DISPOSAL OF INVESTMENT

DISPOSAL OF INVESTMENTS

• On disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses is recognised in the profit and loss statement.

• When a part of the holding of an individual investment is disposed, the carrying amount is required to be allocated to that part on the basis of the average carrying amount of the total holding of the investment.

• In respect of shares, debentures and other securities held as stock-in-trade, the cost of stocks disposed of may be determined by applying an appropriate cost formula (e.g., first-in, first-out (FIFO), average cost, etc.). These cost formulae are the same as those specified in AS 2, Valuation of Inventories.

(i) Fixed Income Bearing Securities: In case the transaction is on ‘Cum-interest basis’, the amount of accrued interest from the date of last payment to the date of sale is credited in the income column and only the sale proceeds, net of accrued interest (from the date of last payment to the date of sale), is credited in the capital column of investment account.

In case the transaction is on ‘Ex-interest’ basis, entire sale proceeds is credited in the capital column and the amount of accrued interest from the date of last payment to the date of sale, separately received from the buyer will be taken to the credit side of the income column of investment account.

(ii) Variable Income Bearing Securities: In case of these securities, the entire amount of sale proceeds should be credited in the capital column of investment account, unless the amount of accrued dividend can be specifically established.

The entries in the books at the time of sale of investments will be just the reverse of the entries passed for their acquisition.