COST OF INVESTMENTS

COST OF INVESTMENTS
1. The cost of an investment includes acquisition charges such as brokerage, fees and duties.

2. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued.

The fair value may not necessarily be equal to the nominal or par value of the securities issued.

If an investment is acquired in exchange, or part exchange, for another asset, the acquisition cost of the investment is determined by reference to the fair value of the asset given up or the fair value of the investment acquired, whichever is more clearly evident.

3. A separate Investment Account should be made for each scrip purchased. The scrips purchased may be broadly divided into two categories, viz.

The entries in Investment Account for these two broad categories of scrips will be made as under :

(i) Fixed income Bearing Securities : These refer to securities having fixed return of income. Investment in Government securities or debentures comes under this category.

Transaction for fixed income bearing securities may occur on following basis:

(a) Ex-interest basis

(b) Cum- interest basis

(ii) Variable Income Bearing Securities: These refer to securities having variable return of income. Investment in equity shares comes under this category. The following points should be noted with respect to investment in equity shares:

(a) dividends from investments in shares are not recognised in the statement of profit and loss until a right to receive payment is established;

(b) the amount of dividend accruing between the date of last dividend payment and the date of purchase cannot be immediately ascertained.