## Ex-Interest Purchase and Sale of Debentures (AS 13)
### Core Concept
When a debenture is quoted ex-interest, the market price excludes accrued interest. The buyer pays the quoted price plus a separate amount for interest accrued from the last coupon date to the purchase date.
| Item | Treatment |
|---|---|
| Ex-interest price paid | Debit Investment in Debentures A/c |
| Accrued interest paid separately | Debit Interest Expense A/c |
### Purchase Journal Entry (Ex-Interest)
```
Dr. Investment in Debentures A/c [Ex-interest price]
Dr. Interest Expense A/c [Accrued interest paid to seller]
Cr. Bank A/c [Total cash outflow]
```
This mirrors the cum-interest treatment — the split is the same; only the mechanism differs.
---
### Sale of Debentures
#### Case A – Ex-Interest Sale Price Given
No interest is included in the sale proceeds. Compute profit as:
$$\text{Profit / (Loss)} = \text{Ex-Interest Sale Price} - \text{Carrying Amount of Investment}$$
Journal Entry:
```
Dr. Bank A/c [Ex-interest proceeds]
Cr. Investment in Debentures A/c [Carrying amount]
Cr. Profit on Sale A/c [Profit, if any]
```
Separately, interest accrued from last coupon to sale date:
```
Dr. Bank A/c (included in sale settlement)
Cr. Interest Income A/c
```
#### Case B – Cum-Interest Sale Price Given
The sale price includes accrued interest that must be stripped out before computing profit.
$$\text{Accrued Interest in Sale Price} = \text{Face Value} \times \text{Rate\%} \times \frac{\text{Months since last coupon}}{12}$$
$$\text{Ex-Interest Sale Price} = \text{Cum-Interest Price} - \text{Accrued Interest}$$
$$\text{Profit / (Loss)} = \text{Ex-Interest Sale Price} - \text{Carrying Amount}$$
Journal Entry:
```
Dr. Bank A/c [Cum-interest proceeds]
Cr. Investment in Debentures A/c [Carrying amount]
Cr. Interest Income A/c [Accrued interest stripped]
Cr. Profit on Sale A/c [Profit on the investment itself]
```
### Key Rule
The Investment account always moves at carrying amount (cost). Interest — whether paid at purchase or received at sale — never passes through the Investment account balance.