AS 13 — Sale of Debentures: Cum-Interest vs Ex-Interest Price

## Sale of Debentures: Separating Interest from Sale Price

### Core Concept

When debentures (debt securities) are sold, the sale price may be quoted cum-interest or ex-interest.

### Why This Matters

The Investment Account tracks only the cost (capital) of the security. Accrued interest belongs to the Interest Income / Receivable Account. Mixing them inflates or distorts profit on sale.

### Step-by-Step: Selling Debentures at Cum-Interest Price

1. Identify accrued interest = Face Value × Rate × (Months since last coupon ÷ 12)

2. Compute Ex-Interest price = Cum-Interest price − Accrued interest

3. Profit on sale = Ex-Interest price − Cost of securities sold

4. Journal entry:

```

Bank A/c Dr (full cum-int proceeds)

To Investment in Debentures A/c (ex-int proceeds)

To Interest Receivable / Income A/c (accrued interest)

```

### Step-by-Step: Buying Debentures at Ex-Interest Price (between coupon dates)

The buyer pays ex-interest price plus the seller's share of accrued interest.

```

Investment in Debentures A/c Dr (ex-int cost)

Interest A/c Dr (interest paid to seller — recoverable at next coupon)

To Bank A/c (total cash paid)

```

At the next coupon date the full coupon is received; the portion paid to the seller is netted off, leaving only the buyer's own interest as income.

### Accrued Interest at Year-End

On remaining holdings at the balance-sheet date, accrue interest earned but not yet received:

```

Interest Receivable A/c Dr

To Interest Income A/c

```

### Cost Method for Debentures (AS 13)

Debentures are long-term investments carried at cost less permanent diminution. The ex-interest sale price is compared to cost to compute capital gain/loss.