12 Investment Accounts

BASIC CONCEPTS
Ø Investment Accounting is done as per Accounting Standard-13.
Ø Two type of Investments :
• Long Term Investments
• Current Investments
Ø Valuation of Current investment – Lower of Cost or Fair Value/net
Realizable Value
Ø Valuation of Long Term investment – At cost
Ø Reclassification :
• From Current to Permanent ® Valuation at Cost or Fair value,
whichever is lower
• From Permanent to Current ® Valuation at Cost or Carrying Amount,
whichever is lower
Ø Disposal of Investment:
• Difference between carrying amount and disposal proceeds is
transferred to Profit & Loss A/c.
• In case of partial sale, weighted average method to be used.
Ø Sale of Rights:
• If rights are not subscribed for but are sold in the market, the sale
proceeds of rights are taken to the profit and loss statement as per para
13 of AS 13 “Accounting for Investment”. In this case, the sale proceeds
will not appear in the dividend column of the Investment account.
• However, when 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 sale proceeds will
credited to Investment account.
 Investment Accounts 12.2

• Here, it is pertinent to note that if right shares are issued during the
year, then year-end fall in the market value of the shares shall not be
considered as immediate fall in the market value of the shares after issue
of right shares and in such a case, the sale proceeds of rights shall be
taken to the profit and loss statement.

Question 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
(Scrip: 12% Debentures of M/s. Wye Ltd.)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value (` ) Value (` )
(` ) (` )

1.12.2012 To Bank A/c 10,00,000 20,000 10,00,100 1.03.2013 By Bank A/c 10,00,000 50,000 9,99,400
(W.N.1) (W.N.2)
1.3.2013 To Profit & - 1.3.2013 By Profit & loss
loss A/c 30,000 A/c 700
10,00,000 50,000 10,00,100 10,00,000 50,000 10,00,100

Working Notes:
(i) Cost of 12% debentures purchased on 1.12.2012 `
Cost Value (10,000 ´ ` 101) = 10,10,000
Add: Brokerage (1% of ` 10,10,000) = 10,100
Less: Cum Interest (10,000 x 100 x12% x 2/12) = ( 20,000)
Total = 10,00,100
(ii) Sale proceeds of 12% debentures sold on 31st March, 2013 `
 Sales Price (10,000 ´ ` 106) = 10,60,000
Less: Brokerage (1% of ` 10,60,000) = (10,600)
Less: Cum Interest (10,000 x 100 x12% x 5/12) = (50,000)
Total = 9,99,400
Question 2
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.
Answer
In the books of XY Ltd.
Investment in equity shares of ABC Ltd.
for the year ended 31st March, 2010
Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
` ` ` `
2009 To Balance b/d 15,000 - 2,25,000 2009 By Bank - 30,000 10,000
April 1 Oct. 31 A/c
(W.N. 5)
June 1 To Bank A/c 5,000 -- 1,00,000 2010 By Bank A/c 13,000 - 2,12,355
Jan. 1 (W.N.4)
July 1 To Bonus Issue 4,000 - - March 31 By Balance c/d 13,000 - 1,69,500
(W.N. 1) (W.N. 6)
Sept.1 To Bank A/c 2,000 - 24,000
(W.N. 2)
 Investment Accounts 12.4

2010 To P & L A/c - - 42,855

March (W.N. 4)
31
“ To P & L A/c - 30,000 -
26,000 30,000 3,91,855 26,000 30,000 3,91,855

Working Notes:
1. Calculation of no. of bonus shares issued
15,000 shares + 5,000 shares
Bonus Shares = x 1= 4,000 shares
5
2. Calculation of right shares subscribed
15,000 shares + 5,000 shares + 4,000 shares
Right Shares = = 4,000 shares
6
4,000
Shares subscribed by XY Ltd. = = 2,000 shares
2
Value of right shares subscribed = 2,000 shares @ ` 12 per share = ` 24,000
3. Calculation of sale of right entitlement
2,000 shares x ` 8 per share = ` 16,000
Amount received from sale of rights will be credited to P & L A/c as per para 13 of
AS 13 ‘Accounting for Investments’.
4. Calculation of profit on sale of shares
Total holding = 15,000 shares original
5,000 shares purchased
4,000 shares bonus
2,000 shares right shares
26,000 shares
50% of the holdings were sold
i.e. 13,000 shares (26,000 x1/2) were sold.
Cost of total holdings of 26,000 shares (on average basis)
= ` 2,25,000 + ` 1,00,000 + ` 24,000– ` 10,000
= ` 3,39,000
Average cost of 13,000 shares would be
3,39,000
= ´13,000 = ` 1,69,500
26,000
12.5 Accounting

`
Sale proceeds of 13,000 shares (13,000 x `16.50) 2,14,500
Less: 1% Brokerage (2,145)
2,12,355
Less: Cost of 13,000 shares (1,69,500)
Profit on sale 42,855
5. Dividend received on investment held as on 1st April, 2009
= 15,000 shares x ` 10 x 20%
= ` 30,000 will be transferred to Profit and Loss A/c
Dividend received on shares purchased on 1st June, 2009
= 5,000 shares x ` 10 x 20% = `10,000 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 1st July, 2009 and dividend pertains to the year ended
31.3.2009.
6. Calculation of closing value of shares (on average basis) as on
31st March, 2010
3,39,000
13,000´ = ` 1,69,500.
26,000

Closing value of shares would be ` 1,69,500.

Question 3
The following information is presented by Mr. Z, 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.
 Investment Accounts 12.6

Answer
In the Books of Mr. Z
9% Central Government Bonds (Investment) Account
Particulars Face Interest Principal Particulars Face Interest Principal
Value Value
2008 ` ` ` 2008 ` ` `
Jan.1 To Balance March By Bank
b/d 1,20,000 2,700 1,18,000 31 A/c - 6,300 -
March To Bank July 1 By Bank
1 A/c 20,000 750 19,600 A/c 50,000 1,125 50,000
July 1 To P&L A/c - - 833 Sept. By Bank
30 A/c - 4,050 -
Oct. 1 To Bank Nov. By Bank
A/c 15,000 - 14,700 1 A/c 30,000 225 29,700
Nov. To P&L A/c - - 200 Dec. By Balance
1 31 c/d 75,000 1,688 73,633
Dec. To P&L A/c
31 (Transfer) 9,938
1,55,000 13,388 1,53,333 1,55,000 13,388 1,53,333

Working Note:
Calculation of closing balance: Units `
Bonds in hand remained in hand at 31st December 2008
From original holding (1,20,000 – 50,000 – 30,000)= 40,000 1,18,000 39,333
´ 40,000 =
1,20,000
Purchased on 1st March 20,000 19,600
Purchased on 1st October 15,000 14,700
75,000 73,633
Question 4
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
12.7 Accounting

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.

Investment A/c of Mr. Purohit

for the year ending on 31-3-2010
(Scrip: 8% Debentures of P Limited)
(Interest Payable on 30th September and 31st March)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
` ` ` `
1.4.09 To Balance b/d 1,20,000 - 1,18,000 30.9.09 By Bank - 5,200 -
1.7.09 To Bank (ex- 10,000 200 9,898 1.10.09 By Bank 20,000 - 19,800
Interest)
1.10.09 To Profit & 133 1.2.10 By Bank 20,000 533 19,602
Loss A/c (ex-
Interest)
1.1.10 To Bank (cum- 5,000 100 4,849 1.2.10 By Profit & 64
Interest) Loss A/c
31.3.10 To Profit & - 9,233 31.3.10 By Bank - 3,800 -
Loss
A/c(Bal.fig.)
31.3.10 By 95,000 - 93,414
Balance
c/d
1,35,000 9,533 1,32,880 1,35,000 9,533 1,32,880

Working Notes:
1. Valuation of closing balance as on 31.3.2010:
Market value of 950 Debentures at ` 99 = ` 94,050
Cost price of
 Investment Accounts 12.8

æ 1,18,000 ö
800 Debentures cost = ç 1,20,000 x80,000 ÷ = 78,667
è ø
100 Debentures cost = 9,898
50 Debentures Cost = 4,849
93,414
Value at the end = ` 93,414 i.e whichever is less
2. Profit on sale of debentures as on 1.10.2009
`
Sales price of debentures (200 x ` 100) 20,000
Less: Brokerage @ 1% (200)
19,800
æ 1,18,000 ö
Less: Cost price of Debentures ç x20,000 ÷=
1,20,000 (19,667)
è ø
Profit on sale 133
3. Loss on sale of debentures as on 1.2.2010
`
Sales price of debentures (200 x ` 99) 19,800
Less: Brokerage @ 1% (198)
19,602
æ 1,18,000 ö
Less: Cost price of Debentures ç x20,000 ÷=
1,20,000 (19,666)
è ø
Loss on sale 64
Question 5
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.
12.9 Accounting

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
In the books of Mr. Brown
12% Bonds for the year ended 31st March, 2012
Date Particulars No. Interest Amount Date Particulars No. Interest Amount
` ` ` `
2011 May, To Bank A/c 24,000 24,000 19,92,000 2011 Sept. By Bank- - 1,44,000
1 30 Interest
2012 To P & L A/c - - 1,05,000 2012 Mar. By Bank 15,000 75,000 13,50,000
March 31 (W.N.1) 1 A/c
To P & L A/c 2,49,000 2012 Mar. By Bank- 54,000
31 Interest
By Balance
c/d
(W.N.2) 9,000 - 7,47,000
24,000 2,73,000 20,97,000 24,000 2,73,000 20,97,000

Investment in Equity shares of Alpha Ltd. for the year ended 31st March, 2012
Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
` ` ` `
2011 To Bank A/c 1,50,000 -- 38,25,000 2011 By Bank A/c 80,000 - 17,60,000
June 15 Oct. 31
Oct. 14 To Bonus 1,00,000 - - 2012 By Bank A/c - 2,55,000
Issue Jan. 1 dividend
(1,50,000/3 x2)
2012 To P & L A/c 5,36,000 March 31 By Balance 1,70,000 - 26,01,000
Mar. 31 (W.N.3) c/d
(W.N.4)
To P & L A/c
2,55,000
2,50,000 2,55,000 43,61,000 2,50,000 2,55,000 43,61,000

Investment in Equity shares of Beeta Ltd. for the year ended 31 st March, 2012
Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
` ` ` `
2011 July 10 To Bank 60,000 -- 26,92,800 2012 By Bank – - 1,18,800
A/c Mar. 15 dividend
2012 Jan. 15 To Bank 6,000 - 30,000 March By Balance
A/c 31 c/d
 Investment Accounts 12.10

(W.N. (bal.fig.) 66,000 - 27,22,800

5)
March 31 To P & L
A/c - 1,18,800 -

66,000 1,18,800 27,22,800 66,000 1,18,800 27,22,800

Working Notes:
1. Profit on sale of 12% Bond
Sales price ` 13,50,000
19,92,000
Less: Cost of bond sold = x 15,000 (` 12,45,000)
24,000
Profit on sale ` 1,05,000
2. Closing balance as on 31.3.2012 of 12 % Bond
19,92,000
x 9,000 = ` 7,47,000
24,000
3. Profit on sale of equity shares of Alpha Ltd.
Sales price ` 17,60,000
38,25,000
Less: Cost of bond sold = x 80,000 (` 12,24,000)
2,50,000
Profit on sale ` 5,36,000
4. Closing balance as on 31.3.2012 of equity shares of Alpha Ltd.
38,25,000
x 1,70,000 = ` 26,01,000
2,50,000
5. Calculation of right shares subscribed by Beeta Ltd.
60,000 shares
Right Shares = x 1= 15,000 shares
4
Shares subscribed by Mr. Brown = 15,000 x 40%= 6,000 shares
Value of right shares subscribed = 6,000 shares @ ` 5 per share = ` 30,000
6. Calculation of sale of right entitlement by Beeta Ltd.
No. of right shares sold = 15,000 - 6,000 = 9,000 shares
Sale value of right = 9,000 shares x ` 2.25 per share = ` 20,250
Note: As per para 13 of AS 13, sale proceeds of rights is to be credited to P & L A/c.
12.11 Accounting

Question 6
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 entitles the
holders to subscribe three shares for every seven shares at ` 15 per share.
Shareholders can transfer their rights in full or in part.
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 Account
(Equity shares in P Ltd. )
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.11 To Balance b/d 50,000 7,50,000 31.3.12 By Balance c/d 90,000 12,10,000
20.6.11 To Bank A/c 10,000 1,60,000 (Bal. fig.)
1.8.11 To Bonus 10,000 -
issue (W.N.1)
5.11.11 To Bank A/c
(right shares)
(W.N.4) 20,000 3,00,000
90,000 12,10,000 90,000 12,10,000

Working Notes:
50,000 + 10,000
(1) Bonus shares = = 10,000 shares
6
50,000 + 10,000 + 10,00
(2) Right shares = ´ 3 = 30,000 shares
7
1
(3) Sale of rights = 30,000 shares× × ` 2= ` 20,000 to be credited to P & L A/c as per
3
AS 13.
2
(4) Rights subscribed = 30,000 shares × ×` 15 = ` 3,00,000
3
 Investment Accounts 12.12

Question 7
On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of ` 100 each in V Ltd. @
` 120 each from a broker, who charged 2% brokerage. He incurred 50 paisa per
` 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
` 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 Account
for the year ended 31st March, 2012
(Script: Equity Shares of V Ltd.)
Date Particulars Nominal Cost Date Particulars Nominal Cost
Value Value
(` ) (` ) (` ) (` )
1.4.2011 To Bank A/c 5,00,000 6,15,000 31.3.2012 By Bank A/c 2,50,000 2,20,500
(W.N.1) (W.N.2)
31.1.2012 To Bonus shares 2,50,000 - 31.3.2012 By Balance 5,00,000 4,10,000
31.3.2012 To Profit and c/d
Loss A/c (W.N.4)
(W.N.3) 15,500
7,50,000 6,30,500 7,50,000 6,30,500
Working Notes:
1. Cost of equity shares purchased on 1st April, 2011
= Cost + Brokerage + Cost of transfer stamps
= 5,000 ´ ` 120 + 2% of ` 6,00,000 + ½% of ` 6,00,000
= ` 6,15,000
2. Sale proceeds of equity shares sold on 31st March, 2012
= Sale price – Brokerage
= 2,500 ´ ` 90 – 2% of ` 2,25,000
= ` 2,20,500.
3. Profit on sale of bonus shares on 31st March, 2012
= Sales proceeds – Average cost
Sales proceeds = ` 2,20,500
12.13 Accounting

Average cost = ` [6,15,000 ´ 2,50,000/7,50,000]

= ` 2,05,000
Profit = ` 2,20,500 – ` 2,05,000= ` 15,500.
4. Valuation of equity shares on 31st March, 2012
Cost = ` [6,15,000 ´ 5,00,000/7,50,000]= ` 4,10,000 i.e ` 82 per share
Market Value = 5,000 shares × ` 90 = ` 4,50,000
Closing stock of equity shares has been valued at ` 4,10,000 i.e. cost being lower than
the market value.
Question 8
Mr. Chatur had 12% Debentures of Face Value ` 100 of M/s. Unnati Ltd. as current
investments.
He provides the following details relating to the investments.
1-4-2014 Opening balance 4,000 debentures costing ` 98 each
1-6-2014 Purchased 2,000 debentures @ ` 120 cum interest
1-9-2014 Sold 3,000 debentures @ ` 110 cum interest
1-12-2014 Sold 2,000 debentures @ ` 105 ex interest
31-1-2015 Purchased 3,000 debentures @ ` 100 ex interest
31-3-2015 Market value of the investments ` 105 each
Interest due dates are 30th June and 31st December.
Mr. Chatur closes his books on 31-3-2015. He incurred 2% brokerage for all his transactions.
Show investment account in the books of Mr. Chatur assuming FIFO method is followed.
Answer

12.14
Investment A/c of Mr. Chatur
for the year ending on 31-3-2015

Investment Accounts
(Scrip: 12% Debentures of Unnati Limited)
(Interest Payable on 30th June and 31st December) Amt. in `
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
1.4.2014 To Balance b/d 4,00,000 12,000 3,92,000 30.6.2014 By Bank - 36,000 -
(6,00,000 x 6%)
1.6.2014 To Bank 2,00,000 10,000 2,34,800 1.9.2014 By Bank 3,00,000 6,000 3,17,400
1.9.2014 To Profit & Loss A/c 23,400 1.12.2014 By Bank 2,00,000 10,000 2,05,800
31.1.2015 To Bank 3,00,000 3,000 3,06,000 1.12.2014 By Profit & Loss a/c - - 9,600
31.3.2015 To Profit & Loss A/c 45,000 31.12.14 By Bank - 6,000 -
(Bal .fig.) ( 1,00,000 x 6% )
31.3.2015 By Profit & Loss A/c - - 3,400
31.3.2015 By Balance c/d 4,00,000 12,000 4,20,000
9,00,000 70,000 9,56,200 9,00,000 70,000 9,56,200
12.15 Accounting

Working Notes:
1. Valuation of closing balance as on 31.3.2015:
Market value of 4,000 Debentures at ` 105 = ` 4,20,000
Cost price of 1,000 debentures at 1,17,400
3,000 debentures at 3,06,000
4,23,400
Value at the end = ` 4,20,000 i.e. whichever is less
2. Profit on sale of debentures as on 1.9.2014
`
Sales price of debentures (3,000 x ` 110) 3,30,000
Less: Brokerage @ 2% (6,600)
3,23,400
Less: Interest for 2 months (6,000)
æ 3,000 ö
Less: Cost price of Debentures ç 3,92,000x 4,000 ÷ (2,94,000)
è ø
Profit on sale 23,400
3. Loss on sale of debentures as on 1.12.2014
`
Sales price of debentures (2,000 x ` 105) 2,10,000
Less: Brokerage @ 2% (4,200)
2,05,800
Less: Cost price of Debentures (98,000 + 1,17,400) (2,15,400)
Loss on sale 9,600
4. Purchase Cost of 2,000 debentures on 1.6.2014
`
2,000 Debentures @` 120 cum interest 2,40,000
Add: Brokerage @ 2% 4,800
2,44,800
Less: Interest for 5 months (10,000)
Purchase cost of 2,000 debentures 2,34,800
 Investment Accounts 12.16

5. Sale value for 3,000 debentures on 1.9.2014

`
Sales price of debentures cum interest (3,000 x ` 110) 3,30,000
Less: Brokerage @ 2% (6,600)
3,23,400
Less: Interest for 2 months (6,000)
Sale value for 3,000 debentures 3,17,400
Question 9
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 15th 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.
Answer
In the books of A Ltd.
Investment in equity shares of Allianz Ltd.
for the year ended 31st March, 2015
Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
` ` ` `
2014 2014
April 1 To Bank A/c 5,000 - 5,35,500 May 15 By Bank A/c - - 10,000
(dividend)
June 30 To Bonus 1,000 - - Oct. 1 By Bank - 1,250 -
Issue (rights
(W.N 2) sales)
Oct. 1 To Bank A/c 250 - 11,250 Nov. 30 By Bank A/c - 6,000 -
(W.N. 3) (Interim
dividend)
Dec.31 To P & L A/c - - 21,660 Dec. 31 By Bank A/c 3,000 - 2,79,300
(W.N. 5) (W.N.5)
12.17 Accounting

2015 2015
March To P & L A/c - 7,250 - March By Balance
31 31 c/d
(W.N. 7) 3,250 2,79,110
-
6,250 7,250 5,68,410 6,250 7,250 5,68,410

Working Notes:
1. Calculation of cost of purchase on 1st April, 2014
` 105 X 5,000 shares = ` 5,25,000
Add: Brokerage (2%) = ` 10,500
` 5,35,500
2. Calculation of number of bonus shares issued
5,000
Bonus Shares = ´ 1 = 1,000

3. Calculation of right shares subscribed

6,000
Right Shares = = 500 shares
12

Shares subscribed =

Value of right shares subscribed = 250 shares @ ` 45 per share = ` 11,250

4. Calculation of sale of right entitlement
250 shares x ` 5 per share = ` 1,250
(Amount received from sale of rights will be credited to P&L a/c)
5. Calculation of profit on sale of shares
Total holding = 5,000 shares original
1,000 shares bonus
250 shares right shares
6,250 shares
3,000 shares were sold on 31.12.2014
Cost of total holdings of 6,250 shares (on average basis)
= ` 5,35,500 + ` 11,250 – ` 10,000 = ` 5,36,750
 Investment Accounts 12.18

Average cost of 3,000 shares would be

= 5,36,750
´ 3,000 = ` 2,57,640
6,250

`
Sale proceeds of 3,000 shares (3,000 x ` 95) 2,85,000
Less: 2% Brokerage (5,700)
2,79,300
Less: Cost of 3,000 shares (2,57,640)
Profit on sale 21,660
6. Dividend received on investment held as on 15th May, 2014
= ` 10,000 (5,000 x ` 100 x 2%) adjusted to Investment A/c
Dividend amounting ` 6,000 received on 30.11.2014 will be credited to P&L A/c
7. Calculation of closing value of shares (on average basis) as on
31st March, 2015

` 2,79,110