## Investment in Bonds — Interest Separation, Partial Sale, and Accrual (AS 13)
### 1. Cum-Interest vs Ex-Interest
Bonds carry a fixed coupon. Between coupon dates, interest accrues. The purchase price may or may not include this accrued interest.
| Term | Meaning | Action Required |
|---|---|---|
| Cum-Interest | Price includes accrued interest | Separate interest from cost |
| Ex-Interest | Price excludes accrued interest | Record as pure cost; collect interest independently |
### 2. Separating Interest on Purchase (Cum-Interest)
```
Interest Paid = Face Value × Rate × Months Since Last Coupon / 12
Ex-Interest Cost = Total Price Paid − Interest Paid
```
In the investment ledger, the Interest column and Amount column are maintained separately.
### 3. Profit / Loss on Partial Sale
```
Average Cost per Bond = Total Ex-Interest Cost ÷ Total Bonds Held
Carrying Cost of Bonds Sold = Average Cost × Bonds Sold
Profit / (Loss) = Sale Proceeds (ex-int) − Carrying Cost
```
On sale date, also recognise interest accrued from last coupon date to sale date.
### 4. Year-End Interest Accrual
Interest earned but not yet due at the balance sheet date must be accrued:
```
Accrued Interest = Remaining Face Value × Rate × Months / 12
```
This appears in the Interest column on the credit side of the ledger (closing balance).
### 5. Ledger Format (3-Column Investment Account)
| Particulars | NV | Int | Amount |
|---|---|---|---|
| Opening balance / Purchases | Face value | Int paid (if cum-int) | Total paid |
| Cr: Interest received | — | Amount | — |
| Cr: Sale | NV of bonds sold | Int (if ex-int sale) | Proceeds |
| Cr: Profit on sale | — | — | Profit |
| Cr: Closing balance | Remaining NV | Accrued int | Carrying cost |