Are you looking for problems and solutions on investment accounts? You are at the right place! In this article I have compiled top sixteen problems on investment account with its relevant solutions.
- Preparation of Bonds Account
- Preparation of Investment Account Valuing Holdings at Cost (Applying FIFO Method)
- Preparation of Ledger Account of the Investment for the Year
- Preparation of Ledger Account in the Investment Ledger
- Preparation of Investment Ledger Ignoring Income Tax and Brokerage
- Preparation of Investment Account for the Year Ended 31.2.94 Assuming Brokerage at 1/8% in Each Case
- Preparation of Investment Account Showing the Profits and Losses on the Transactions using FIFO Method
- Preparation of Loan Account in the Books of a Company (Following FIFO Method)
- Preparation of Convertible Debentures Account (Applying FIFO Method)
- Preparation of Debentures Account in the Books of a Company Showing Profit and Loss on Sale of Investment
- Preparation of Investment Account in the Books of the Investor
- Preparation of Investment Account in the Books of the Company (Ignoring Income Tax)
- Preparation of Investment Account and Profit & Loss Account
- Preparation of Investment Account in the Books of the Investor
- Preparation of Investment Account in the Books of the Broker
- Preparation of Investment Account of the Investor in the Books of the Broker
Problems on Investment Accounts
1. Preparation of Bonds Account:
On 1.1.1999, X Ltd. bought 100, 12% Govt. Bonds of Rs. 1,000 each at Rs. 940 each. On 1.8.1999, X Ltd. sold 50, 12% Debentures at Rs. 980 each.
Interest is paid half-yearly i.e. on 30th June and 31st December, every year. Prepare 12% Govt. Bonds Account assuming that the market price for the same is Rs. 990 per bond.
2. Preparation of Investment Account Valuing Holdings at Cost (Applying FIFO Method):
Jaipur Investments Ltd. holds 1,000,15% Debentures of Rs. 100 each in Udaipur Industries Ltd. as on 1st April 1999, at a cost of Rs. 1,05,000. Interest is payable on 30th June and 31st December every year. On 1st May 1999, 500 Debentures are purchased cum-interest at Rs. 53,500. On 1st November 1999, 600 Debentures are sold ex-interest at Rs. 57,300. On 30th November 1999, 400 Debentures are purchased ex- interest at Rs. 38,400. On 31st December 1999, 400 Debentures are sold cum-interest for Rs. 55,000.
Prepare Investment Account valuing holdings on 31st March 2000 at cost (applying F.I.F.O. method.)
6. Notes: Profit on Sale: (on 31st March 1999):
In this problem, profit on sale of all investments are transferred to Profit and Loss Account at the end of the year.
3. Preparation of Ledger Account of the Investment for the Year:
On 15th March O.P. Ltd. purchased Rs. 1,00,000, 9 per cent Govt. Stock (interest payable on 1st April, 1st July, 1st October and 1st January) at 88½ cum-interest. On 1st August Rs. 20,000 stock is sold at 89 cum-interest and on 1st September Rs. 30,000 stock is sold at 88¼ Ex-interest. On 31st December, the date of the Balance Sheet, the market price was Rs. 90.
Show the ledger account of the Investment for the year, ignoring Income Tax, Brokerage etc. and making apportionments in month.
4. Preparation of Ledger Account in the Investment Ledger:
On 1st March 1992, XY Corporation Ltd. purchased Rs. 30,000, 5% Government Stock at Rs. 95 cum-interest. On 1st May 1992, the company sold Rs. 10,000 of Stock at Rs. 97 cum-interest. On 15th December 1992, another Rs. 10,000 Stock was sold at Rs. 93 ex-interest. On 31st December 1992, the closing date of the financial year, the market price of the Stock was Rs. 92.
Half-yearly interest is received every year as on 30th June and 31st December.
Prepare a ledger account in the investment ledger assuming that the stock transfer book is closed 20 days before the date of payment of interest. Ignore income tax and brokerage.
6. Nominal value of stock on 31.12.1992 less Rs. 10,000 but the principal was Rs. 9,416, But as per market (since it is less than cost) price, it should be 1,000 x 92 = Rs. 9,200, so that is a loss of valuation, viz. 9,416 – Rs. 9,200 = Rs. 216 for which P & L A/c should be debited. Because stock should be valued at cost price or market prices, whichever is lower.
5. Preparation of Investment Ledger Ignoring Income Tax and Brokerage:
On 1st January 1994, X Ltd. held as investment Rs. 50,000, 6% Government Stock costing Rs. 47,000 On 31st March, a purchase of Rs. 2,00,000 of same Government Stock was made at Rs. 95 cum-interest. On 1st July, the company sold Rs. 1,00,000 stock Rs. 96. On 1st October, a further Rs. 70,000 of the investment was sold at Rs. 98 cum-interest. The market price of the stock on 31.12.94 was Rs. 99 (ex-interest).
Half yearly interest is payable on 30th June and 31st December every year. Prepare the Investment Ledger of the company ignoring income tax and brokerage.
6. Preparation of Investment Account for the Year Ended 31.2.94 Assuming Brokerage at 1/8% in Each Case:
MN Ltd. bought and sold 6% Stock as follows, interest being payable on March 31 and September 30 each year:
Prepare Investment A/c for the year ended 31.2.94 assuming brokerage at 1/8% in each case.
7. Preparation of Investment Account Showing the Profits and Losses on the Transactions using FIFO Method:
Sohini Finance Ltd. has done the following transactions in 12% State Govt. Stock between 1st September 1992 an 30th June 1994 and all these transactions are cum-interest excepting those marked Ex- interest. Interest is payable on 30th June and 31st December.
The accounting periods ends on 30th June every year:
1.10.92 – Purchased Rs. 10,000 stock @ Rs. 101.50, brokerage Rs. 1.50
1.10.92 – Purchased Rs. 25,000 stock @ Rs. 102.50, brokerage Rs. 1.50.
1.11.92 – Sold Rs. 15,000 Rs. 104.50, brokerage Rs. 1.50.
1.11.92 – Purchased Rs. 5,000 stock @ Rs. 103.50 (including brokerage).
15.1.93 – Sold Rs. 10,000 stock @ Rs. 106.50, brokerage Rs. 1.50 Ex-interest.
1.3.93 – Sold Rs. 4,000 stock @ Rs. 103.50, brokerage Rs. 1.50.
15.7.93 – Purchased Rs. 15,000 stock @ Rs. 102.50, brokerage Rs. 1.50 Ex-interest.
31.3.94 – Sold Rs. 15,000 stock @ Rs. 105.50, brokerage Rs. 1.50
1.5.94 – Purchased Rs. 2,000 stock @ Rs. 103.50, brokerage Rs. 1.50
Write-up Investment Account in the books of Sohini Finance Ltd., showing the profits and losses on the transactions using FIFO method.
8. Preparation of Loan Account in the Books of a Company (Following FIFO Method):
Bonanzaa Ltd. held on 1.4.1993 Rs. 2,00,000 of 9% Govt. Loan (2003) at Rs. 1,90,000 (Face value of Loan Rs. 100 each). Three months’ interest had accrued on the above date. On 31st May 1993 the company purchased the same Govt. loan of the face value of Rs. 80,000 at Rs. 95 (Net) cum-interest.
On 1st June 1993, Rs. 60,000 face value of the loan was sold at Rs. 94 (Net) ex-interest. Interest on the loan was paid each year on 30th June and 31st December and was credited by the bank on the same date. On 30th Nov. 1993 Rs. 40,000 face value of the loan was sold at Rs. 97 (Net) cum-interest. On 1st Dec. 1993, the company purchased the same loan Rs. 10,000 at par ex-interest.
On 1st March 1994, the company sold Rs. 10,000 face value of the loan at Rs. 95 ex-interest. The market price of the loan on 31st March 1994 was Rs. 96. Draw up the 9% Govt. Loan (2003) Account in the books of Bonanzaa Ltd. 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.
9. Preparation of Convertible Debentures Account (Applying FIFO Method):
Rupa Co. Ltd. was dealing in 12% Convertible Debentures of FBI Co. Ltd.
Rupa Co. Ltd. furnished the following details about its transactions:
1.1.1996 Opening balance face value Rs. 3,00,000, cost Rs. 2,50,000
1.3.1996 Purchased Rs. 1,20,000 Convertible Debentures @ 91⅞% Cum Interest.
15.6.1996 Sold Rs. 50,000 Convertible Debentures @ 93 Fs. 93⅝% Cum Interest
1.8.1996 Purchased Rs. 80,000 Convertible Debentures @ 90⅜% Ex Interest.
1.9.1996 Sold Rs. 40,000 Convertible Debentures @ 94⅛% Ex Interest
30.12.1996 FBI Ltd. converted 10% of Debentures held into 4,000 Equity Shares of Rs. 10 each.
Interest being payable on March 31 and September 30 each year.
Prepare 12% Convertible Debentures Account for the year ended 31.12.1996. Brokerage is payable 1/8% in each case. Apply FIFO Method.
10. Preparation of Debentures Account in the Books of a Company Showing Profit and Loss on Sale of Investment:
On 1st April 1999, XY & Co. held 9% Debentures in B. Ltd. of the face value of Rs. 10,000 at a cost of Rs. 8,000. Market value on that date was Rs. 9,000. Interest is payable on 31st December every year. On 1st December 1999, Debentures of nominal value of Rs. 6,000 were purchased for Rs. 5,000 ex-interest and, on 31st December 1999, Debenture of Nominal value Rs. 2,000 were sold cum-interest for Rs. 1,900. On 1st Jan. 2000 Debentures of nominal value Rs. 6,000 were bought at Rs. 5,800. The market value of the Debentures on 31st March 2000 was at Rs. 90.
Make out 9% Debentures Account in the books of XY Co. Ltd. showing profit and loss on sale of Investment. Stocks on 31st March each year is valued at lower of cost or market price.
11. Preparation of Investment Account in the Books of the Investor:
Mr. Investor furnishes the following details relating to his holding in 6% Government Bonds:
Opening balance Face Value Rs. 60,000 — Cost Rs. 59,000.
1.3.1996 — 100 units purchased ex-interest at Rs. 98.
1.7.1996 — Sold 200 ex-interest out of the original holding at Rs. 100.
1.10.1996 — Purchased 50 units at Rs. 98 cum-interest.
1.11.1996 — Sold 200 units ex-interest at Rs. 99 out of the original holding.
Interest dates are 30th September and 31st March. Mr. Investor closes his books every 31st December. Show the Investment Account as it would appear in his books.
12. Preparation of Investment Account in the Books of the Company (Ignoring Income Tax):
On 1.1.1995, X. Ltd. had 10,000 Equity shares of Rs. 10 each in Alpha Ltd. purchased for Rs. 1,25,000. The company, unlike Investment Companies, does not make any apportionment of dividends (received or receivable) in between capital and revenue.
On 15.5.1995, the Alpha Ltd. made a bonus issue of 1 fully paid share for 2 held on 15.5.1995. In addition, on the same day, Right shares were issued at 3 for 5 held on that date at a premium of Rs. 3, Rs. 7 to be paid on application and the balance in one call after a month. These shares are not to rank for dividend for the year ending 30th June 1995. 2,000 Right shares were taken up by X Ltd., balance Right being sold at Rs. 2 each on 25.5.1995.
On 15.10.1995, the company declared a dividend of 20% for the year ending 30th June 1995.
Make out the Investment Account in the books of X. Ltd. Ignore Income-tax.
13. Preparation of Investment Account and Profit & Loss Account:
On 1.4.96, Sundar had 25,000 equity shares of ‘X’ Ltd at a book value of Rs. 15 per share (Face value Rs. 10). On 20.6.96, he purchased another 5,000 shares of the company at Rs. 16 per share. The directors of ‘X’ Ltd. announced a bonus and rights issue. No dividend was payable on these issues.
The terms of the issue are as follows:
Bonus basis 1: 6 (Date 16.8.96).
‘Rights’ basis 3: 7 (Date 31.8.96) Price Rs. 15 per share
Due Date for payment 30.9.96.
Shareholders can transfer their ‘Rights’ in full or in part, accordingly Sundar sold 33 1/3% of his entitlement to Sekhar for a consideration of Rs. 2 per share.
Dividends for the year ended 31.3.96 at the rate of 20% were declared by X Ltd. and received by Sundar on 31.10.96. Dividends for shares acquired by him on 20.6.96 are to be adjusted against the cost of purchase.
On 15.11.96, Sundar sold 25,000 equity shares at a premium of Rs. 5 per share.
You are required to prepare in the books of Sundar:
(1) Investment Account
(2) Profit & Loss account.
For your exercise, assume that the books are closed on 31.12.96 and shares are valued at average cost.
14. Preparation of Investment Account in the Books of the Investor:
On 1.4.1994 Sumana had 20,000 Equity shares in X Ltd. Face value of the shares was Rs. 10 each but their book value was Rs. 16 per share.
On 1.6.1994, Sumana purchased 5,000 more Equity shares in the company at a price of Rs. 4 per share.
On 30.6.1994, the Directors of X Lid. announced a Bonus and Right issue. Bonus was declared at the rate of one Equity share for every five shares held and these shares were received on 2nd August 1994.
The terms of the Rights Issue were:
(a) Rights shares to be issued to the existing holders on 10.8.1994.
(b) Rights issue would entitle the holders to subscribe to additional Equity shares in the company at the rate of one share per every three held at Rs. 15 per share — the whole sum being payable by 30.9.1994.
(c) Existing shareholders may, to the extent of their entitlement, either wholly or in part, transfer their rights to outsiders.
(d) Sumana exercised her option under the issue for 50% of her entitlements and the balance of rights she sold to Suparna for a consideration of Rs. 1.50 per share.
(e) Dividends for the year ended 31.3.1994, at the rate of 15% were declared by the company and received by Sumana on 20.10.1994.
(f) On 1.11.1994, Sumana sold 20,000 Equity shares at a premium of Rs. 3 per share.
Show the Investment Account as it would appear in Sumana’s book as on 31.12.1994 and the value of shares held on that date.
It is assumed that Sumana’s accounting year starts from 1st April and ends on 31st March and that is why balance of income account is not transferred to Profit and Loss A/c.
15. Preparation of Investment Account in the Books of the Broker:
Mr. Shape dealt on the stock exchange and had purchased and sold leading scripts but did not maintain his accounts in a proper manner.
He furnished the following data:
Investment on hand as at July 1,1996:
300-3% Conversion Loan 1946-86 of Rs. 100 each Purchased at Rs. 60.
250-Equity shares of Rs. 10 each of Everlite Limited at Rs. 18 per share.
1,000-9% Preference shares of Rs. 100 each of Prosperous Limited at Rs. 95.
Transactions during the year
750 Equity share of Rs. 10 each of Everlite Ltd., at Rs. 23.
250 Equity shares of Rs. 10 each of Small Limited at Rs. 9.
125 Equity shares of Rs. 10 each of Bright Shipping Ltd. at Rs. 12.
100-3% Conversion Loan 1946-86 at Rs. 65.
100-9% Preference shares of Prosperous Ltd. at Rs. 99.
3% Conversion Loan 1946-Interest Received Rs. 900.
9% Preference shares of Prosperous Ltd. Rs. 9,000.
Everlite Ltd.-Dividend at 20 per cent on 1,000 shares Rs. 2,000.
Everlite Limited issued Bonus shares and Mr. Shape received 1,000 shares of the Company as Bonus Shares.
You are required to show the Investment Account in the books of Mr. Shape.
B. Broker’s Account:
Broker purchases and sells securities on behalf of his clients. Practically, purchases and sales are, made in the name of the client on his information without the receipt of cash or scripts and, consequently, the settlement of payment is made by payment of difference and not by actual delivery or by payment (already stated earlier).
However, the cost price of the share along with brokerage is debited in client’s account and similarly, the sales minus brokerage is credited in his account against the particular share.
It should be remembered in this respect that brokerage should always be calculated on the face/nominal value of shares and not on the cost/selling price of the same. (No brokerage is usually charged on sale if the same shares are purchased and sold in the same settlement day.)
It has already been stated that the accounts are settled on the settlement or contango day at the end of settlement period. The period may be either 15 days or one month.
If, however, the party does not want to settle the account he may carry forward to the next settlement period and the difference after carrying forward is made by Cash. For this carry forward, the broker makes a charge. The charge is called contango when the payment is due and the same is called backwadation when the delivery is due.
The proportionate contango or backwadation in relation to the portion of settlement period which falls in the next year is carried forward at the time of closing the accounts.
16. Preparation of Investment Account of the Investor in the Books of the Broker:
Jayanta Mukherjee has the following transactions with his stockbroker M/s Banerjee & Co., Calcutta:
May 1. Buys 100 Imperials of Rs. 100 each @ Rs. 124.50.
4. Buys 80 United Mills 4% Cumulative Pref. shares of Rs. 100 each at Rs. 70.
7. Sales 100 Imperials at Rs. 126.
9. Buys 40 Phoenex 8% Pref. shares of Rs. 100 each at Rs. 115.
A commission of ½% is charged on the nominal value of shares bought or sold. Jayanta arranged for the unsold stock to be carried forward. The prices of the United Mills on the contango day is Rs. 69 and that of Phoenex Rs. 115.75. The contango rate is 1/8% of the nominal value of shares carried forward. Prepare Jayanta’s Account in the books of the broker.