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In case the purchase or sale is done at a quoted price exclusive of interest (ex-interest)
the cost of an investment is just the quoted price plus the associated acquisition cost.
However, an investor who buys a stock at an ex-interest price, he/she will be required to
pay the quoted price plus the accrued amount of interest. On the next interest payment
date, an investor will receive the full amount of the interest instalment, but in his/her
books of accounts, only a portion of the interest for the period from when the asset
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was purchased to when interest is paid will be recognised. The journal entries for the
acquisition of fixed income asset at ex-interest price is illustrated as follows:

Dr Investment account (normal price in capital column) xxx
Dr Investment account (accrued dividend in income column) xxx
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Cr Bank account (total amount paid) xxx

Example 4.9
On 1 May 2020, Patapata Ltd sold a 10 per cent corporate bond of TZS 10,000,000
st
to Borakupata Ltd at 90 ex-interest. Patapata Ltd had purchased these stocks on
31st Dec. 2019 at TZS 8,500,000. On 1 Nov., 2020, Patapata purchased 12 per cent
st
government bond of TZS 20,000,000 with a 10 years maturity period at 95 ex interest.
This acquisition is an addition to the 12 per cent government bond of TZS 15,000,000,
which Patapata Ltd acquired in 2018 for TZS 13,500,000. All bonds owned by Patapata
Ltd pay interest semi-annually every year, that is 30 June and 31 December.
st
th
Required: Record the transactions of Patapata Ltd in relevant investment accounts as
at the end of December 2020.

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