Investment accounting

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Pulkit Gupta (Querist)
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13 March 2013 Respected sir/ma'am
When we sell Fixed asset on profit we pass the following journal entry:

1.Bank A/C Dr.
To Fixed Asset A/C(cost)
To P&L A/C(profit)

But when we sell investments (in the form of shares or debentures) we pass the following entries:

1.Bank A/C Dr.
To Investment A/C(Selling Price)

2.Investment A/c Dr.
To P&L A/C(profit)

Why The difference??????

Sandip R Lathiya

Sandip R Lathiya (Expert)
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13 March 2013 Good Question
1.Fixed assest is our trading investment,but investment is non trading investment so it is doing that thing i.e. diffrance to pass journal entry

Pulkit Gupta

Pulkit Gupta (Querist)
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18 March 2013 Can you please elaborate.......i mean i agree investments are non trading....so dis may be done....but whats d benefit/logic in doing so...???

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 The accounting treatment for the sale of fixed assets and investments differs due to the nature of these assets and the way their gains or losses are recognized. Here's a detailed explanation of why the entries differ:

### **Accounting for Sale of Fixed Assets**

**Journal Entry for Sale of Fixed Asset:**

1. **When Selling Fixed Assets:**
- **Bank A/C Dr.** (for the selling price received)
- **Fixed Asset A/C Cr.** (for the original cost of the asset)
- **P&L A/C Cr.** (for the profit, if any, realized on the sale)

**Explanation:**
- **Bank A/C Dr.:** Represents the cash or bank amount received from the sale.
- **Fixed Asset A/C Cr.:** Removes the original cost of the asset from the books.
- **P&L A/C Cr.:** The profit or loss on sale is recognized in the Profit & Loss account. If the selling price is greater than the book value of the asset, the difference is a profit.

### **Accounting for Sale of Investments**

**Journal Entry for Sale of Investments:**

1. **When Selling Investments:**
- **Bank A/C Dr.** (for the selling price received)
- **Investment A/C Cr.** (for the cost of the investment sold)
- **P&L A/C Cr./Dr.** (for the profit or loss, if any, realized on the sale)

**Explanation:**
- **Bank A/C Dr.:** Represents the cash or bank amount received from the sale.
- **Investment A/C Cr.:** Removes the cost of the investment from the books.
- **P&L A/C Cr./Dr.:** The profit or loss on sale is recognized in the Profit & Loss account. If the selling price is greater than the cost of the investment, it results in a profit. Conversely, if the selling price is less than the cost, it results in a loss.

### **Key Differences Explained**

1. **Nature of Assets:**
- **Fixed Assets:** These are long-term assets used in operations, and their depreciation over time affects their book value. When selling, you adjust for the original cost and recognize profit or loss based on the difference between selling price and book value.
- **Investments:** These are typically financial assets held for income or capital gain. The cost of investments is directly recorded, and gains or losses are recognized based on the difference between the selling price and the cost.

2. **Accounting Treatment:**
- **Fixed Assets:** The entry removes the cost of the asset from the books, and the profit or loss is recorded separately.
- **Investments:** The entry adjusts the investment account to reflect the cost and recognizes any profit or loss directly.

3. **Purpose of Adjustments:**
- **Fixed Assets:** The adjustment reflects the cost and accumulated depreciation, with a separate profit or loss account.
- **Investments:** The adjustment directly reflects changes in value and recognizes profits or losses.

### **Summary:**

- **Fixed Assets:** The cost is removed from the asset account, and any profit or loss on sale is recorded separately.
- **Investments:** The cost is removed from the investment account, and the profit or loss is recognized directly in the P&L account.

The logic behind these different treatments is to accurately reflect the financial impact of transactions involving different types of assets. For fixed assets, the treatment involves accounting for both the cost and depreciation, while for investments, it involves tracking changes in value directly.