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MODULE – IV
INVESTMENT ACCOUNTS

Short Essay Questions

Question 11
In the Books of Sun Ltd.
12% Govt. Bond Account
(Interest Payable on 30th June and 31st December)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.01.2017 To Bank A/c 1,00,000 –– 94,000 30.06.2017 By Bank A/c 6,000
(WN 1)
01.07.2017 To Profit and 2,000 01.07.2017 By Bank A/c 50,000 –– 49,000
Loss A/c (WN 2)
(WN 3) 31.12.2017 By Bank a/c 3,000
31.12.2017 To Profit and (WN4)
Loss A/c 9,000 By Balance c/d 50,000 –– 47,000
(WN6) (WN5)
1,00,000 9,000 96,000 1,00,000 9,000 96,000

Working Notes:
12 6
1. Interest on 30th June 2017 = 1,00,000 × ×
100 12
= ` 6,000
2. Sale of investment on 1st July 2017 = 50 × 980
= ` 49,000
3. Profit on sale of bonds on 01.07.2017
Sale Proceeds 49,000
Less: Cost of investment on average basis 47,000
⎛ 94,000 × 50 ⎞
⎜ ⎟
⎝ 100 ⎠
Profit on sale ` 2,000

12 6
4. Interest on 31.12.2017 = 50,000 × ×
100 12
= ` 3,000
5. Investment is valued @ ` 940 since market price is ` 990.
Value of investment = 940 × 50
= ` 47,000

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Question 12
In the Books of X Ltd.
6% Govt. Stock Account
(Interest Payable on 30th June and 31st December)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
31.03.2017 To Bank A/c 2,00,000 3,000 1,87,000 30.06.2017 By Bank A/c –– 6,000 ––
(WN 1) (WN 2)
31.12.2017 To Profit and –– 9,000 –– 31.12.2017 By Bank A/c –– 6,000 ––
Loss A/c (WN 2)
(WN 3) 31.12.2017 By Balance c/d 2,00,000 –– 1,87,000
2,00,000 9,000 1,87,000 2,00,000 12,000 1,87,000

Working Notes
1. Calculation of cost of investment
Total Payment (2,000 × 95) 1,90,000
⎛ 6 3 ⎞
Less: Interest Accrued ⎜ 2,00,000 × × ⎟ 3,000
⎝ 100 12 ⎠
Cost of investment 1,87,000
2. Calculation of Interest
6 6
a) From 01.01.2017 to 30.06.2017 = 2,00,000 × ×
100 12
= ` 6,000
6 6
b) From 01.07.2017 to 31.12.2017 = 2,00,000 × ×
100 12
= ` 6,000
3. Net Income from interest = 6,000 + 6,000 – 3,000
= ` 9,000
4. Cost of investment (B/S value) = ` 1,87,000
Question 13
In the Books of Veera Ltd.
12% Govt. Bond Account
(Interest Payable on 30th June and 31st December)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Bank A/c 4,00,000 12,000 3,84,000 30.06.2017 By Bank A/c –– 24,000 ––
(WN 1) (WN 2)
31.12.2017 To Profit and –– 36,000 –– 31.12.2017 By Bank A/c –– 24,000 ––
Loss A/c (WN 3)
(WN 5) 31.12.2017 By Balance c/d 4,00,000 –– 3,84,000
(WN4)
4,00,000 48,000 3,84,000 4,00,000 48,000 3,84,000

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Working Notes
1. Cost of investment (4,000 × 96) 3,84,000

Add: Accured Interest ⎛⎜ 4,00,000 ×

12 3 ⎞
× ⎟ 12,000
⎝ 100 12 ⎠
Total payment ` 3,96,000
12 6
2. Interest on 30.06.2017 = 4,00,000 × ×
100 12
= ` 24,000
12 6
3. Interest on 31.12.2017 = 4,00,000 × ×
100 12
= ` 24,000
4. Since market price is not given, cost price is taken into consideration (` 3,84,000)
5. Total interest credited to profit and loss account = 24,000 + 24,000 – 12,000
= ` 36,000

Question 14
In the Books of Kanitkar Ltd.
6% Govt. Bonds Account
(Interest Payable on 31st March and 30th September)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance c/d 3,00,000 –– 2,82,000 01.06.2017 By Bank A/c 90,000 900 84,600
(WN 1) (WN 2)
31.03.2018 To Profit and –– 13,500 –– 30.09.2017 By Bank A/c –– 6,300 ––
Loss A/c (WN 3)
(WN 3) 31.03.2017 By Bank 6,300
(WN4)
31.03.2018 By Balance c/d 2,10,000 –– 1,97,400
(WN5)
3,00,000 13,500 2,82,000 3,00,000 13,500 2,82,000
Working Notes
1. Cost of investment on 01.04.2017 = 3,000 × 94
= ` 2,82,000
2. Amount received (900 × 95) 85,500

Less: Interest Accured ⎛⎜ 90,000 ×

6 2 ⎞
× ⎟ 900
⎝ 100 12 ⎠
Net sales proceeds ` 84,600
6 2
3. Interest on 30.06.2017 = 2,10,000 × ×
100 12
= ` 6,300
6 2
4. Interest on 31.03.2018 = 2,10,000 × ×
100 12
= ` 6,300

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5. Cost of investment carried (B/S value) = 2,100 × 94
= ` 1,97,400

Question 15 In the Books of Anuradha Ltd.

12% Govt. Bonds Account
(Interest Payable on 31st March and 30th September)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 4,00,000 –– 3,84,000 01.06.2017 By Bank A/c 1,00,000 2,000 96,000
(WN 1) (WN 2)
31.03.2018 To Profit and –– 38,000 –– 30.09.2017 By Bank A/c –– 18,000 ––
Loss A/c (WN 4)
31.03.2017 By Bank –– 18,000 ––
(WN5)
31.03.2018 By Balance c/d 3,00,000 –– 2,88,000
(WN6)
4,00,000 38,000 3,84,000 4,00,000 38,000 3,84,000

Working Notes

1. Cost of investment on 01.04.2017 = 4,000 × 96

= ` 3,84,000

2. Amount received on 01.06.2017 96,000

⎛ 12 2 ⎞
Add: Accured interest for 2 months ⎜1,00,000 × × ⎟ 2,000
⎝ 100 12 ⎠
Total amount received 98,000

3. Sales proceeds 96,000

⎛ 1,00,000 ⎞
Less: Average cost of investment ⎜⎜ 3,84,000 × ⎟ 96,000
⎝ 4,00,000 ⎟⎠
Profit on sale of investment 0
12 6
4. Interest on 30.09.2017 = 3,00,000 × ×
100 12
= ` 18,000
12 6
5. Interest on 31.03.2018 = 3,00,000 × ×
100 12
= ` 18,000

6. Cost of investment carried on 31.03.2018

= 3,000 × 96
= ` 2,88,000

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Question 16
In the Book of Reshmi
Journal Entries
Date Particulars LF Debit Credit
No. ` `
01.02.2017 Investment A/c.................................................Dr 4,90,000
Interest A/c...................................................... Dr 15,000
To Bank 5,05,000
(Being investment purchased at ` 98 ex-interest)
30.04.2017 Bank A/c..........................................................Dr 30,000
To Interest A/c...........................................Dr 30,000

In the Book of Satheesh

Journal Entries
Date Particulars LF Debit Credit
No. ` `
01.02.2017 Bank A/c..........................................................Dr 5,05,000
To Investment A/c......................................Dr 4,90,000
To Interest A/c...........................................Dr 15,000
(Being investment sold at ` 98 each ex-interest)

Working Note
Calculation of Amount payable
Cost of investment (5,000 × 98) 4,90,000
⎛ 12 3 ⎞
Add: Accrued interest ⎜ 5,00,000 × × ⎟ 15,000
⎝ 100 12 ⎠
Amount payable 5,05,000
Question 17
In the Books of Raghavan
Journal Entries
Date Particulars LF Debit Credit
No. ` `
01.01.017 Investment A/c.................................................Dr 3,69,000
Interest A/c...................................................... Dr 15,000
To Bank 3,84,000
(Purchase of ` 24,00,000 15% debentures of ` 100
each @ 96 cum-interest)

Question 18 In the Books of S Ltd.

15% Debentures Account
(Interest Payable on 30th June and 31st December)
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 1,00,000 3,750 1,05,000 30.06.2017 By Bank A/c –– 11,250 ––
(WN 1) (WN 3)
01.05.2017 To Bank 50,000 2,500 51,000 01.11.2017 By Bank A/c 60,000 3,000 57,300
(WN 2) (WN4)

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30.11.2017 To Bank 40,000 2,500 38,400 31.12.2017 By Bank A/c 40,000 3,000 52,000
(WN5) (WN6)
31.03.2018 To Profit and –– 18,625 4,300 31.12.2017 By Bank A/c 6,750
and Loss a/c (WN7)
31.03.2018 By Balance c/d 90,000 3,375 89,400
(WN8)
1,90,000 27,375 1,98,700 1,90,000 27,375 1,98,700

Working Notes
15 3
1. Interest on 01.04.2017 = 1,00,000 × ×
100 12
= ` 3,750
2. Purchase price @ cum-interest 53,500
Less: Interest (4 months) 2,500
⎛ 15 4 ⎞
⎜ 50,000 × × ⎟ 51,000
⎝ 100 12 ⎠
15 6
3. Interest on 30.06.2017 = 1,50,000 × ×
100 12
= ` 11,250
4. Selling price at ex-interest 57,300
Less: Interest ⎛⎜ 60,000 ×
15 4 ⎞
× ⎟ 3,000
⎝ 100 12 ⎠
Selling price 57,300
Less: Cost of investment sold
⎛ 60,000 ⎞
⎜⎜1,50,000 × ⎟
⎝ 1,00,000 ⎟⎠ 63,000
Loss on sale 5,700
5. Cost price – 38,400
⎛ 15 5 ⎞
Interest ⎜ 40,000 × × ⎟ 2,500
⎝ 100 12 ⎠
6. Selling price cum interest 55,000
Less: Interest ⎛⎜ 40,000 × 15 × 6 ⎞⎟ 3,000
⎝ 100 12 ⎠
52,000
Selling price 52,000
Less: Cost of investment 42,000
⎛ 1,40,000 ⎞
⎜⎜1,05,000 × 1,00,000 ⎟⎟
⎝ ⎠
Profit on sale 10,000
Net profit on sale = 10,000 – 5,700
= ` 4,300

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15 6
7. Interest on 31.12.2017 = 90,000 × ×
100 12
= ` 6,750

8. Value of stock on 31.03.2018 = 51,000 + 38,400

= ` 89,400

Correction: The transaction on 30-11-2017 is purchase, not sale.

Question 19
In the Books of Kailas
Equity shares in X Ltd
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 2,00,000 –– 2,80,000 20.09.2017 By Bank A/c –– 30,000 7,500
(WN 1)
01.06.2017 To Bank 50,000 –– 70,000

Working Note
15
1. Total dividend = 2,50,000 ×
100
= ` 37,500
Out of ` 37,500; ` 7,500 was received on account of investment made on
⎛ 15 ⎞
01.06.2017. Therefore, it is treated as pre-acquisition profit ⎜ 50,000 × = ` 7,500 ⎟
⎝ 100 ⎠
Question 21
In the Books of SX Ltd
Equity shares in Beta Ltd
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 20,000 –– 3,06,000 31.10.2017 By Bank A/c 15,000 –– 1,76,400
01.07.2017 To Bank 10,000 –– 1,02,000 1.12.2017 By Balance c/d 21,000 –– 2,38,000
01.09.2017 To Bonus 6,000 -– ––
shares
01.12.2017 To Profit and –– –– 6,400
Loss a/c
36,000 4,14,400 36,000 4,14,400
Working Notes
1. Number of shares = 20,000 + 10,000
= 30,000 shares
Number of bonus shares = 30,000 × 15
= 6,000 shares

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2. Sale of shares and profit on sale
15,000 shares @ 12 1,80,000
Less: brokerage @ 20% 3,600
1,76,400
Less: Average cost of 15,000 shares
⎛ 15,000 ⎞
⎜⎜ 4,08,000 × ⎟
⎝ 36,000 ⎟⎠ 1,70,000
Profit on sale ` 6,400

4,08,000 × 21,000
3. Value of stock of 21,000 shares = 36,000
= ` 2,38,000

Essays and Problems

In the Books of X Ltd.
6% Govt. Stock A/c
[Interest payable on 30th June and 31st December]
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.01.2017 To Balance b/d 50,000 –– 47,000 30.06.2017 By Bank A/c –– 7,500 ––
(WN 2)
31.03.2017 To Bank 2,00,000 3,000 1,87,000 01.07.2017 By Bank 1,00,000 –– 96,000
(WN1)
01.07.2017 To Profit and 2,250 01.10.2017 By Bank 70,000 1,050 67,556
Loss A/c
(WN3)
01.10.2017 To Profit and 2,100 31.12.2017 By Bank –– 2,400 ––
Loss A/c
(WN4)
31.12.2017 To Profit and 7,950 31.12.2017 By Bank 80,000 –– 74,800
Loss A/c (WN5)
(WN4)
2,50,000 10,950 2,38,350 2,50,000 10,950 2,38,350

Working Note
Purchase at cum-interest ⎛⎜ 2,00,000 ×
95 ⎞
1. ⎟ 1,90,000
⎝ 100 ⎠
⎛ 6 3 ⎞
Less: Interest accrued ⎜ 2,00,000 × × ⎟ 3,000
⎝ 100 12 ⎠
` 1,87,000
6 6
2. Interest on 30.06.2017 = 2,50,000 × ×
100 12
= ` 7,500
6 6
Interest on 31.12.2017 = 80,000 × ×
100 12
= ` 2,400

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3. Profit on sale of Investment on 01.07.2017
`
Sale proceeds 96,000
Less: Cost of investment 93,750
⎡ ⎛ 1,87,000 ⎞⎤
⎢47,000 + ⎜⎜ 50,000 × ⎟⎥
⎣ ⎝ 2,00,000 ⎟⎠⎦
` 2,250

4. Profit on sale of investment on 01.10.2017

`
Sale proceeds 67,550
Less: Cost of investment 65,450
⎛ 1,87,000 ⎞
⎜⎜ 70,000 × ⎟
⎝ 2,00,000 ⎟⎠
2,100

5. Calculation of cost of investment carried

Nominal Cost
Date Particulars
` `
01.01.2017 Balance 50,000 47,000
31.03.2017 Purchase 2,00,000 1,87,000
2,50,000 2,34,000
01.07.2017 Sale 1,00,000 93,750
1,50,000 1,40,250
01.10.2017 Sale 70,000 65,450
80,000 74,800

Question No. 2
In the Books of B & L Ltd.
8% Debentures Account
Dr Cr
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 1,20,000 –– 1,18,000 30.09.2017 By Bank A/c –– 5,200 ––
01.07.2017 To Bank 10,000 200 9,898 (WN3)
(WN1)
01.10.2017 To Profit and –– –– 133 01.10.2017 By Bank 20,000 –– 19,800
Loss A/c
01.01.2018 To Bank 5,000 100 4,848 01.02.2018 By Bank 20,000 533 19,602
(WN2) (WN3)
31.03.2018 To Profit and 9,233 01.02.2018 By Profit and –– –– 65
Loss A/c Loss A/c
31.03.2018 By Balance c/d 95,000 3,800 93,412
(WN3)
1,35,000 9,533 1,32,879 1,35,000 9,533 1,32,879

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Working Notes
1. Cost of purchases on 01.07.2017
Amount paid 9,800
Add: brokerage 98
9,898
2. Cost of purchases on 01.01.2018
Amount paid 4,900
Less: Interest 100
⎛ 8 3 ⎞
⎜ 5,000 × × ⎟
⎝ 100 12 ⎠
4,800
Add: brokerage 48
4,848
8 6
3. Interest on 30.09.2017 = 1,30,000 × ×
100 12
= ` 5,200
8 3
Interest on ex-interest = 10,000 × ×
100 12
purchase on 01.07.2017
= ` 200
Interest on ex-interest
sale on 01.10.2017 No interest
Interest on cum-interest purchase on 01.01.2018
3 8
= 5,000 × ×
12 100
= ` 100

Interest on ex-interest sale on 01.02.2018

4 8
= 20,000 × ×
12 100
= ` 533
Interest received on closing balance on 31.03.2018
6 8
= 95,000 × ×
12 100
= ` 3,800

4. Computation of Profit/Loss on sale of investments on 01.10.2017

`
Sale proceeds 20,000
Less: Brokerage at 1% 200
19,800

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Less: Cost of investment 19,667
⎛ 20 ⎞
⎜1,18,000 × ⎟
⎝ 120 ⎠
` 133

Computation of Profit/Loss on sale of investments on 01.01.2018

`
Sales proceeds 19,800
Less: Brokerage at 1% 198
19,602
Less: Cost of investment
⎛ 20 ⎞
⎜1,18,000 × ⎟ 19,667
⎝ 120 ⎠
Less on sale ` 65

Net gain on sale of investment = 133 – 65

= ` 68
5. Market value of investment = 950 × 99
= ` 94,050
Therefore, ` 93,412 is taken (Lower of cost or market value)
Question No. 3
In the Books of Bonanzaa Ltd.
9% Govt. Loan Account
(Interest payable on 30th June and 31st December)
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 2,00,000 4,500 1,90,000 01.06.2017 By Bank A/c 60,000 2,250 56,400
(WN1) (WN3)
31.05.2017 To Bank 80,000 3,000 73,000 30.06.2017 By Bank A/c –– 9,900 ––
(WN2) (WN4)
01.12.2017 To Bank 10,000 375 10,000 30.11.2017 By Bank A/c 40,000 1,500 37,300
(WN6) (WN5)
31.03.2018 To Profit and 18,525 31.12.2017 By Bank –– 8,550 ––
Loss A/c (WN7)
01.03.2018 By Bank 10,000 150 9,500
31.03.2018 By Profit and 1,300
Loss a/c
31.03.2018 By Balance c/d 1,80,000 4,050 1,68,500
2,70,000 26,400 2,73,000 2,90,000 26,400 2,73,000

Working Notes
9 3
1. Interest on 01.04.2017 = 2,00,000 × ×
100 12
= ` 4,500

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2. Purchase on 31.05.2017 `
Total cost (800 × 95) 76,000
⎛ 9 5 ⎞
Less: Interest ⎜ 80,000 × × ⎟ 3,000
⎝ 100 12 ⎠
73,000

3. Sale on 01.06.2017 `
Selling price (600 × 94) 56,400
⎛ 9 5 ⎞
Interest ⎜ 60,000 × × ⎟ 2,250
⎝ 100 12 ⎠
9 6
4. Interest on 30.06.2017 = 2,20,000 × ×
100 12
= ` 9,900

5. Sale on 30.11.2017 `
Total amount (400 × 97) 38,800
⎛ 9 5 ⎞
Less: Interest ⎜ 40,000 × × ⎟ 1,500
⎝ 100 12 ⎠
37,300

9 5
6. Interest on 01.12.2017 = 10,000 × ×
100 12
= ` 375
9 6
7. Interest on 31.12.2017 = 1,90,000 × ×
100 12
= ` 8,550
9 6
8. Interest on 31.03.2018 = 1,80,000 × ×
100 12
= ` 4,050

9. Profit on sale of investment on 01.06.2017

`
Sales Proceeds 56,400
⎛ 60,000 ⎞
Cost of investment ⎜⎜ × 1,90,000 ⎟⎟ 57,000
⎝ 2,00,000 ⎠
Loss on sale 600

Profit on sale of investment on 30.11.2017

`
Sales proceeds 37,300
⎛ 40,000 ⎞
Cost of investment ⎜⎜ × 1,90,000 ⎟⎟ 38,000
⎝ 2,00,000 ⎠
Loss on sale 700

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Profit on sale of investment on 01.03.2018
Sales proceeds 9,500
⎛ 10,000 ⎞
Less: Cost of investment ⎜⎜ × 1,90,000 ⎟⎟ 9,500
⎝ 2,00,000 ⎠
0
10. Valuation of stock
Normal Principal
Date Particulars
` `
01.04.2017 Balance 2,00,000 1,90,000
31.05.2017 Purchase 80,000 73,000
2,80,000 2,63,000
01.06.2017 Sales 60,000 57,000
2,20,000 2,06,000
30.06.2017 Sales 40,000 38,000
1,80,000 1,68,000
01.12.2017 Purchase 10,000 10,000
1,90,000 1,78,000
01.03.2018 Sales 10,000 9,500
Closing Balance 1,80,000 1,68,500

Cost price is taken as market price is higher (1,800 × 96 = ` 1,72,800)

Question No. 4
In the Books of Hari
12% Debentures Account
(Interest payable on 30th June and 31st December)
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Balance b/d 4,00,000 12,000 3,92,000 30.06.2017 By Bank A/c –– 36,000 ––
01.06.2017 To Bank 2,00,000 10,000 2,34,800 01.09.2017 By Bank A/c 3,00,000 6,000 3,17,400
(WN2)
01.09.2017 To Profit and –– -– 23,400 01.12.2017 By Profit and 2,00,000 10,000 2,05,800
Loss a/c Loss a/c
31.01.2018 To Bank 3,00,000 3,000 3,06,000 01.12.2017 By Profit and –– –– 9,600
Loss a/c
31.03.2018 To Profit and 45,000 31.12.2017 By Bank –– 6,000 ––
Loss a/c
31.03.2018 By Profit and -– –– 3,400
Loss a/c
31.03.2018 By Balance c/d 4,00,000 12,000 4,20,000
9,00,000 58,000 9,56,000 9,00,000 58,000 9,56,000

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Working Notes
12 5
1. Interest on purchase on 01.06.2017 = 2,00,000 × ×
100 12
= ` 10,000
Interest received on holding on 30.06.02017
12 6
= 6,00,000 × ×
100 12
= ` 36,000
12 2
Interest on sale on 01.09.2017 = 3,00,000 × ×
100 12
= ` 6,000
12 5
Interest on sale on 01.12.2017 = 2,00,000 × ×
100 12
= ` 10,000

Interest received on holding on 31.12.2017

12 6
= 1,00,000 × ×
100 12
= ` 6,000
12 1
Interest on purchase on 31.01.2018 = 3,00,000 × ×
100 12
= ` 3,000

2. Cost of purchase on 01.06.2017

Purchase value [(2,000 × 120) + 2%] 2,44,800

⎛ 12 5 ⎞
Less: Interest ⎜ 2,00,000 × × ⎟ 10,000
⎝ 100 12 ⎠
2,34,800
3. Computation on profit on sale on 01.09.2017
Sales proceeds less brokerage [(3,000 × 110) – 2%] 3,23,400
Less: Interest 6,000
Net sales proceeds 3,17,400
Less: Cost of investment (3,000 × 98) 2,94,000
23,400
Computation of profit on sale on 01.12.2017
Sales proceeds less brokerage [(2,000 × 105) – 2%] 2,05,000
Less: Cost of investment 2,15,400
⎡ ⎛ 2,34,800 ⎞⎤
⎢(1,000 × 98) × ⎜⎜1,000 × ⎟⎥
⎣ ⎝ 2,000 ⎟⎠⎦
Loss on sale 9,600

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4. Cost of investment carried on 31.03.2018 is ` 4,23,400. However market value is
taken for valuation as it is lower than cost price.
Market value of investment = 4,000 × 105
= ` 4,20,000
The loss 3,400 (4,23,400 – 4,20,000) is transferred to profit and loss account

Correction in the question – Sale on 01.12.2017 is ex-interest sale, not

cum interest sale

Question No. 5
Equity shares in Archana Ltd.
Date Particulars No. of Cost Date Particulars No. of Cost
shares (`) (`) shares (`) (`)
01.04.2017 To Balance b/d 4,000 60,000 20.01.2018 By Bank –– 2,000
01.09.2017 To Bank 1,000 14,000 01.02.2018 By Bank 4,000 56,000
30.09.2017 To Bonus 2,000 –– 31.03.2018 By Balance c/d 4,000 42,250
(WN1)
31.12.2017 To Bank 1,000 12,500
31.03.2018 To Profit and
Loss a/c –– 13,750
8,000 1,07,250 8,000 1,07,250

Working Notes
⎛ 4,000 + 1,000 ⎞
1. Number of bonus shares = ⎜ ⎟×2
⎝ 5 ⎠
= 2,000 shares
2
2. Number of right share eligible = (4,000 + 1,000 + 2,000) ×
7
= 2,000 shares
1
3. Number or right shares renouced = 2,000 ×
2
= 1,000 shares
` 8,000 (1,000 × 8) is taken to profit and loss account.
4. Number of right shares subscribed = 2,000 – 1,000
= 1,000 shares
Value = 1,000 × 12.5 = ` 12,500
20
5. Total dividend received = 50,000 ×
100
= ` 10,000

Out of ` 10,000, ` 8,000 is transferred to profit and loss account and ` 2,000 is
pre-acquisition dividend.

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⎛ 1 ⎞
6. Sales proceeds for sale on 01.02.2018 ⎜ 8,000 × × 14 ⎟ 56,000
⎝ 2 ⎠
Less: Cost of shares old 42,250
⎡ 4,000 ⎤
⎢(60,000 + 14,000 + 12,500 − 2,000 ) × 8,000 ⎥
⎣ ⎦
Profit on sale ` 13,750

7. 50% of the shareholding are sold, for which cost is ` 42,250. Hence the cost of
remaining 50% is also ` 42,250.
Question 6 In the Books of Trader Ltd
8% Bonds A/c
(Interest payable on 1st November and 1st May)
Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
01.04.2017 To Bank 12,00,000 40,000 9,26,000 01.05.2017 By Bank –– 48,000 ––
01.10.2017 To Profit and 11,500 01.10.2017 By Bank 3,00,000 10,000 2,43,000
Loss A/c
31.03.2017 To Profit and –– 84,000 01.11.2017 By Bank –– 36,000 ––
Loss A/c By Balance c/d 9,000 30,000 6,94,000
12,00,000 1,24,000 9,37,000 12,00,000 1,24,000 9,37,000

Investment in Equity shares in X Ltd

Date Particulars Nominal Interest Principal Date Particulars Nominal Interest Principal
value or Cost Value or Cost
(`) (`) (`) (`) (`) (`)
12.04.2017 To Bank 10,00,000 –– 40,00,000 15.05.2017 By Bank 12,50,000 –– 25,00,000
15.05.2017 To Bonus 15,00,000 –– –– By Bank –– 2,25,000 ––
Shares
15.05.2017 To Profit and –– –– 5,00,000 By Balance c/d 12,50,000 –– 20,00,000
Loss a/c
31.03.2018 To Profit and 2,25,000
Loss A/c
25,00,000 2,25,000 45,00,000 25,00,000 2,25,000 45,00,000

Working Notes
1. Cost of purchase on 01.04.2017 (12,000 × 80.5) 9,66,000
Less: Interest 40,000
Net cost of purchase 9,26,000
2. Computation of profit on sale
Sale proceeds (3,000 × 81) 2,43,000
⎛ 3,00,000 ⎞
Less: Cost of investment ⎜⎜ 9,26,000 × ⎟ 2,31,500
⎝ 12,00,000 ⎟ ⎠
Profit on sale 11,500

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⎛ 3⎞
3. Total number of shares on date of sale = 1,00,000 + ⎜1,00,000 × ⎟ = 2,50,000 shares
⎝ 2⎠

Sale value (1,25,000 × 20) 25,00,000

Less: Cost ⎛⎜⎜ 40,00,000 × 1,25,000 ⎞⎟⎟ 20,00,000

⎝ 2,50,000 ⎠
` 5,00,000

⎛ 18 ⎞
4. Dividend received = ⎜ (10,00,000 + 15,00,000 − 12,50,000) × ⎟
⎝ 100 ⎠
= ` 2,25,000

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