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📚 Learn/ / AS 13 - Accounting for Investments
Microlesson · 5-min read

Comprehensive Investment Account – Government Bonds with Opening Balance

## Comprehensive Investment Account: Government Bonds

### Key Features of Government Bond Problems

1. Opening balance carries NV, Accrued Interest, and Cost from prior year — all three columns have opening figures.

2. Accrued interest on opening balance is brought forward in the Int column (interest accrued last year but received this year).

3. Purchases mid-year: same Ex-Interest treatment — identify months of interest paid.

4. Sales: split proceeds into Ex-Int portion (Cost column) and interest portion (Int column).

5. Interest receipts on due dates: credit Int column; net of opening accrual = income.

### Structure of Three-Column Ledger (Recap)

```

Dr. Investment in _% Govt Bonds Cr.

-----------------------------------------------------------------------

Date | Particulars | NV | Int | Cost | Date | Particulars | NV | Int | Cost

```

### Profit/Loss on Sale: FIFO or Weighted Average

  • Compare net sale price (Cost column Cr) against Carrying Amount (Cost column Dr for those units).
  • Difference = Profit (Cr to P&L) or Loss (Dr to P&L).

### NV Column Verification

At year-end, check:

```

Opening NV + Purchases NV = Sales NV + Closing NV

```

If this doesn't balance, you have missed a transaction.

### Year-End Int Column

  • All interest receipts and accruals should net off.
  • Any residual in the Int column = net interest income for the year → transfer to P&L.
  • If year-end accrual exists (due date ≠ year-end), record it separately as Interest Receivable (not in Investment A/c).

Worked example

### Example 1

Q1 – Government Bonds Problem Summary

Opening Balance (01.01.X1): NV 1,20,000 | Int Accrued 2,750 | Cost 1,18,000

01.03.X1 – Purchase 200 Bonds @ ₹98 (Ex-Int):

  • NV addition = 20,000
  • Ex-Int purchase price = 200 × 98 = 19,600 → Cost Dr.
  • Int paid (2 months, assuming half-yearly coupon) = 750 → Int Dr.

01.07.X1 – Sale 500 Bonds:

  • NV removed = 50,000
  • Net sale proceeds → Cost Cr.
  • Interest on sale → Int Cr.
  • FIFO: use opening lot cost first (NV 1,20,000 @ Cost 1,18,000 → ₹98.33/bond)
  • Cost of 500 bonds = 500 × 98.33 = 49,167 → Carrying Amount
  • Profit/Loss = Sale Proceeds − 49,167

31.03.X1 – Interest Due:

  • Int received → Cr. Int column
  • Running total in Int column netted to zero; surplus = P&L income.

30.09.X1 – Interest Due:

  • Similar treatment.

01.11.X1 – Purchase 150 Bonds @ ₹98 (Ex-Int):

  • NV addition = 15,000
  • Cost Dr. = 150 × 98 = 14,700

01.12.X1 – Sale 300 Bonds:

  • NV removed = 30,000
  • FIFO cost applied.

31.12.X1 – Year-End:

  • Closing NV balance = 75,000
  • NV Check: 1,20,000 + 20,000 + 15,000 − 50,000 − 30,000 = 75,000 ✓
  • Closing Cost balance = ₹73,633 (from ledger)
  • Transfer net Int column balance to P&L.
  • Check if year-end accrual needed (interest due dates vs year-end).

⚠️ Common exam mistakes

  • Forgetting to bring forward opening accrued interest in the Int column — this is already income 'earned' last year, so when received this year it should not be double-counted as income.
  • Not checking the NV column balance — skipping this step means undetected errors in quantity.
  • Computing interest on sale using face value but applying wrong rate or period.
  • Under FIFO, computing average cost of all lots rather than strictly using the oldest lot's unit cost.
  • Leaving a debit balance in the Int column at year-end and not transferring it to P&L.
Reference:
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