No.

1 for CA/CWA & MEC/CEC MASTER MINDS

6. INVESTMENT ACCOUNTS
SOLUTIONS TO ASSIGNMENT PROBLEMS
PROBLEM NO.1
9% Central Government Bonds (Investment) Account
Face Face
Particulars Interest Principal Particulars Interest Principal
value value
2008 Rs. Rs. Rs. 2008 Rs. Rs. Rs.
Jan. 1 To Bal b/d 1,20,000 2,700 1,18,000 Mar 31 By Bank A/c 6,300
Mar 1 To Bank A/c 20,000 750 19,600 July 1 By Bank A/c 50,000 1,125 50,000
July 1 To P&L A/c - - 833 Sep 30 By Bank A/c - 4,050 -
Oct 1 To Bank A/c 15,000 - 14,700 Nov 1 By Bank A/c 30,000 225 29,700
Nov 1 To P&L A/c - - 200 Dec 31 By Bal c/d 75,000 1,688 73,633

Dec 31 To P&L A/c

(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 : Nominal Cost
value Rs.
Bonds in hand remained in hand at 31st December 2008
From original holding (1,20,000 – 50,000 – 30,000) = 40,000 (1,18,000/1,20,000 x 39,333
40,000)
Purchased on 1st March 20,000 19,600
Purchased on 1st October 15,000 14,700
75,000 73,633

Working note1: Computation of profit/loss on sale of investments on 01-07-2008

Nominal value 50000
Ex-int selling price(500x100) 50000
Less: Cost of investments sold (118000x50000/120000 49167
Profi on sale 833
Ex-int accrued 50000x9/100x3/12 1125

Working note 2:
Interest received on 31-03-2008 (140000x9%x6/12) 6300

Working note 3:
Interest received on 30-09-2008
(1,20,000+20,000-50,000)=90,000x9%x6/12 4050

Working note 4:
Investments sold on 01-11-2008
Nominal value 30,000
Ex-int. selling price (300x99) 29,700
Less: Cost of investments sold (1,18,000x30,000/120000) 29,500
Profit on sale 200

Ex-int accrued on the above 30,000x9% /12 225

IPCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___1
 Ph: 9885125025/26 www.mastermindsindia.com
PROBLEM NO.2
Investment A/c of Mr. Purohit
For the year ending on 31-3-2010
(Scrip: 8% Debentures of p ltd.)
th st
(Interest Payable on 30 September and 31 March)
Nominal Nominal
Date Particulars INT Cost Date Particulars INT 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-interest) 10,000 200 9,898 1.10.09 By Bank 20,000 - 19,800
1.10.09 To P & L A/c 133
5,000 100 1.2.10 By Bank (ex- 20,000 533 19,602
1.1.10 To Bank (Cum- Interest) 4,849 interest)

To P & L A/c - 9,233 1.2.10

31.3.10 31.3.10 By P& L A/c 3,800 64
31.3.10 By Bank 95,000
1,35,000 9,533
By Bal c/d 93,414
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 Rs.99 = Rs.94,050 Cost
Price of
1,18,000
800 Debentures cost = X 80,000 = 78,667
1,20,000
100 Debentures cost = 9,898
50 Debentures cost = 4,849
93,414
Value at the end = Rs. 93,414 i.e whichever is less

2. Profit on sale of debentures as on 1.10.2009

Rs.
Sales price of debentures (200 x Rs.100) 20,000
Less: Brokerage @ 1% (200)
19,800

Less: Cost price of Debentures x 20,000 (19,667)

133
Profit on sale

3. Loss on sale of debentures as on 1.2.2010

Rs.
Sales price of debentures (200 x Rs.99) 19,800
Less: Brokerage @ 1% (198)
19,602
1,18,000
Less: Cost price of Debentures x 20,000 (19,666)
1,20,000
64
Loss on sale

Copy Rights Reserved

To MASTER MINDS, Guntur

IPCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___2

 No.1 for CA/CWA & MEC/CEC MASTER MINDS
PROBLEM NO.3
Investment Account – Equity Shares in X Ltd.
No. of No. of
Date Dividend Amount Date Dividend Amount
Shares shares
Rs. Rs. Rs. Rs.
2010 2010
Jan 1 To Balance b/d 20,000 - 3,20,000 Sep 30 By Bank 7,500
(Sale of rights)
Jun 1 To Bank 5,000 - 70,000 5,000 @ Rs.1.5

Aug 2 To Bonus Issue 5,000 - - Oct 20 By Bank

(dividend) 30,000 7,500
Sep 30 To Bank 5,000 75,000 Nov 1
(Right) - By Bank 20,000 2,60,000
Nov 1 Dec 31
To P & L A/c - 2,857 By Balance c/d 15,000 1,92,857
(Profit on Sale) -
Nov 1 To P & L A/c
(Dividend income) 30,000

35,000 30,000 4,67,857 35,000 30,000 4,67,857

Jan 1 To Balance b/d
15,000 1,92,857

Working Notes:
1. Cost of shares sold – Amount paid for 35,000 shares
Rs.

(Rs. 3,20,000 + Rs. 70,000 + Rs. 75,000) 4,65,000

Less: Dividend on shares purchased on June 1 & sale of rights(7,500+7,500) 15,000
Cost of 35,000 shares 4,50,000
Cost of 20,000 shares (Average cost basis) 2,57,143
Sale proceeds 2,60,000
Profit 2,857

2. Value of investment at the end of the year: Assuming investment as current investment, closing
balance will be valued based on lower of cost or net realizable value. Here, Net realizable value is
Rs.13 per share i.e. 15,000 shares x Rs.13 = Rs. 1,95,000 and cost = 4,50,000/35,000x15,000 =
Rs. 1,92,857. Therefore, value of investment at the end of the year will be Rs. 1,92,857
3. Dividend (pre acquisition) on shares adjusted against cost of investment.
4. Proceeds from sale of rights entitlement credited to cost of investment.

PROBLEM NO.4
In the books of XY Ltd.
Investment in equity shares of ABC Ltd.
st
For the year ended 31 March, 2010
Income Amount Income Amount
Date Particulars No Date Particulars No
Rs. Rs. Rs. Rs.
2009 To Balance b/d 15,000 - 2,25,000 2009 By Bank A/c - - 16,000
Apr 1 Sep 1 (W.N 3)

Jun 1 To Bank A/c 5,000 - 1,00,000 2009 By Bank A/c (W.N. - 30,000 10,000
Oct 31 5)
July 1 To Bonus issue (W.N.1) 4,000 - -
2010 By Bank A/c (W.N.4) 13,000 - 2,12,355
To Bank A/c (W.N.2) Jan 1
Sep 1 2,000 - 24,000 By Bal c/d (W.N.6)
To P & L A/c (W.N. 4) March 31 13,000
- 1,61,500
2010 Mar To P & L A/c - - 50,855
31

30,000 26,000
26,000 30,000 3,99,855 30,000 3,99,855

IPCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___3

 Ph: 9885125025/26 www.mastermindsindia.com
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 + 400 Shares

Right shares = = 4,000 shares
6
Shares subscribed by XY Ltd. = 4,000/2 = 2,000 shares

Value of right shares subscribed = 2,000 shares @ Rs. 12 per share = Rs. 24,000

3. Calculation of sale of right entitlement:

2,000 shares x Rs. 8 per share = Rs. 16,000

(Since shares are purchased cum right basis, therefore, amount received from sale of rights will be
credited to investment a/c)

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 x ½) were sold
cost of total holdings of 26,000 shares (on average basis)
= Rs. 2,25,000 + Rs. 1,00,000 + Rs. 24,000 – Rs. 16,000 – Rs. 10,000 = Rs. 3,23,000.
Rs.
Average cost of 13,000 shares (13,000 x Rs. 16.50) 2,14,500
Less: 1% Brokerage (2,145)
2,12,355
Less: Cost of 13,000 shares (1,61,500)
Profit on sale 50,855
st
5. Dividend received on investment held as on 1 April, 2009:
= 15,000 shares x Rs. 10 x 20%
= Rs.30,000 will be transferred to Profit and Loss A/c
st
Dividend received on shares purchased on 1 June, 2009
= 5,000 shares x Rs. 10 x 20% = Rs.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
st
declared on 1 July, 2009 and dividend pertains to the year ended 31.3.2009.
st
6. Calculation of closing value of shares (on average basis) as on 31 March, 2010:
13,000 x 3,23,000/26,000 = Rs.1,61,500
Closing value of shares would be Rs. 1,61,500.

Copy Rights Reserved

To MASTER MINDS, Guntur

I PCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___4

 No.1 for CA/CWA & MEC/CEC MASTER MINDS
PROBLEM NO.5

In the books of Rajat

Investments Account (Equity shares in P Ltd.)
No. of Amount No. of Amount
Date Particulars Date Particulars
Shares (Rs.) Shares (Rs.)
1.4.11 To Bal b/d 50,000 7,50,000 5.11.11 By Bank A/c
20.6.11 To Bank A/c 10,000 1,60,000 (Sale of rights)
(W.N.3) - 20,000
1.8.11 To Bonus issue 10,000 -
-W.N.1 31.3.12 By Balance c/d 90,000 11,90,000
5.11.11 To bank 20,000 3,00,000 (Bal. fig.)
(W N 3)
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 + 10,000
2. Right shares = x 3 = 30,000 shares
7
3. Sale of rights = 30,000 shares x 1/3 x Rs.2 = Rs.20,000 credited to investments A/c.

Right subscribed = 30,000 shares x 2/3 x Rs.15 = Rs.3,00,000

PROBLEM NO.6

As per AS-13 “ Accounting for Investments”, long term investments should be carried at cost except
when there is decline, other than temporary, in value. In the instant case, the loss is other than
temporary and hence the investments should be written down to Rs. 80,000, loss Rs. 4,20,000 being
recognized in profit and loss account.

PROBLEM NO.7

As per AS-13, where investments are reclassified from current to long term, transfers are made at the
lower of cost and fair value at the date of transfer.
1. In the first case, the market value of the investment is 25 lakhs, which is higher than its cost i.e., Rs.
20 lakhs. Therefore, the transfer to long term investments should be carried at cost i.e. Rs. 20
lakhs.
2. In the second case, the market value of investment is Rs. 6.5 lakhs, which is lower than its cost i.e.
Rs. 15 lakhs. Therefore, transfer to long term investments should be carried in the books at the
market value i.e. Rs. 6.5 lakhs. The loss of Rs. 8.5 lakhs should be charged to profit and loss
account. As per AS 13, where long-term investments are re-classified as current investments,
transfers are made at the lower of cost and carrying amount at the date of transfer.
3. In the third case, the book value of the investment is Rs. 12 lakhs, which is lower than its cost i.e.
Rs. 18 lakhs. Here, the transfer should be at carrying amount and hence this re-classified current
investment should be carried at Rs. 12 lakhs.

Copy Rights Reserved

To MASTER MINDS, Guntur

I PCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___5

 Ph: 9885125025/26 www.mastermindsindia.com
PROBLEM NO – 8

INVESTMENT ACCOUNT (EQUITY SHARE OF ABC Co. Ltd.)

Dr. Cr.
Particulars 2010 (`) 2009 (`) Particulars 2010 (`) 2009 (`)
To Balance b/d 50,000 62,500 By Bank A/c 50,000 45,000
To Bonus shares A/c 50,000 - By Balance c/d 50,000 31,250
To Profit & loss
A/c (Profit on sale) - 13,750
1,00,000 76,250 1,00,000 76,250

Working Notes:
a. Profit on sale of bonus shares = (`45,000 –(`62,500 X 50,000/1,00,000) = `13,750
b. Value of investment will be least of market value `46,250 (i.e. 92.5% of `50,000) or average cost
price (i.e. `31,250)

PROBLEM NO.9

7% Government Loan A/c

Date Particulars N.V. Int. Cost Date Particulars N.V. Int. Cost
01.01.02 To Bal. b/d 60,000 1,050 57,000 04.04 By Bank A/c - 2100 -
(60 k x 7% x 3/12) (60 k x 7% x 6/12)
31.05.02 To Bank A/c 24,000 280 22,760 31.06 By Bank A/c 18,000 420 16,920
(WN – 1) (W.N-2)
31.12.02 To Profit & Loss A/c - 4,585 - 30.09 By Bank A/c - 2,310 -
(WN-3)
30.11 By Bank A/c 12,000 140 11,380
(WN-4)
31.12 By Int. Accrued - 945 -
(WN-5)
31.12 By Balance c/d 54,000 - 51,274
(WN-6)
31/12 By Profit & Loss A/c - - 186
84,000 5,915 79,760 84,000 5,915 79,760

st
WN – 1: Calculation of cost of debenture purchased on 31 May, 2002
Total Face value of debenture purchased = 24,000
No. of Debenture purchased = 24,000 / 10 = 240

Cum interest price (240 x 96) = 23,040

(-) Interest (24,000 x 7% x 6/12) = 280
EX Interest Price 22,760

WN-2: Calculation of Net Sale proceeds:

Total Face value of Debenture sold = 18,000
F.V. = 100. No. of debenture = 180

Net sale proceeds:

Ex: Interest – 180 x 94 = 16,920
Int.: (18,000 x 3% x 4/12) = 420

I PCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___6

 No.1 for CA/CWA & MEC/CEC MASTER MINDS
th
WN-3: Int. on 30 September:
Face value of debentures held (60 + 24 - 18) = 66,000
Interest (66,000 x 7% x 6/12) = 2,310

WN-4: Calculation of Net sale proceeds:

Total Face value of Debentures sold = 12,000
No. of Debenture sold = 120

Quotation Price: cum int. price (120 x 96) = 11,520

Interest: 12,000 x 7% x 2/12 = 140
Net sale proceeds 11,380
st
WN-5: Accrued int. on 31 Dec.
Face value of debentures held (60 + 24 – 18 - 12) = 54,000
Interest accrued (54,000 x 7% x 3/12) = 945

WN-6: Calculation of closing value of investments:

A) Cost of Debenture: (W.Avg. method)
Cost of 54,000 debenture (79,760 / 84,000 x 54,000) =Rs. 51,274

B) Market value of debentures: (540 x 96) = Rs.51,840

Closing value of investment (A or B which ever is lower) = Rs.51, 274

THE END
Verified By: Amaranth Garu
Executed By: Mr. Uday

I PCC_34e_Accounts_Group-I_Investment Accounts_Assignment Solutions___7