## AS 13: Ex-Interest vs Cum-Interest Pricing of Debt Securities
### The Core Problem
When debentures, bonds, or government securities are bought or sold between interest payment dates, part of the market price represents interest that has accumulated since the last payment. This must be separated from investment cost.
### Two Price Conventions
| Term | Meaning |
|---|
| Cum-Interest (Cum-Int) Price | Quoted price includes accrued interest from last due date to transaction date |
| Ex-Interest (Ex-Int) Price | Quoted price excludes accrued interest |
Fundamental Rule (AS 13): Only the ex-interest price is recorded as the cost of the investment. Accrued interest paid or received is routed through the Interest column, not the Cost column.
### Key Formulae
$$\text{Ex-Int Price} = \text{Cum-Int Price} − \text{Accrued Interest}$$
$$\text{Accrued Interest} = NV \times Rate\% \times \frac{\text{Months from last due date to transaction date}}{12}$$
### Applying on Purchase
- Cum-Int price given: Debit Investment (Cost col.) with Ex-Int price; Debit Investment (Int col.) with accrued interest paid
- Ex-Int price given: Debit Investment (Cost col.) with full price; no interest adjustment
### Applying on Sale
- Cum-Int price received: Separate accrued interest into Interest column; compare only Ex-Int sale price with FIFO cost to find profit/loss
- Ex-Int price received: Full sale proceeds go to Cost column comparison; no interest adjustment
### FIFO for Cost of Investments Sold
Maintain a running FIFO table by purchase batch:
| Batch | Units (NV) | Total Cost | Cost/Unit |
|---|
| Opening | xx | xx | xx |
| Purchase 1 | yy | yy | yy |
| Sale → deduct from earliest batch first | | | |
$$\text{Profit / Loss on Sale} = \text{Ex-Int Sale Price} − \text{FIFO Cost of units sold}$$
### Special Rule: Transaction on the Interest Due Date
When a purchase or sale falls on the same day as an interest due date:
1. First — record the buy/sell transaction
2. Second — record the interest for that due date
This prevents the departing seller from receiving interest for a period they did not hold.
### Example 1
Purchase at Cum-Int Price (CDR Q19 – 15% Debentures)
Purchase 1,000 debentures (NV ₹100, 15% p.a.) on 01.05.21.
Interest due dates: 30 June and 31 December (half-yearly).
- Cum-Int price paid = ₹1,07,000
- Last due date = 31.12.20 → months elapsed to 01.05.21 = 4 months (Jan, Feb, Mar, Apr)
- Accrued Interest = 1,000 × ₹100 × 15% × 4/12 = ₹5,000
- Ex-Int Price = ₹1,07,000 − ₹5,000 = ₹1,02,000
- Cost per debenture = ₹102
Ledger entries:
- Dr Investment A/c (Cost col.) ₹1,02,000
- Dr Investment A/c (Int col.) ₹5,000
- Cr Bank A/c ₹1,07,000
### Example 2
Sale at Ex-Int Price — Computing Loss via FIFO (CDR Q19)
Sold 1,200 debentures on 01.11.21 at ex-int sale price ₹1,14,600.
FIFO table at time of sale:
| Batch | NV | Cost | Per Deb |
|---|
| Opening (01.04.21) | 2,00,000 | 2,10,000 | ₹105 |
| Purchase (01.05.21) | 1,00,000 | 1,02,000 | ₹102 |
- FIFO cost of 1,200 debs = 1,200 × ₹105 (all from opening batch) = ₹1,26,000
- Loss = ₹1,14,600 − ₹1,26,000 = ₹11,400
- Interest received for 4 months (01.07.21 to 01.11.21) = 1,200 × ₹100 × 15% × 4/12 = ₹6,000
Note: Interest ₹6,000 and loss ₹11,400 go to separate columns — do NOT net them.
### Example 3
Sale at Cum-Int Price — Separating Interest Before Computing Profit (CDR Q19)
Sold 800 debentures on 31.12.21 at cum-int price ₹1,10,000.
- Last due date = 30.06.21 → 6 months accrued
- Accrued Interest = 800 × ₹100 × 15% × 6/12 = ₹6,000
- Ex-Int Sale Price = ₹1,10,000 − ₹6,000 = ₹1,04,000
- FIFO cost (800 remaining from opening @ ₹105) = ₹84,000
- Profit = ₹1,04,000 − ₹84,000 = ₹20,000
Key: the ₹6,000 goes to the Interest column; only ₹1,04,000 is compared with cost.
### Example 4
Purchase of Govt Securities at Cum-Int Price (CDR Q19 Variant – 9% Govt Sec)
Purchase 800 govt securities (FV ₹100, 9% p.a.) on 01.05.21.
Last due date = 31.12.20 → 4 months elapsed
- Accrued Int = 80,000 × 9% × 4/12 = ₹2,400
- Cum-Int Price = ₹76,000
- Ex-Int Price = ₹76,000 − ₹2,400 = ₹73,600 → ₹92 per security
Subsequent sale of 600 sec on 01.06.21 at cum-int ₹56,400:
- Accrued Int (5 months, Jan–May) = 60,000 × 9% × 5/12 = ₹2,250
- Ex-Int SP = ₹56,400 − ₹2,250 = ₹54,150
- FIFO cost = 600 × ₹90 = ₹54,000 (from opening balance)
- Profit = ₹54,150 − ₹54,000 = ₹150