Investment Accounts – CA Inter Accounts Question Bank

Investment Accounts – CA Inter Accounts Question Bank is designed strictly as per the latest syllabus and exam pattern.

Investment Accounts – CA Inter Accounts Question Bank

Question 1.
Mr. T purchased 1,000 nos. 10% debentures of ₹ 100 each on 1st April 2009 at ₹ 96 cum-intest, the previous interest date being 31st December 2008. Compute cost of investment. (May 2009, 2 marks)
Total amount payable 1,000 x 96 = 96.000
Less: Interest included in the price for January, February, and March i.e. 1,00,000 x $$\frac{10}{100} \times \frac{3}{12}$$ = 2.500
Cost of the Investment 93,500

Question 2.
Mr. X purchased 1,000, 6% Government Bonds of ₹ 100 each on 31st January 2009 at ₹ 95 each. Interest is payable on 30th June and 31st December. The price quoted is cum interest. Journalise the transaction. (May 2010, 2 marks)

Question 3.
MY Ltd. had acquired 200 equity shares of YZ Ltd. at ₹ 105 per share on 01.01.2009 and paid 200 towards brokerage, stamp duty and STT. On 31st March, 2009 Shares of YZ Ltd. were traded at ₹ 110 per share. At what value investment is to be shown in the Balance Sheet of MY Ltd. as at 31st March. 2009. (Nov 2009, 2 marks)

CalcuIaton of Cost of Investment

 Particulars ₹ Purchase price of Equity shares of YZ Ltd. (200 shares x ₹ 105 per share) 21,000 Add: Brokerage, Stamp duty and STT 200 Cost of investment 21,200

If the investment is long then it will be shown at cost. Therefore value of investment will be ₹ 21,200. However, if the investment is a current investment, then it will be shown at lower of cost (i.e. ₹ 21,200) or net realizable value (i.e. ₹ 200 x 110 = ₹ 22,000). Therefore, value of investment will be ₹ 21200.

Question 4.
Rose Ltd. had made an investment of 500 lakhs in the equity shares of Nose Ltd. on 10.01.2009. The realisable value of such investment on 31.03.2009 became 200 lakhs as Nose Ltd. lost a case of patent rights. Rose Ltd. follows financial year as accounting year. How will you recognize this reduction in Financial statements for the year 2008-09. (Nov 2009, 4 marks)
Provision and Conclusion:
Recognition of reduction in value of investment would depend upon the nature of investment and nature of decline as per Accounting Standard 13 “Accounting for Investments”. According to provisions of the standard, if the investments were acquired for long term and dedine is temporary in nature reduction in value will not be recognized and investments would be carried at cost.

If the decline Is of permanent nature, it will be charged to profit and loss account. If the Investments are current investments, then the reduction should be recognized and charged to Profit and Loss Account as the current investments are carried at cost or fair value, which ever is less.

Question 5.
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:

• Bonus shares were declared at the rate of one equity share for every four shares held on 15th July 2019.
• Right shares were to be issued to the existing equity shareholders on 31st August 2019. The company decides to issue one right share for every five equity share held at 20% premium and the due date for payment will be 30th September 2019. Shareholders were entitled to transfer their rights in full or in part.
• 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. Hon 31st October 2019.

On 15th January 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. (Nov 2020, 10 marks)

Question 6.
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 September 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 September 2019.
(ii) Right shares are to be issued to the existing shareholders on 1st December 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 December 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 January 2020.
(vi) On 1st February 2020, p Ltd. sold half of its shareholdings at a premium of ₹ 4 per share.
(vii) The market price of shares on 31st March 2020 was ₹ 13 per share. You are required to prepare the Investment account of P Ltd. for the year ended 31st March 2020 and determine the value of shares held on that date, assuming the investment as current investment. Consider average cost basis for ascertainment of cost for equity share sold. (Jan 2021,10 marks)

Question 7.
On 1st April 2008, Mr. Noel purchased 5.000 equity shares of ₹ 100 each in X Ltd. @ ₹ 120 each from a Broker, who charged 2% brokerage. He incurred ½’% as cost of shares transfer stamps. On 31st January 2009, 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 31st March 2009, Mr. Neel sold bonus shares to a broker, who charged 2% brokerage.

Show the Investment Account in the books of Mr. Neel, who held the shares as current assets and dosing value of investments shall be made at cost or Market value, whichever is lower. (May 2009,8 marks)

Working Notes:
1.CaIculation of Cost of equity shares purchased on 1.4.08 = 5,000 × ₹ 120 of ₹ 60,000 + $$\frac{1}{2}$$% of ₹ 6,00,000 = ₹ 6,15,000

2. Calculation of profit proceeds of equity shares sold on 31.3.09
= 2,500 x ₹ 90 – 2% of ₹ 2,25,000 = ₹ 2,20,500

3. Calculation of profit on sale of bonus shares on 31.3.09
= Sale proceeds – Average cost
= 2,20.500 – 2,05,000 i.e. (₹ 6,15,000 × $$\frac{2,50,000}{7,50,000}$$ = ₹ 15,500

4. Valuation of equity shares on 31.3.09
Cost = 6,15,000 x $$\frac{5,00,000}{7,50,000}$$ = ₹ 4,10,000
Market value = 5000 shares x ₹ 90 = ₹ 4,50,000
Closing Balance has been valued at ₹ 4,10,000 i.e. at cost which is lower than the market value.

Question 8.
Gamma Investment Company holds 1,000, 15% debentures of ₹ 100 each in Beta Industries Ltd. as on April 1, 2009, at a cost of ₹ 1,05,000. Interest is payable on June, 30 and December, 31 each year.

On May 1, 2009. 500 debentures are purchased cum-interest at ₹ 53,500. On November 1st, 2009, 600 debentures are sold ex-mterest at ₹ 57,300. On November 30, 2009, 400 debentures are purchased ex-interest at ₹ 38,400. On December 31, 2009,400 debentures are sold cum interest for ₹ 55,000. Prepare the investment account showing value of holdings on March 31, 2010, at cost, using FIFO method. (May 2010,6 marks)

Question 9.
H purchased 500 equity shares of loo each in the ABC Company Limited for ₹ 62,500 inclusive ol brokerage and stamp duty. Some years later the company decided to capita1ise its profit and to issue to the holders of equity shares one equity share as Bonus for every equity share held by them.

Prior to capitalization, the shares of ABC Company Limited were quoted at ₹175 per share. After the capitalization, the shares were quoted at ₹ 92.50 per share. H sold the Bonus shares and received ₹ 90 per share. Show Investment A/c in H’s books on average cost basis as per AS-13. (Nov 2010, 5 marks)
Working Notes:

1. Computation of profit on sale of bonus shares:
Sale price of bonus shares 45,000
Less : Average cost of shares sold $$\frac{62,500}{1,00,000}$$ × 50,000 = (31,250)
Profit 13.750

2. ValuatIon of closing investment: .
Market value of shares $$\frac{50,000}{100}$$ x 92.50 = 46,250
Cost price of shares (W.N. 1) = 31,250
= 46,250
Value of investment will be ‘east of market value or average cost price, i.e. 31,250.

Question 10.
On 1st April 2010, 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 2010 he purchased another 10,000 shares of P Ltd. at ₹ 16 per share.
2. On,15t August 2010. P Ltd. issue one equity bonus share for every Six shares held by the shareholders.
3. On 31st October 2010 the directors of P Ltd. announced a right issue which entitle 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 subscribe the rest on 5th November 2010.
You are required to prepare Investment A/c in the books of Rajat for the year ending 31st March 2011. (May 2011, 5 marks)

Working Notes:

1. Bonus shares = $$\frac{50,000+10,000}{6}$$ = 10,000 shares
2. Right shares = $$\frac{50,000+10,000+10,000}{7}$$ x 3 = 30,000 shares
3. Sale of rights = 30,000 shares × $$\frac{1}{3}$$ × ₹ 2 = ₹ 20,000
4. Rights subscribed =30,000 shares × $$\frac{2}{3}$$ ×₹ 15= ₹ 3,00,000

Question 11.
Mr. Brown has made following transactions during the financial year 2011- 12:

 Date Particulars 01.05.2011 Purchased 24,000 12% Bonus 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 Beata Limited for ₹ 44 each through a broker, who charged broke rage @ 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 duty received on due dates. Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited, and Equity Shares of Beeta Umited in the books of Mr. Brown for the year ended on 31st March 2012. (May 2012, 8 marks)

4. Closing balance as on 31.3.2012 of equity shares of Alpha Ltd.
$$\frac{38,25,000}{2,50,000}$$ × 170.000 = ₹ 26.01,000

5. Calculation of right shares subscribed by Beeta Ltd.
Right Shares = $$\frac{60,000 \text { shares }}{4}$$ × 1 = 15,000 shares
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 or right entitlement by Beets 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: Shares are assumed to be purchased on cum right basis, therefore, amount received from sale of rights is credited to Investment A/c.

Question 12.
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 dosing value of investments shall be made at cost or market value whichever is lower. (Nov 2012, 8 marks)

Working Notes:
1. Cost of equity share purchased on 1st April 2011
= Cost + Brokerage + Cost of transfer stamps
= 5,000 × ₹120+2% of ₹ 6,00,000+14% 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
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 × 500.000/7,50,000] = ₹ 4,10,000 i.e. ₹ 82 per share
Market Value = 5,000 shares x ₹ 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 13.
In 2011. M/s. Wye Ltd. issued 12% fully paid debentures of ₹ 100 each. interest being payable halt 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-inte rest amount. Prepare Investment Account in the books of M/s. Bull & Bear for the period 1st December 2012 to 1st March 2013. (May 2013, 5 marks)

Question 14.
On 01-05-2012, Mr. Mishra purchased 800 equity shares of ₹ 10 each in Filico Ltd. @ ₹ 50 each from a broker who charged 5%. He incurred 20 paisa per ₹ 100 as cost of shares transfer stamps. On 31-10-2012, bonus was declared in the ratio 1:4. The shares were quoted at ₹ 110 and ₹ 60 per share before and after the record date of bonus shares respectively.

On 30- 11-2012, Mr. Mishra sold the bonus shares to a broker who charged 5%. You are required to prepare Investment Account in the books of Mr. Mishra for the year ending 31 -1’2-201 2 and dosing value of Investment shall be made at cost or market value whichever is lower. (Nov 2013, 4 marks)

Question 15.
Smart Investments made the following Investments in the year 2013-14:
12% State Government Bonds having face value ₹ 100

 Date Particulars 01.04.2013 Opening Balance (1200 bonds) book value of ₹ 1.26,000 02.05.2013 Purchased 2,000 bonds @ ₹ 100 cum interest 30.09.2013 Sold 1,500 bonds at ₹ 105 ex-interest. Interest on the bonds is recelvéd on 30th June and 31st Dec. each year. Equity shares of X Ltd. 15.04.2013 Purchased 5,000 equity shares @ ₹ 200 on cum right basis Brokerage of 1% was paid in addition (Face Value of shares ₹ 10) 03.06.2013 The company announced a bonus issue 2 shares for every 5 shares held. 16.08.2013 The company made a rights issue of 1 share for every 7 shares held at ₹ 250 per share. The entire money was payable by 31.08.2013 22.08.2013 Rights to the extent of 20% was sold @ ₹ 60. The remaining rights were subscribed. 02.09.2013 Dividend @ 15% for the year ended 31.03.2013 was receive on 16.09.2013 15.12.2013 Sold 3,000 shares ₹ 300. Brokerage of 1% was incurred extra. 15.01.2014 Received interim dividend @ 10% for the year 2013-14 31.03.2014 The shares were quoted in the stock exchange @ ₹ 220

Prepare Investment Accounts In the books of Smart Investments. Assume that the average cost method is followed. (May 2014, 8 marks)

Working Notes:
1. ProfIt on sale of bonds on 30.9.13
= Sales proceeds – Average cost
Sales proceeds = ₹ 1,57,500
Average cost = ₹ [(1,26,000+1.92,000) × 1 ,500/3,200]
= 1,49,062.50
Profit = 1,57,500 – ₹1,49,062.50 = ₹ 8,437.50

2. Valuation of bonds on 31st March 2014
Cost = ₹ 3,18,000/3,200 × 1,700 = 1,68,937.50

3. Cost of equity shares purchased on 1514/2013
= Cost + Brokerage
= (5,000 × ₹ 200) + 1% of (5,000 × ₹ 200) = ₹ 10,10,000

4. Sale proceeds of equity shares on 15/12/2013
= Sale price – Brokerage
= (3,000 × ₹ 300) – 1% of (3,000 × ₹ 300) = × ₹ 8,91,000

5. Profit on sale of 31st shares on 15/12/2013
= Sales proceeds – Average cost
Sales proceeds = ₹ 8,91.000
Average cost = ₹ [(10,10,000 + 2,00,000 – 12,000 – 7,500) × 3,000/7,800]
= ₹ [11,90,500 × 3,000/7,800] = 4,57,885
Profit = ₹ 8,91,000 – ₹ 4,57,865 = ₹ 4,33,115.

6. Valuation of equity shares on 31st March 2014
Cost = ₹ [11,90,500 × 4.800/7,800] = ₹ 7,32,615
Market Value = 4,800 shares × ₹ 220 = 10,56,000
Closing stock of equity shares has been valued at ₹ 7,32,615 i.e. cost being lower than the market value.

Note:
1. It is presumed that no divided is received on bonus shares as bonus shares are declared on 3.6.2013 and dMcend pertains to the year ended 31.03.2013.
2. The amount of dividend for the period, for which shares were not held by the investor, has been treated as capital receipt.
3. On sale of Right share consideration of ₹ 12,000 received should be credited to P&L A/c as per AS13.

Question 16.
On 1st April 2014, Hasan has 20,000 equity shares of Vayu Ltd., at a book value of ₹ 20 per share (face value of ₹ 10 each). He provides the following information:
(i) On 1 0l June 2014, he purchased another 5,000 shares in Vayu Ltd.,@ ₹ 15 per share.
(ii) On 1st August 2014, Vayu Ltd., issued one bonus share for every five shares held by the shareholders.
(iii) On 31st August 2014, the directors of Vayu Ltd., announced a rights issue which entitle the shareholders to subscribe two shares for every six shares held @ of ₹ 15 per share. The shareholders can transfer their rights in full or in part.
Hasan sold ¼th of his right shares holding to Harsh for a consideration of 3 per share and subscribed the rest on 31st of October 2014. Prepare Investment A/c in the books of Hasan as on 31st October 2014. (Nov 2014, 8 marks)

Working Notes:

1. Bonus shares = $$\frac{25,000}{5}$$ = 5,000 shares
2. Rights shares = $$\frac{25,000+5,000}{6}$$ x 2 = 10,000 shares
3. Sale of rights = 10,000 shares × ¼ × 3 = ₹ 7,500
4. Rights subscribed = 10,000 ¾ × ₹ 15= ₹ 1,12,500

Question 17.
Mr. Chatur had 12% Debentures of Face Value ₹ 1oo of MIs. Unnati Ltd. as current investments. He provides the following details relating to the investments.
1-4-2014 Opening balance 4000 debentures costing ₹ 98 each
1-6-2014 Purchased 2000 debentures @ ₹ 120 cum interest
l-9-2014 Sold 3000 debentures @ ₹ 110 cum Interest
1-12-2014 Sold 2000 debentures @ ₹ 105 ex Interest
31-1-2015 Purchased 3000 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. (May 2015, 8 marks)

Question 18.
A Limited purchased 5000 equity shares (face value loo each) of Allianz Limited for ₹ 105 each on 1st April, 2014. The shares were quoted cum dividends. On 15th May, 2014, Allianz Limited declared & paid dMdend of 2% for year ended 31st 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 3000 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. (Nov 2015, 10 marks)

Working Notes:

1. Cost of Purchase = (5000 x 105) + 2% Brokerage = ₹ 5,35,500
2. Dividend = 5000 x 100 x 2% = ₹ 10,000
3. Pre Acquisition No. of Bonus Shares = $$\frac{5000}{5}$$ = ₹ 1000
4. No. of Rights share eligible = (5,000 + 1,000) x = 500
5. No. of Right Share subscribed = 500 × $$\frac{1}{2}$$ = 250 shares @ ₹ 45 = ₹ 11,250
6. No. of Rights share Renounced = 500 – 250 = 250 @ 5 = ₹ 1,250
7. Interim Dividend on 30/11/2014 = (5,000 + 1,000) × ₹ 100 × 1% = ₹ 6,000 (To be taken to P&L)
8. Cost of Shares sold on 31/12/2014 = (5,35,500+11,250-10,000) × $$\frac{3,000}{6,250}$$ = ₹ 2,57,640
9. Net Sale proceeds for sale on 31/12/2014 = (3000 shares × ₹ 95) Less Brokerage 2% =₹ 2,79,300
10. Profit on Sale of Shares on 31/1212014 Net Sale Proceeds ₹ 2,79,300 Less Cost 2,57,640 = ₹ 21.660

Question 19.
A Ltd. purchased on 1st April 2015 8% convertible debenture in C Ltd. of face value of ₹ 2,00,000 @ ₹ 108. On 1st July 2015 A Ltd. purchased another ₹ 100,000 debenture @ ₹ 112 cum interest.

On 1st October 2015 ₹ 80,000 debenture was sold @ ₹ 105. On 1st December, 2015, C Ltd. give option for conversion of 8% convertible debentures into equity share of ₹ 10 each. A Ltd. receive 5000 equity share in C Ltd. in conversion of 25% debenture held on that date. The market price bi debenture and equity share in C Ltd. at the end of year 2015 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. (May 2016, 8 marks)

Cost of Debenture purchased on 1st July
= ₹ 1,12,000 – 2,000 (Interest)
= ₹ 1,10,000

Cost of Debentures sold on 1st Oct.
= (₹ 2,16000+₹ 1,10,000) x 80,000/3,00,000
= ₹ 86,933

Loss on sale of Debentures
=₹ 86,933 – ₹ 84,000
= ₹ 2,933
Nominal value of debentures converted into equity shares = ₹ 55,000.
[(₹ 3,00,000 – 80,000) × 0.251]
Interest received before the conversion of debentures
Interest on 25% of total debentures 55,000 × 8% × 2/12 = ₹ 733

Cost of Debentures converted
= (₹ 2,16,000 + ₹ 1,10,000) × 55,000/3,00000
= ₹ 59,767

Cost of closing balance of Debentures
= (₹ 2,16,000 + ₹ 1,10,000) × 1,65,000/3,00,000
= ₹ 1,79,300

Closing balance of Debentures has been valued at cost being lower then ‘he market value i.e.₹ 1,81,500 (₹ 1,65,000 @ ₹ 110) 5,000 equity Shares in C Ltd. will be valued at cost of ₹ 59.767 being lower than the market value ₹ 75,000 (₹ 15 × 5,000)

Question 20.
On 1st December 2015, M/s. Blue & Black purchased, 20,000 12% fully paid debentures of ₹ 100 each at 105 cum interest price, also paying brokerage @ 1% of cum interest amount of the purchase. On 1st March 2016, the firm sold all these debentures at ₹ 110 cum-interest price, again paying brokerage @ 1% of cum Interest amount. Prepare Investment Account in the books of M/s. Blue & Black for the period 1st Dec., 2015 to 1st March 2016. Interest being payable half yearly on 30th September and 31st March of every accounting year. (Nov 2016, 4 marks)

Question 21.
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 2016. On 1st September 2016, 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, 2016.
(2) Right shares are to be issued to the existing shareholders on 1st December 2016. 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, 2016.
(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, 2016, at the rate of 20% was declared by the company and received by Akash Ltd. on 20th January 2017.
(6) On 1st February. 2017, Akash Ltd. sold half of its shareholdings at a premium of ₹ 4 per share.
(7) The market price of share on 31.03.2017 was ₹ 13 per share. You are required to prepare the Investment Account of Akash Ltd. for the year ended 31st March 2017 and determine the value of share held on that date assuming the investment as current investment. (May 2017, 8 marks)

Working Notes:
1. DivIdend Received on shares acquired on 1-9-16.
= 1,000 shares × 10 × 20% = 2,000

2. Profit on sale of shares:
Sale proceeds – Average Cost ,
Sale Proceeds = 4,000 shares × ₹ 14 = 56,000
Average Cost = $$\left(\frac{60,000+14,000+12,500-2,000}{8,000}\right)$$ × 4,000
=1,05,625 × 4,000
= 42,250
Profit = 56,000- 42,250 = 13,750
Here, cost price of share is less than the market value of ₹ 13 per share. Thus, it should be valued at cost.

Question 22.
Mr. Vijay entered into the following transactions of purchase ano 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
20.12.2016 1500 SaIe @ ₹ 22 per share
01 .02.2017 1000 SaIe @ ₹ 24 per share
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 shar6 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. (May 2018, 10 marks)

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 × 11,000 shares
Shares subscribed = 1,000 × 60%= 600 sharps
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 × 40% = 400 shares
Sale value of right = 400 shares × ₹ 3 per share = ₹ 1,200
Note: As per para 13 of AS 13, sale Prepare of rights is to be credited to P & L A/c.

Question 23.
Following transactions of Nisha took place during the financial year 2017-18:

 1st April 2017 Purchased ₹ 9,000 8% bonds of ₹ 1oo each at ₹ 80.50 cum-Interest. Interest is payable on 1st November 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 Limited for ₹ 44 each through a broker, who charged brokerage @ 2%. 1st October 2017 Sold 2.250 8% bonds at ₹ 81 Ex-interest. 1st November 2017 Received half year’s interest on 8% bonds. 15th January 2018 Moon Limited 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 Limited

Prepare separate investment accounts for 8% bonds and equity shares of Moon Limited in the books of Nisha for the year ended on 31st March 2018. Assume that the average cost method is followed. (Nov 2018, 10 marks)

Working Notes:
1. Purchase of bonds on 01/04/2017:
Interest element in purchase of bonds = 9,000 × 100 × 8% × $$\frac{5}{12}$$ = ₹ 30,000
Investment element n purchase of bonds (9,000 × 80.50) – 30,000 = ₹ 6,94,500

2. Sale of bonds on 01/10/2017:
Interest element in Sale of bonds = 2,250 × 100 × 8% × 5/12 = ₹ 7,500
Investment element in sale of bonds = 2,250 × 81 = ₹ 1,82,250

4. Closing Balance as on 31/03/2018 of 8% Bonds:
= $$\frac{6,94,500}{9,000}$$ × 6,750 = ₹ 5,20,875
Interest accrued on bonds on 31/03/2018 = 6750 × 1oo × 8% ×$$\frac{5}{12}$$ = ₹ 22,500

5. Calculation of right shares subscribed by Moon Limited Right shares $$\frac{12,000 \text { shares }}{4}$$ × 1 = 3000 shares
Shares subscribed by Nisha = 3,000 × 40% = 1,200 shares
Value of right shares subscribed = 1,200 shares @ ₹ 5 per share = ₹ 6,000

6. Calculation of Sale of right entitlement by Moon Limited:
No. of right shares sold = 3,000 – 1,200 = 1,800 shares
Sale value of right 1.800 shares × ₹ 2.25 per share = ₹ 4,050.
Note: As per Para 13 of AS 13, Sale proceeds of rights is to be credited to P & L A/c

Question 24.
Mr. Harsh provides the following details relating to his holding in 10% debentures (face value of ₹ 1oo each) of Exe Ltd., held as current assets:
1.4.2018 opening balance – 12,500 debentures, cost ₹ 12,25,000
1.6.2018 purchased 9000 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 30” 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. (Nov 2019, 10 marks)

Working Notes:
1. Purchase of debentures on 1/612018:
Interest element = 9.000 × 100 × 10% × 5/12 = ₹ 37,500
Investment element = (9,000 × 98) + [(1% (9,000 × 98)]
= ₹ 8,90,820

2. Purchase of debenture on 1/11/2018:
Interest element = 12,000 × 1oo × 10% × 4/12 = ₹ 40,000
Investment element = [(12,000 × 115) + [1% (12,000 × 115)]-40,000 = ₹ 13,53,800

3. Profit on Sale of debenture on 31/1/2019:
Sales price of debentures (13.500 × ₹ 110) = ₹ 14,85,000
Less: Brokerage @ 1% = 14,850
Less: Interest (13,500 × 100 × 10% × 1/12) = ₹ 11,250
Cost (Sale Proceeds) = ₹ 14,58,900

Question 25.
Ram furnishes the following details relating to his holding in 16% Debentures of Sita Ltd
(a) Opening Balance (1st Jan) Face Value ₹ 60,000 – Cost ₹ 59,000
(b) 1st March Purchased 100 Debentures ex-interest at ₹ 98
(c) 1st JuIy Sold 200 Debentures ex-interest Out of the original holding at ₹ 100
(d) 1st October Purchased 50 Debentures at ₹ 98 cum -interest.
(e) 1st November Sold 200 Debentures ex-interest at ₹ 99 out of the original holdings.
(f) Interest Dates are 30th September and 31st March.
Anugraha closes his books every 31st December. Brokerage at 1% is to be paid for each transaction.
Prepare the Investment Account as it would appear in his books. Market Value of Debentures on 31st December is ₹ 99.

Note:
Net Gain on Sale of Investments (from Point 3) = ₹ 133- ₹ 65 = ₹ 68, transferred to P&L A/c at the end of the year. Alternatively, the Gain of 1 33 and Loss of 65 can be separately transferred to P&L, on the dates of sale itself.
. Market Value of Investments at year-end = 350 x ₹ 99= ₹ 34,650. Cost as per above A/c Closin9 Balance bal. figure = ₹ 34,513. So, B/Sheet Value = Lower of Cost or Market Value = Cost ₹ 34,513.

Question 26.
On 1st April 2017, ‘A’ had 25,000 Equity Shares of ABC Ltd. at a Book Value of ₹ 15 per Share (Face Value ₹ 10). On 20th June 2017, he purchased another 5,000 Shares of the Company at ₹ 16 per Share. The Directors of ABC Ltd. announced a Bonus and Rights Issue. No Dividend was payable on their issues. The terms of the issue are as follows:
Bonus Basis 1:6 (Date: 16th August 2017)
Rights Basis 3:7 (Date: 31st August 2017) Price ₹ 15 per Share. Due date for payment 30th September 2017.
Shareholders can transfer their rights In full oc in part. Accordingly. ‘A’ sold 1/3rd of his entitlement to ‘B’ for a consideration of ₹ 2 per Share. Dividends: Dividends for the year ended 31st March 2017 at the rate of 20% were declared by ABC Ltd. and received by ‘A’ on 31st ‘ October 2017.

Dividends for Shares acquired by him on 20th June 2017 are to be adjusted against cost of purchase. On 15th November 2017, ‘A’ sold 25,000 Equity Shares at a Premium of ₹ 5 per Share. ‘
Prepare –
(1) Investment Account, and
(2) Profit & Loss Account in the books of ‘A’. Assume that the books are closed on 31st December, 2017, and Shares are valued at Average Cost.

Question 27.
ABC Limited held on 1st April 2017 ₹ 2,00,000 of 19% Government Loan at ₹ 1,90000 (Face Value of Loan ₹ 1oo each). Three month’s interest had accrued on the above date.
(a) On 31st May 2017, the Company purchased the same Loan having a Face Value of ₹ 80,000 at ₹ 95 (net) cum-interest.
(b) On 1st June, 2017, ? 60,000 Face Value Loan was sold at ₹ 94 (net) ex-interest.
(c) Interest on the Loan was paid each year on 30th June and 31st December and was credited by the Bank on the same date.
(d) On 30th November 2017, ₹ 40,000 Face Value of the loan was sold at ₹ 97 (net) cum-interest.
(e) On 1st December 2017, the Company purchased the same loan ₹ 10,000 at ex-interest.
(f) On 1st March 2018, the Company sold ₹ 10,000 Face Value of the Loan at ₹ 95 ex-interest.
(g) The Market Price of the Loan on 31st March 2018 was ₹ 96. Prepare the 9% Government Loan Account in the books of ABC Limited. FIFO Method shall be followed and the balance of the Loan held by the Company shall be valued at Total Average Cost or Market Price, whichever is lower. Calculation shall be made to the nearest Rupee or multiple thereof.

Note = Avg Cost p.u = $$\frac{₹ 1,68,500}{18000 \text { units }}$$ = ₹ 93.61. Since, Cost ( 93.61)

Question 28.
‘A’ carried out the following transactions in the Shares of ABC Ltd.
(a) On 1st April 2017, he purchased 20,000 Equity Shares of ₹ 1 each fully paid up for ₹ 30,000.
(b) On 15th May 2017, he sold 4,000 Share for ₹ 7,600.
(c) 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 ₹ 1.50 per Share of which ₹ 0.75 is payable on or before 15th July 2017, and the balance, ₹ 0.75 per Share, on or before 15th September 2017. The Shares issued under (i) and (il) were not to rank for dividend for the year ending 31st ‘ December 2017.
(d) ‘A’ received his Bonus Shares and took up 2,000 Shares under the Rights, paying the sum thereon when due and selling the Rights of the remaining Shares at ₹ 0.40 per Share, the proceeds were received on 30th September 2017.
(e) On 15th March 2018, ‘A’ received a dividend from ABC Ltd. of 15% in respect of the year ended 31st December 2017.
(f) On 30th March 2018, ‘A’ received ₹ 14,000 from the Sale of 10,000 Shares.
Record these transactions the Investment Account in A’s books for the year ended 31st March 2018 transferring any Profits or Losses on these transactions to Profit and Loss Account. Apply Average Basis. Expenses and Tax to be ignored.

Question 29.
On 1st April 2017, XYZ 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 2017, XYZ Ltd. acquired 5.000 Equity Shares of ABC Ltd., for ₹ 1,00,000 on cum-rights basis. Vaikuntam Ltd. announced a Bonus and Rights Issue.
(a) Bonus was declared, at the rate of one Equity Share for every five Shares held, on 1st July 2017.
(b) Rights Shares re to be issued to the existing Shareholders on 1st September, 2017. The Company will issue one Right Share for every 6 Shares at 20% Premium. No. dividend was payable on these Shares.
(c) Dividend for year ended 31-3-2017 was declared by ABC Ltd. at 20%, and received by XYZ Ltd. on 31 October 2017.
(d) XYZ Ltd. – (i) Took up half the Rights Issue, and (ii) Sold the remaining rights for ₹ 8 per Share.
(e) XYZ Ltd. sold half of its shareholdings on 1st January 2018 at ₹ 16.50 per Share, Brokerage being 1%.
Prepare Investment alc of XYZ Ltd. for the year ended 31st March 2018, assuming the Shares are valued at Average Cost.

Note:50% of the Shareholdings are sold, for which cost is ₹ 1,69500 as per WN. 6. Hence. Cost of Balance 50% Shareholdings at period -end is also ₹1,69,500.

Important Notes
Sale Proceeds of Rights is to be credited to P&L A/c and not Investment A/c, since the Ex-Rights Price Is not lower than the Cost of Acquisition.
Reduce the Dividend on Shares acquired on 1st June 2017 from the cost of acquisition, to arrive at the Net Cost of Shares as on 31st March 2018. since it is Pre Acquisition Dividend.

Question 30.
The following transactions of Ram took place during the year ended 31st March 2018.

 1st April 2017 Purchased 12,00,000 8% Bonds at ₹ 80.5 cuminterest. Interest is payable on 1st November and 1st May. 12th April 2017 Purchased 1,00,000 Equity Shares of ₹ 10 each in Shyam Ltd. for ₹ 40,00,000. 1st May 2017 Received half-year’s interest on 8% Bonds. 15th May 2017 Shyam Ltd. made a bonus Issue of three Equity Shares for every two held. Ram sold 1,25.000 Bonus Shares at ₹ 20 each. 1st October 2017 Sold ₹ 3,00,000 8% Bonds at ₹ 81 ex-interest. 1st November 2017 Received half year’s Bond Interest. 1st December 2017 Received 18% Dividend on Equity Shares in Shyam Ltd.

Prepare the relevant Investment Accounts in the books of Ramajayam for the year ended 31st March 2018.

Question 31.
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 @ ₹ 108. 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 yea 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.

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. = ₹ 86,933 = (₹ 2,16,0O0 + ₹ 1 ,10,000) × 80,000/3,00,000 = ₹ 86933

(iii) Loss on sale of Debentures = ₹ 86,933 – ₹ 84,000 = ₹ 2,933 Nominal value of debentures converted into equity = ₹ 55,000 shares
[(₹ 3,00,000 -80,000) × 25]
Interest received before the conversion of debentures
Interest on 25% of total debentures = 55,000 × 8% × 2/12 = 733

(iv) Cost of Debentures converted = (₹ 2,16.000 + ₹ 1,10,000) × 55,000/3,00,000 = ₹ 59,767

(v) Cost of dosing balance of Debentures
= ( ₹2,16,000 + ₹ 1,10.000) × 1,65,000/ 3,00,000 = 1,79,300

(vii) Closing balance of Debentures has been valued at cost being lower than the market value i.e. ₹ 1,81,500 (₹ 1,65,000 @ ₹ 110)
(viii) 5,000 equity Shares in C Ltd. will be valued at cost of ₹ 59,767 being lower than the market value ₹ 75,000 ( ₹ 15 x 5,000)
Note: It is assumed that interest on debentures, which are converted into cash, has been received at the time of conversion.