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Investment Accounts
Introduction
Investments are assets held by an enterprise for eaming income by way of dividends, interest, and rentals, for
capital appreciation or for other benefits to the investing enterprise. Assets l,d4 a stock-in-tnuk are not
iavesllllents. .
lnvestlltents are classified as under :
(a) A current illvestment is an investment that is by its nature readily realisable and is intended to be
held for not more than one year ftom the date on which such investment is made. The canying amount
for current investments is the lower of cost or fair value.
Foir wu,,e is the amount for which an asset could be exchanged between a knowledgeable, willing
buyer and a knowledgeable, willing seller in an arm's length transaction. Under appropriate circum-
stances, market value or net realisable value provides an evidence of fair value.
Mlll"lu!t Wll•e is the amount obtainable from the sale of an investment in an open market, net of
expenses, necessarily to be inCWTcd on or before disposal.
• (b) A non-earnat Investment is an investment other than a cumnt investment. Non-current investments
arc usually carried at cost. However, when there is a decline, other than temporary, in the value of a
·· non-current investment, the canying amount is reduced to recognise the decline. The resultant
reduction in the canying amount is charged to the Profit and Loss Account I Statement ofProfit and
Loss by creating a provision for diminution. 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 exists.
(c) An lnvestmmt property is held for rental income than the occupation or use. As per the provisjon
of the Companies Act, 2013, It 16 tnated tu II non-c•~11t lnwm.at. In effect, there is no need to
provide depreciation.
An enterprise should disclose current investments and non-cunent investments distinctly in its financial
statements. Cwrent investments are shown under CurNnt Asua. Investments other than current investments
are classified as non-current investments, even though they may be readily ~table. It is shown in the
Balance Sheet under Non-current Assets.
17.2 Investment Accounts

Cost of Investments
The cost ofan investment should include acquisition charges such as brokerage, fees and duties. For """'Ilk
X Limited pun:based 1,000 shares @ , 120 each and paid brokerage @ 2%. '

Cost of shares (1,000 x,

The acquisition cost of the investment is as under:
120)
Add : Brokerage (2% on , 1,20,000)
'
1,20,000
2.400
Cost of acquisition 1.22.400
If an investment is acquired, or partly acquired, by the issue of shares or o~er securities, the ~
cost should be the fair market value of the securities issued (which in appropnate cases may be indicated by
the issue price as determined by statutory authorities). The fairv~ue may not necessarily be equal to thenominal
or par value of the securities issued. . •
For ex11111pk, X Limited acquired 1,000 shares of, 100 each (market value' 130 each) in Y Ltd. by the
issue of its 1,000 shares - face value and market value per share being, 100 and' 120 respecti~ly. To

x, =,
ascertain the cost of the investment, in such a case, market value of the shares issued is to be considered.
Therefore, the value of the investment is 1,000 120 1,20,000.
If an investment is acquired in exchange, or part exchange, for another _asset, the acquisition cost of the
investment is determined by reference to the fair value (market value or net realisable value) ofthe asset giWQ
up. It may be appropriate to-consider the fair value of the investment acquired if it is more clearly evident.
ForaaMple, X Limited acquired 1,000 shares of, 100 each (market valuet 120 each) in exchange a a
machinery (W.D.V., 90,000 and market value, 1,10,000). The cost of the investment in this case, would be
either the fair value of the shares acquired, i.e., , 1,20,000 or the fair value ofthe machiney given up, i.e.,
, 1, 10,000 - which is more clearly evident · ....
.The cost of any shares in a co~perative society or a company, the holding of which is directly~_,
the right to bold the investment property, is added to the carrying amount of the investment property.
For exa,,,ple, X Limited purchased a flat from a co-operative society for , 20,00,000. To obtain tlle

acquisition of this investment property becomes, 20,00,000 +,

membership of the society, X Limited bad to purchase 1,000 shares of, 100 each. In effect, the cost of
1,00,000 =:,21,00,000.
Borrowing costs incurred (as per AS-16) in acquiring an investment property should be capitalised ml
·

included as an element of cost of an investment property. · - ·

.
. ...
Reclasslflcatlon of Investments -
Where long-term investments are reclassified as current investments, transfers arc made
at the iowu of cost
and canying amount at the date of transfer (para 23 of AS-13). . . . .· : ,. ···
Where investments are reclassified from current to long-term, transfers arc made at the lower of cost and
fair value at the date of transfer (para 24 of AS-13). Any reduction in the carrying amount and any~
ofsuch reductions should be charged or credited to the Profit and Loss Account/ Statement ofProfiland I,os.1.

Fixed Income Bearing Securities .

This type of security ~es a fixed rate of income (inleresVdividend) and that income accrues
falls due on some specific due date (say, 30th June and 31st December). Investment in government
re~:
sec;;
OOo
debentura and bonds «!me under this category. If a company buys 12% Debentures ofX ~ for!tl~ ~ gd
at par and the due date of payment of interest is 30th June and 31st December, the company 15 enti vahJO)
' 12,000 (12% of, 1,00,000) interest for one year (12% signifies rate of interest per annum on the face
- t 6,000 will be due on 30th June and the balance of, 6,000 on 31st December. .., ' ~
 Corporate Accounting 17.3

Variable llncome Bearing Securities

The example of a variable income bcari~g.security is the equity share of a company, the income for an
accounting period depends on the ra~e. of d1v1~ declared by that company.
A business can ~uy or ;ICII secunties freely m the ~k exchange through broken, who charge a small
commission for therr semces known as brokerage. It 1s payable at the time of purchase or sale of those
securities. SecuritiC;' can al~~ pure~ through banks, instead ofthrough broken. In such cases, a business
has to pay a banker s comrmsa1on in lane of brokerage. ~.oth ~ the same. When securities are p1,1reh•sed, Uie
above expenses become part of the total cost of aecunt1es, 1.e., the actual cost of securities are added with
brokerage or banker's commission (as the case may be) and the stamp duty to arrive at the real cost of the
securities. But when the securities are sold, the amount of brokerage or banker's commission is deducted from
the sale proceeds realised to ascertain the net realisation from securities.
Securities can be purchased at face value, or at a discount or at a premium. The market prices of securities
also fluctuate very frequently for reasons more than one. A security is said to be at par when acquired or sold
at 8 price sam.e as the face value. It is said to be at a discount, when it is sold or acquired at a price lower than
its face value. Conversely, ifit is above the face value, it is said to be at a premium.
It should be noted that the brokerage is calculated·as a percentage of the market value of the investment.

Accounting Arrangements of Fixed Income Bearing Security

In the books of the investing company a separate Investment Account is opened for each security. It is ruled
like a ledger account with some additional columns in each side. The format of Investment Account is given
below:
In the boob of X Ltd.
12% Debentures In ITC Ltd. Account
Dr. (Interest Payable : 30th June & 31st December] Cr.
Partmars Cost

(2) (4) ra
Column 1 : Date of transaction is recorded in this column.
Column 2 : Name of the account to be credited or debited is written in this column with Pre-fix "To"
or "By".
Column 3 : It is a m~orandum column only. Nominal value ofeach transaction is recorded in this column
either in value or in quantitative terms.
Column 4 : It is a (double entry) income column to record interest or dividend from investment.
Column 5 : It is a (double entry) cost I principal / capital column to record actual cost of investments after
adjustment for brokerage, accrued interest, etc.
Purposes.of Investment Ledger
Investment ledger is a special type of ledger which is used by the investing company to record all the details
of each investment The main objectives of maintaining on investment ledger are as follows:
(i) It facilitates proper recording of each security separately.
(ii) It facilitates collection of interest and dividend as and when they are due.
(iii) It helps to determine the value of securities at the end of the accounting period.
(iv) It helps to determine the profit or loss on sale of any security.
Sale of Investments
When an investment is sold, the difference between the canying amount and the disposal proceeds, net of
expenses, should be charged or credited to the Profit and Loss Account / Statement of Profit and Loss. When
disposing of a part of the holding of an individual investment, the carrying amount is to be allocated to that
Part is to be determined on the basis of the ovnoge canying 111111111111 oftJ,e total 1,olding ofthe investment
(para 22 of AS-13).
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Illustration 1 . .
On 1st Januazy, 2016 HP Ltd. purchased 1,000 15% Debentures ofReliance Ltd. of, 100 eacb@t 96cach.OD lstluly,
2016, half of the Debentures w~ sold at , 99 each. Debenture interest is payable half.yearly oo 30lh ~ 111d )hi
December. YOU are required to show 15% Debentures in Reliance Ltd. Account in the books ofHP Ltd. 1ss,11111ng that~
accounting year closes oo 31st December. Market price of a debenture as on 31st December is , 98.
Solution In the books of H.P. Ltd.
15% Debentures In Reliance Ltd. Account ~er.
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lllushtlon 2 j

On 31st March, 2016, X Lt.d. purchased, 2,00,000 6% Gove.wneut Stock (face value or, 100 each) at f 95 ea
c:um-inlmst. Half-yearly iDtCRSt is payable on 30th June and 31st December every year.
Show entiies in the invesimeot ledgerofX Ltd. for its financial yearendedon3lst Decanber, 2016, ignoring income
tax md brokerage.
Solullon . . .
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Illustration 3
On.31st March. 2016, X Ltd. purcbesc:d , 2,00,000 6% Government Stock (face value or, 100 each) at"
9S each
ex-tnterest. Half-yearly interest i$ payable OD 30th June and 31st December every year.
Show entries in the investment ledger ofX Ltd. for its financial year ended OD 31st December, 2016 ignoring income
tu and brokerage,
Solution
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