Investment Accounting Journal Entries
Investment accounting involves recording financial transactions related to investments made by a company. This include investments in stocks, bonds, mutual funds, or other financial instruments. Here are some common investment-related journal entries.
Example 1: Initial Purchase of Investment
Assume a company purchases shares worth ₹200,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Investment in Shares A/c | 200,000 | |
| To Cash/Bank A/c | 200,000 | |
| (Being shares purchased for cash) |
Example 2: Receiving Dividend Income
Assume the company receives a dividend of ₹5,000 from its investment.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 5,000 | |
| To Dividend Income A/c | 5,000 | |
| (Being dividend income received) |
Example 3: Revaluation of Investment (Fair Value Adjustment)
Assume the fair value of the investment increases by ₹10,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Investment in Shares A/c | 10,000 | |
| To Unrealized Gain on Investment A/c | 10,000 | |
| (Being revaluation of investment to fair value) |
Example 4: Selling Investment
Assume the company sells the shares for ₹220,000, originally purchased for ₹200,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 220,000 | |
| To Investment in Shares A/c | 200,000 | |
| To Gain on Sale of Investment A/c | 20,000 | |
| (Being shares sold at a gain) |
Example 5: Recognizing an Impairment Loss
Assume the fair value of the investment decreases by ₹15,000, and the company recognizes this as an impairment loss.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Impairment Loss on Investment A/c | 15,000 | |
| To Investment in Shares A/c | 15,000 | |
| (Being recognition of impairment loss on investment) |
Example 6: Interest Income from Bonds
Assume the company receives ₹8,000 as interest income from its investment in bonds.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 8,000 | |
| To Interest Income A/c | 8,000 | |
| (Being interest income received from bonds) |
Detailed Examples:
Example 7: Purchasing Bonds at a Discount
Assume the company purchases bonds with a face value of ₹100,000 at ₹95,000 (discount of ₹5,000).
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Investment in Bonds A/c | 100,000 | |
| To Cash/Bank A/c | 95,000 | |
| To Discount on Bonds Payable A/c | 5,000 | |
| (Being bonds purchased at a discount) |
Example 8: Amortization of Bond Discount
Assume the company amortizes ₹1,000 of the bond discount.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Interest Expense A/c | 1,000 | |
| To Discount on Bonds Payable A/c | 1,000 | |
| (Being amortization of bond discount) |
These journal entries help record the financial transactions related to investments, ensuring accurate reflection of the company's financial position and performance related to its investment activities.
