Accounts Notes: Investment Accounting

Wednesday 4 May 2011

Investment Accounting

Journal Entries of transactions relating to investment

1. When investment is purchased interest date

Investment account Debit ( Quoted price + brokerage ) X No. of investment
bank account Credit

2. When interest or dividend is received after purchase

Bank Account Debit
Investment Account Credit

3. When investment is sold at interest date

Bank Account debit
investment account Credit

4. For transfer of interest or dividend to profit and loss account at the end of year ( but there is no need to enter this entry in tally 9 because tally 9 automatically transfer to profit and loss account )

Interest account or dividend account debit
Profit and loss account credit

5. Pass the journal entry of profit on sale of investment in manual or tally 9 both

Investment Account Debit
Profit and loss account Credit

6. At end of year show investment at cost price or market price which is less as asset in balance sheet ( but need no do in tally 9)

Example

On 1st jan 2008 S.P. Ltd purchase 1000 15 % debentures of Reliance Ltd. Of Rs. 100 each @ Rs. 96 each . On 1st july 2008 , ½ of debentures were sold at Rs. 99 each . Debenture interest is payable half yearly on 30th june and 31st December . Pass voucher entries in tally 9

Working notes
1) Interest on 30th june 2008 will be received 15% on Rs 100000 for 6 months interest = Rs. 100000 X 15/100 X 6/12 = Rs. 7500

2) ½ of debentures were sold @ Rs. 99 . Therefore sale proceeds will be Rs. 99 X 500 = Rs. 49500

3) Interest on 31st December 2008 will be received @ 15% on Rs. 50000 for 6 months . Interest = Rs. 50000 X 15/100 X 6/12 = Rs. 3750
4) profit on sale of investment = 49500-48000 = Rs. 1500

For recording above transaction in tally 9

1) First of all create S.P. Ltd in tally 9

2) Activate interest calculation in feature F11

3) Create ledger of 15 Debenture in reliance Co. account under investment account , bank account under bank account , Interest account under indirect income .

4) Pass the voucher entry of purchasing investment in payment voucher, sale of investment in receipt voucher and interest received on investment is in receipt voucher and profit on sale of investment transfer to profit and loss account in journal voucher