## Brokerage and Stamp Duty on Debenture Transactions (AS 13)
### Principle
AS 13 Para 13 states that acquisition charges (brokerage, fees, stamp duty) form part of the cost of the investment. Conversely, charges incurred on sale are deducted from sale proceeds when computing profit or loss.
| Charge | Incurred on | Treatment |
|---|
| Brokerage | Purchase | Add to cost of investment |
| Stamp Duty | Purchase | Add to cost of investment |
| Other direct acquisition costs | Purchase | Add to cost of investment |
| Brokerage | Sale | Deduct from sale proceeds (net sale price) |
### Important: Brokerage Base
- Brokerage on purchase is typically computed on the ex-interest purchase price (not on the interest component).
- Stamp duty is often a fixed percentage of the face value or stated as a percentage of the yearly interest.
### Formula for Cost of Investment (with charges)
$$\text{Cost} = \text{Ex-Interest Price} + \text{Brokerage on Purchase} + \text{Stamp Duty}$$
### Formula for Net Sale Proceeds (with charges)
$$\text{Net Sale Proceeds (Ex-Interest)} = \text{Ex-Interest Sale Price} - \text{Brokerage on Sale}$$
$$\text{Profit / (Loss)} = \text{Net Sale Proceeds (Ex-Interest)} - \text{Carrying Amount}$$
### Journal Entry on Purchase (with charges)
```
Dr. Investment in Debentures A/c [Ex-int price + Brokerage + Stamp Duty]
Dr. Interest Expense A/c [Accrued interest]
Cr. Bank A/c [Total cash paid]
```
### Example 1
Example 5 – Brokerage and Stamp Duty on Purchase:
- 01.06.Y1: Purchased 10,000 × 12% Deb (FV ₹100) @ ₹101 ex-interest
- Interest due dates 30.09 and 31.03 (2 months accrued at purchase)
- Additional: Brokerage 2% on ex-interest price; Stamp duty 0.05% on face value of yearly interest (i.e., 0.05% × FV × rate)
Compute cost of investment:
| Item | Calculation | Amount |
|---|
| Ex-interest price | 10,000 × ₹101 | ₹10,10,000 |
| Brokerage @ 2% | ₹10,10,000 × 2% | ₹20,200 |
| Stamp duty @ 0.05% | ₹10,10,000 × 0.05% | ₹505 |
| Cost of Investment | | ₹10,30,705 |
Accrued interest (2 months):
10,000 × 100 × 12% × 2/12 = ₹20,000
Journal Entry – 01.06.Y1:
```
Dr. Investment in 12% Deb A/c 10,30,705
Dr. Interest Expense A/c 20,000
Cr. Bank A/c 10,50,705
```
### Example 2
Example 6 – Brokerage on Sale (Cum-Interest):
- Opening balance: 10,000 × 12% Deb, carrying amount ₹10,10,000
- 01.05.Y1: Sold all @ ₹104 cum-interest; brokerage 1% on ex-interest proceeds
- Interest due date: 01.04; 1 month accrued at sale date
Step 1 – Strip accrued interest:
Accrued interest (1 month) = 10,000 × 100 × 12% × 1/12 = ₹10,000
Ex-interest sale price = ₹10,40,000 − ₹10,000 = ₹10,30,000
Step 2 – Deduct brokerage on sale:
Brokerage = ₹10,30,000 × 1% = ₹10,300
Net ex-interest proceeds = ₹10,30,000 − ₹10,300 = ₹10,19,700
Step 3 – Profit on sale:
₹10,19,700 − ₹10,10,000 = ₹9,700 profit
Journal Entry – 01.05.Y1:
```
Dr. Bank A/c 10,19,700
Dr. Bank A/c (interest) 10,000
Cr. Investment in 12% Deb A/c 10,10,000
Cr. Profit on Sale (P&L) A/c 9,700
Cr. Interest Income A/c 10,000
```