.8 lakhs on the date of transfer
which is lower than the cost of ` 4 lakhs. The reclassification of current investment into
long-term investments will be made at ` 3.8 lakhs.

www.Swapnilpatni.com CA Anandh R Bhanggariya