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Recording fixed income-bearing security transactions
The cost of acquiring a fixed-income-bearing asset is the actual price paid plus other costs
such as brokerage fees, stamp duty, and transfer fees associated with the acquisition. An
investor of fixed income-bearing security expects to receive a fixed amount (interest) after
every period. Transactions of the fixed income-bearing investments are also recorded in
the investment account, in the same way as it is for equity-based investments.
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When the purchase or sale of a fixed income-bearing asset is done just at the interest
payment date, the quoted price is the cost of an investment. Such a price will not include
any amount of interest. Therefore, in the books of accounts, an investment account will be
debited with the cost of an asset together with the transaction costs in the capital column
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and its corresponding double entry will be on the bank account. The journal entries on
acquisition of fixed income-bearing financial asset at cost can be presented as follows:

Dr Investment account (capital column) xxx
Cr Bank account xxx

If the transaction is done before the interest payment date, the quoted price can be
either inclusive or exclusive of the interest accrued to the transaction date. When the
purchase or sale is done at a quoted price inclusive of the interest (cum-interest), the
cost of investment should exclude the interest amount accrued. For illustration, relevant
journal entries on acquisition of fixed income security quoted at cum-interest price are
presented as follows:

Dr Investment account (normal price in capital column) xxx

Dr Investment account (accrued interest in income column) xxx

Cr Bank account (total amount paid) xxx

Example 4.8
Mjasiria Ltd bought TZS 50,000,000, 11 per cent bonds at 90 cum interest on 1
st
April 2021. Interest is payable semi-annually, on 30 June and 31 December. The
th
st
accounting entries in the investment account of the company are as follows:

Student’s Book Form Five
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