14 June 2012
Investments under AS 13 are to be accounted at Cost.
Hence the entry would be: Deep Discount Bonds Dr. 70,000 To Bank Cr. 70,000
Excerpt from AS 9 - Revenue recognition. 8.2 Interest accrues, in most circumstances, on the time basis determined by the amount outstanding and the rate applicable. Usually, discount or premium on debt securities held is treated as though it were accruing over the period to maturity.
Hence income entry would be based on th eeffcetive yield or return on the investment during the holding period.
In the given case, the return of Rs 1 lac will be received by holding it for 3 years and hence each year the entity should accrue Rs 33,333. (SLM). Under IFRS it would be on effective Interest rate method which similar to annual compounding concept.
Income Entry :
Deep Discount Bonds Dr. 33,333 To Income Cr. 33,333
(pass this entry for three years)
AT the end of the term, the Deep discount bonds will be standing at Rs 170000.
AT the time of receipt Bank Dr. 170000 To Deep Discount Bonds Cr. 170000
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