Meaning of Investment Account:

Investment means to spend money outside the business in order to earn some income which are non-trading in
nature. Usually, money is invested in Government Bonds, Securities, Shares and Debentures of companies etc.

Investments are made in two ways:

(a) As Trade Investments:
The investments which are made permanently for a regular income outside the business is known as Trade
Investment. These are treated as fixed assets. That is why if this type of investments are sold at a profit, profit on
such sale of investment is transferred to Capital Reserve Account and not to Profit and Loss Account.

(b) As Marketable Securities:

Sometimes a business wants to invest its idle cash purely on a temporary basis (of course, if the rate of earning is
higher than cost of capital). This type of investment is known as Marketable Securities and is treated as Current
Assets. That is why profit or sale of such investments is transferred to Profit and Loss Account and not to Capital
Reserve.

Again, Marketable Securities are of two types:

A. Fixed Interest Bearing Securities,

B. Variable Interest Bearing Securities.

A. Fixed Interest Bearing Securities: Fixed interest bearing securities mean where the rate of return is fixed, say
10%, 12% or 15%. The returns or income of such securities usually falls due on certain specific dates, as 30th June
or 31st Dec. This is particularly appropriate in case of Govt. Bonds and Securities. For example, if we purchase
1,000, 10% Govt. Bonds @ N100 (interest is payable on 30th September or 31st March), we will have an income of
N10,000; N5,000 falls due on 30th September and N5,000 on 31st March. Each investment is headed with the name
of the security and, at the same time, if the rate of interest or dividend and the date at which it is payable aw fixed
such rates and dates are also to be mentioned.

The Ruling of Investment Account will be:

B. Variable Interest Bearing Securities: Variable Interest bearing securities means where the rate of return is not
fixed, i.e., variable. It is applicable in case of shares. The rate of dividend on shares is not at all fixed,’ rather, it is
fluctuating. In one year the return may be 10% whereas, in the next year, it may be 15%. Usually, shares are
purchased as investment through brokers who charge a small rate of commission on both purchase and on sales.
Note: It must be remembered in this respect that in case of purchase of shares, brokerage or commissions will be
added with the cost price of shares whereas, in case of sale, brokerage and commission will be deducted from sale
price.

The ruling is same as shown above.

Transactions Relating to Investment Account:

Purchase and Sale of Investments:

It has been explained in an earlier paragraph that investments are made in various securities, e.g., Government,
Semi-government, Corporation or Trust Securities, such as Shares, Bonds, Debentures, etc. in long or short-term.
The long-term investment is normally made for earning interest or dividend whereas the short-term investment is
meant for making profit by selling the same when market price becomes favourable. The aforesaid investments are
maintained in the General Ledger (since they are real accounts) when they are few in number. But when they are
substantial, a separate ‘Investment Ledger’ is to be opened for each individual class of securities in addition to
interest or dividend.

The Investment Account is maintained in a columnar form with three amount columns on each side—viz., Nominal,
Interest/Income and Principal/Capital. The face value or nominal value of securities purchased or sold is recorded,
however, in the ‘Nominal’ column. The accrued Interest/Dividend on purchase or sale of securities including the
Interest/Dividend so received is recorded, however, in the ‘Interest/Income’ column. The third column,
‘Capital/Principal’, reveals the true cost or true sales consideration.

Brokerage and Other Expenses:

Generally, investment transactions are made through brokers. They charge a certain small commission against their
services which is known as ‘Brokerage’. But the stamp duty at the prescribed rates is also to be paid in executing
the transaction.
Since the brokerage and stamp duty are capital in nature, these are to be added with the cost price of the
investments, i.e., brokerage will be added at the time of purchasing the securities and the same will be deducted
from the sale price of the investment at the time of sale. As a result, only the net price is to be recorded in the
‘capital’ column of the Investment Account.

Accounting Treatment of Investment Account:

(a) Purchase of Investment: When investment is purchased, its face value is recorded on the debit side of
Investment Account and the actual cost (including brokerage, stamp duty, etc.) is recorded in the principal column.
But if the same is purchased under cum-interest/dividend basis, the accrued interest must be recorded in ‘Interest’
column and will be deducted from the purchase price as the real cost is to be recorded in ‘Principal’ column. But, if
the investment is purchased under ex-interest/dividend basis, the quoted price—together with brokerage and stamp
duty—will be recorded in the ‘Principal’ column. The accrued interest is, however, entered on the Interest/Income
column.

(b) Sale of Investment: When investment is sold, the same is recorded on the credit side of Investment Account, the
face value being recorded in ‘Nominal’ column; the net selling price is entered, however, in the ‘Principal’ column.
But if the investment is sold as cum-interest/dividend, the accrued interest will be recorded in ‘Interest/Income’
column and the net selling price (capital portion) on the ‘Principal’ column. On the contrary, if the same is sold as
ex- interest/dividend, the accrued interest/dividend is received by the seller in addition to quoted sale price. The
accrued interest/dividend is entered on the ‘Interest/Income’ column and the quoted sale price in the ‘Capital’
column.

(c) Profit or Loss on Sale of Investment: The difference between the capital cost of securities and the consideration
received towards capital at the time of sale reveals the profit or loss on sale of investment. The profit or loss may be
ascertained either for each individual sale or may be ascertained for all selling transactions at the end of the year—
as a whole. And if the entire investments are sold, the difference between these two ‘Principal’ columns represents
profit or loss, as the case may be. But if a part of investments is sold, the balance of investments on hand should be
ascertained first. Therefore, the balance is either valued at cost if the investment is treated as fixed asset, or the
balance is valued at cost or market price, whichever is less if the investment is treated as current asset.

Naturally, the value of investments at hand is entered on the credit side of the Investment Account in ‘Principal’
column and the difference represents the profit or loss on sale of investment. The profit or loss on such sale is
transferred to Profit and Loss Account if the investment is treated as a current asset or the profit or loss on such sale
is treated separately if the investment is treated as a fixed asset.

(d) Balancing Investment Account: The Balance of Investment account is ascertained at the end of the accounting
period. The balance of ‘Nominal’ column reveals the face value of the investment in hand and— after recording the
closing balance of investment in ‘Principal’ column—the profit or loss is to be ascertained (which has been
explained earlier). And the difference between the two ‘Interest/Income’ columns represents income/interest from
Investment Account which is, ultimately, transferred to Profit and Loss Account.

But, in the true sense of the term, Accounting Treatment depends on the date of purchase and sale of investment.

It may, again, be of two types:

A. Purchase and Sale of Investment just at the date of payment of interest; and

B. Purchase and Sale of Investment before the date of payment of interest.

A. When Purchase and Sale of Investment are made just at the date of payment of interest:
Under the circumstances, there will be no problem as to the cost of investment, because the quoted price does not
include the amount of interest. The quoted price represents the cost of investment.

B. Purchase and Sale of Investment before the date of payment of interest:

Under the circumstances, question arises before us whether the quoted price of investment is inclusive of
interest/dividend or exclusive of interest/dividend. In short, we are to face the problem of Cum-Interest and Ex-
Interest.

Cum-Interest or Cum-Dividend:
Where the rig7ht to receive interest or dividend from the issuer of security passes from the seller to the buyer, the
transaction is known as ‘Cum-Interest’ or ‘Cum-Dividend’ purchase or sale. In other words, when the accrued
interest or dividend from the last interest or dividend date up to the date of transaction is included in the quoted
price, the capital cost of investment purchased or sold is ascertained by deducting the accrued interest/dividend
from the quoted prices. And the difference between the quoted price and the actual cost may be represented as
‘Cum-Interest’ or ‘Cum-Dividend’.

Ex-Interest or Ex-Dividend:
When the seller retains the right to receive the interest/dividend, the transaction is called ‘Ex-Interest’ or ‘Ex-
dividend’ purchase or sale. In other words, when the price quoted is exclusive of accrued interest/dividend, the
price so quoted is treated as the capital cost of investment, i.e., the buyer has to pay accrued interest due from the
last interest date to the date of transaction to the seller along with the cost price of investment.

For Cum-Interest Purchase and Sales: When investments are purchased at Cum-Interest it means quoted price is
inclusive of accrued interest. So, we are to ascertain the amount of interest and the same must be deducted from the
quoted price in order to find out the cost. Investment will be debited with actual cost (to be posted in Principal
column) and accrued interest will be debited with the amount of interest (to be posted in Interest column) and Bank
Account will be credited for the total (i.e., quoted price). Same principle is to be followed also in case of sale of
investment which includes Cum- Interest, i.e., from the quoted selling price, the amount of interest will be deducted
in order to ascertain the cost/principal for this purpose, Bank Account will be debited with total amount or quoted
price and Investment Account will be credited at cost and Interest Account will be credited with the amount of
interest.
Ex-Interest Purchases and Sales: When investments are purchased at Ex-Interest, it means quoted price is exclusive
of accrued interest. In that case, the Investment Account will be debited with quoted prices, Interest Account will be
debited with accrued interest and Bank Account will be credited with total amount (i.e., quoted price plus interest).
But when investment are sold at Ex-interest, quoted price is exclusive of interest. In other words, Investment
Account will be credited with quoted price and Interest Account will be credited with Accrued Interest and Bank
Account will be credited with total i.e., quoted price plus interest. Profit or Loss on sale of investment should be
transferred to Profit and Loss Account. The entries for this purpose we have shown earlier.

Exercise

1. In 2022, Wye Ltd. issued 12% fully paid debentures of 100 each, interest being payable half
yearly on 30th September and 31st March of every accounting year.
On 1st December, 2022, Mr. Bull purchased 10,000 of these debentures at `
101 cum-interest price, also paying brokerage @ 1% of cum-interest amount of
the purchase. On 1st March, 2023 the firm sold all of these debentures at 106
cum-interest price, again paying brokerage @ 1 % of cum-interest amount.
Prepare Investment Account in the books of Mr. Bull for the period 1st
December, 2022 to 1st March, 2023.

2.Elizade Ventures is an investment company, incorporated on 31/12/2020. In

year 2006 the follow transactions took place:
On 2/04/2006:
a. Bought N250,000 12% Federal Government stock 2010 @85. Interest payable twice
annually on 31 January and 31 July.
b. Bought N900,000 15% Lagos State Government stock 2015 @80 ex-interest with interest
payable on May 1st and November 1st .
On June 30 2006:
c. Sold N450,000 15% Lagos State Government stock 2015 @ 80 ex-interest
d. Additional purchase of N100,000 12% Federal Government stock 2010 @ 90ex-interest
were made. Also sold N290,000 12% Federal Government Stock 2010 @ 93.5ex-interest
The interest on other investment were received on due dates. The market values of the
investments on 31 march, 2007 were as follows:
12% Federal government stock 2010 @96.5. 15% Lagos State Government stock 2015 @ 86.
Assuming a FIFO method of investment valuation, you are required to prepare the investment
accounts to record the above transactions

Account for Banks and Insurance

The final accounts of banks are prepare on the same principles as those of other company. The
establishment and regulation of Banks and other Non-Bank Financial Institution (Discount
House, Finance house, Acceptance houses, mortgage institutions, Bureau de change, stock
brokerage firms etc except insurance companies) in Nigeria is the Banks and Other Financial
Institutions Act 1991 (as amended).
Below is the current and the proposed minimum capital for banks in Nigeria:
Current Min. Capital Proposed Min. Capital
Commercial Banks International N50 Billion N500 Billion
National N25 Billion N200 Billion
Regional N10 Billion N50 Billion
Marchant Banks National N50 Billion
Non-Interest Banks National N20 Billion
Regional N10 Billion
Micro Finance Banks N20 Billion

Terms:
Reserves: banks are expected to keep some funds with CBN for instance cash reserves, statutory
reserves and any other deposit.

Performing facility: credit facility is deemed to be performing when both principal and interest
are paid up to date in accordance with the repayment plan.
Non-Performing Facility: A credit is deemed to be non-performing when:
i. Interest/ principal is due and unpaid for 90 days or more
ii. Interest payments equal to 90 days or more have been capitalized, rescheduled or
rolled over into a new loan.
Non-performing loan is sub divided into:
a. Sub-standard: a facility is classify to be substandard when the principal of interest remain
unpaid for more than 90 days but less than 180 days after due date.
b. Doubtful: a facility is termed to be doubtful when the principal and the interest remain
unpaid for more than 180 days but less than 360 days. Loan loss provision of 50% should
be made for such facility.
c. Lost: a lost facility is loan where both principal and interest remain unpaid for over 360
days. 100% provision should be made for such facility.
General provision of at least 1% is made on risk assets not specifically provided for.
Micro finance banks are expected to review their loans at least once in a month and make
provision for loan losses as follows:
 Performing 1%
1-30 days Pass and watch 5%
31-60 days Substandard 20%
61-90 days Doubtful 50%
91 or more days/ or restructured loan Lost 100%

Exercise:
1. Below are the balances extracted from trail balance of Elizade Bank Plc for the year
ended 31/12/2023.
Dr Cr
N’000 N’000
Non-current Assets 33,563.5.
Equipment on lease 41,995.7
Loans and advances 175,886.8
Investment in subsidiaries 532
Other investment (Quoted) 36,008.8
Bill discounted 118,244.6
Cash and short term fund 640,636.3
Called up Ordinary Share Capital 4,250.3
Share premium 29,011.1
Bonus Issue Reserve 1,417.4
Statutory Reserve 25,264.3
General Reserve 15,566.7
Small Scale Industry Reserve 3,762
Non-Current Asset Revaluation Reserve 2,836.7
Taxation 7,322.6
Deffered Tax 5,675.3
Dividend Payable 11,901.6
Deposit-Current & Other Accounts 645,122.2
Other Liabilities 291,471.4
Non-Controlling Interest 3,266.1
1,046,867.7 1,046,867.7
 The following additional information were provided:
i. Provide for the sum of N832,000 on cash and Short-Term Fund for non- performing
interbank placement in Nigeria.
ii. Additional provision for other liabilities of N41,800 should be made
iii. The Auditor recommended an additional provision of N39,900 on loans and advances
in accordance with prudential guidelines.
iv. Some of the advances under finance lease matured after 12 months. The sum of
N13,300 should be provided for.
v. As a result of market forces, market value of investment in quoted companies was
depreciated by N58,900.
vi. Bills discounted in the sum of N1,307,200 which are yet to mature should be
provided for.
You are required to prepare a statement of financial position of the bank as at 31 December,
2023 in a form suitable for publication.

2. A trial balance of APEX Bank Plc as at 31st December 2023 is given below:
Dr CR

N'000 N'000

Cash in hand 263.20

Balance with Central Bank of Nigeria 251,150.20

Balance with other banks in Nigeria 4,204.20

Balance with other banks outside Nigeria 259,400.40

Nigerian Government treasury bills 81,858.00

Money at call and short notice 77,700.00

Quoted investments 5,059.60

Loans and advances:

-Secured against real estate 140,112.00
 - Otherwise secured 360,719.80

-Unsecured 76,203.40

Provision for doubtful loans and advances 28,266.00

-Interest receivable 21,533.40

-Payments in advance 3,252.20

-Sundry receivables 11,302.20

-Leasehold land and buildings 40,930.40

-Motor vehicles, furniture and fittings 8,986.60

-Assets on lease 41,473.60

Accumulated depreciation:
- Leasehold land and buildings 1,377.60

- Motor vehicles, furniture and fittings 4,197.20

-Assets on lease 7,585.20

Ordinary shares of N1.4 each (22m ordinary shares) 30,800.00

Statutory reserve 13,211.80

Revenue reserve 812.00

Deferred taxation 2,002.00

Savings accounts 766,578.40

Current accounts 39,320.40

Deposit (Term) 205,193.80

Due to banks:

- Other banks in Nigeria 176,325.80

-Other banks outside Nigeria 13,046.60

Interest payable 10,316.60

Unearned income 12,506.20

 Accrued charges and provisions 23,325.40

Dividend payable 2,240.00

Earnings:

-Interest 94,990.00

- Commission and service charges 4,067.00

- Bills of exchange, letters of credit etc 14,082.60

-Lease rental income 6,994.40

Interest paid:
- Banks in Nigeria 17,364.20

- Others in Nigeria 30,737.00

Overhead expenses 24,963.40

Obligations for account of customers 487,792.20 487,792.20

(and customers liability thereof) 1,945,031.20 1,945,031.20
Additional Information
1. Provision of N9,405.20 is to be made for doubtful loans and advances.
2. Taxation charge on the profit for the year is N7,179.20 while provision of N176.40 for
deferred tax should be made.
3. The directors propose to pay a final dividend of N6,610.80.
4. Make provision for statutory reserve.
5. The market value of the quoted investments which are all Federal Government Development
stocks at 31/00/2006 is N2,767.80.
6. Depreciation is to be provided as follows:
N'000
Leasehold land and buildings 681.80
Motor vehicles, furniture and fittings 1,451.80
Assets on lease 5,195.40
7. There were additions of N2,995.30 and N24,217.20 to motor vehicles and assets on lease
respectively during the year.
8. The authorized share capital of N35million is divided into ordinary shares of N1.40 each
9. The net external assets of the bank at 31 October, 2006 amounted to N245,761.60.
10. There were commitments of N1.4966 in respect of capital expenditure authorized but not
yet contracted at year end.
11. Included in overhead expenses are: N’000
Auditors' remuneration N25.20
Directors' fees of N46.20
Directors' salaries of N273

From the above trial balance and additional information prepare the statement of
comprehensive income for the year ended 31 October 2006 and the statement of financial
position at that date in a form suitable for publication.
Insurance Company Account

The regulatory body of insurance company is the National Insurance Commission (NAICOM)
while the regulatory statute is the Insurance Act, 2003 (as amended).

Minimum Paid Up Capital (Section 9(1)

a. Life Insurance not less than N2Billion

b. General Insurance not less than N3Billion

c. The following are extracts from the financial records of Leadway Insurance Plc for
the year ended 31 December,2023
d.

Fire Motor General Accident Total

N'000 N'000 N'000 N'000

Gross Premium Paid 12,506.4 20,913.6 8,239.2 41,659.2

Commission Payable 524.4 1,389.6 618 2,532

Re-Insurance Premium 895.2 1,521.6 583.2 3,000

Commission receivable 1,574.4 3,373.2 2,528.4 7,476

Claims paid 3,754.8 6,154.8 3,895.2 13,804.8

Claims recoverable 1,658.4 2,210.4 1,540.8 5,409.6

Reserves and Provision At 01/01/04:

Contingency 2,174.4 3,409.2 1,189.2 6772.8

Outstanding claims 513.6 829.2 604.8 1947.6

Unexpired risk 2,235.6 4,548 1,626 8409.6

The following additional provisions and reserves are to be made for the year

Contingency 1,125.6 2234.4 494.4 3,854.4

Outstanding claims 147.6 254.4 122.4 524.4

Unexpired risk 1,123.2 1590 538.8 3,252

 e. Unallocated expenses to be apportioned on the basis of gross premium income are:
f. N
g. Maintenance cost 10,026,000
h. Acquisition cost 5,104,800
i. You are required to:
Prepare Leadway Non-life Revenue Accounts for the year ended 31 December, 2023, in columnar
form suitable for publication.

BESTWAY ASSURANCE PLC is a company in the Non-Life Insurance business with Authorized
Ordinary Share Capital of N80 million. The following balances were extracted from its ledger as at 31
December, 2023.

N'000 N'000

Ordinary Share Capital of N1 per share 112,000

General Reserve 5,075

Contingency Reserve at 1/1/2010 15,802.5

Reserve for outstanding claims 1/1/2010 4,545.24

Provision for unexpired risk at 1/1/2010 19,624.78

Premium 97,204.8

Re-Insurance Premium 7,000

Claims 32,210.15

Investment Income 6,099.1

Interest on Loan Granted 8,762.376

Sundry Income 7,334.068

Balances due from/ to Agents 19,850.558 9,356.536

Commission Receivable 17,443.538

Provision for Bad Debts 6,113.1

Property at cost 19,600

Provision for depreciation on property 6,300

Audit fees 749

Actuary consulting fees 3301.2

Commission paid 5910.1

Advertising and Publicity 3500

Entertainment
1,260

Vehicle running expenses 2,590

Electricity
875
Telephone & Postages
684.6
Rent and Rates
3,298.4

Salaries and wages 7,682.15

Transport and Travelling 2,275

Repairs and Renewals 1,225

Statutory Deposit 35,000

Director's fees and expenses 2,769.2

Depreciation
1,178.8

Legal and other Professional fees

Staff Pension
2,321.2

Fed. Govt. Development Stock

33,293.68

Treasury Bills and Certificates

21,000

Cash at Bank
12,215

Loans on policies
91,007

315,661.038 315,661.038

j. The following additional information were provided

k. 1. The estimated income tax liability of N3.5 million is to be provided for on the profit of the
year.
l. 2. The following analysis was provided.
 Fire Motor General Accident Total

N'000 N'000 N'000 N'000

Claims 8,761,200 14,359,800 9,089,150 32,210,150

Premiums 29,182,132 48,798,246 19,224,422 97,204,800

Agent Commission 1,225,700 3,242,400 1,442,000 5,910,100

Re-Insurance Premium 2,089,556 3,552,234 1,358,210 7,000,000

Commission Receivable 3,674,594 7,869,932 5,899,012 17,443,538

Outstanding Reserves 31/12/2010:

Contingency 5,073,600 7,954,968 2,773,932 15,802,500

Outstanding claims 1,197,840 1,935,528 1,411,872 4,545,240

Unexpired Risk 10,612,840 3,794,560 19,624,780

5,217,380

m. 3. Provision for Bad Debts is to be increased to N10,697,820.

n. 4. Unallocated management expenses to be apportioned on the basis of premium received.
o. 5. Dividend of 10k per ordinary share is proposed on the ordinary share capital.
p. 6. The following transfers are to be made

Fire Motor Total

General Accident
N'000
N'000 N'000
N’000
Contingency 2,625,000 5,214,300 1,153,600 8,992,900

Outstanding claims 343,070 592,410 285,320 1,220,800

Unexpired Risks 2,620,800 3,710,070 1,257,200 7,588,070

Required:
Prepare Statement of Comprehensive Income for the year ended 31 December, 2023 and a statement of
financial position as at that date in a form suitable for publication.

IAS 34 Interim Financial reporting

An interim financial report is a complete or abridged set of financial statements for a period
shorter than a financial year. IAS 34 does not specify which entities must publish an interim
financial report. That is generally a matter for laws and government regulations. IAS 34 applies
if an entity using IFRS Standards in its annual financial statements publishes an interim financial
report that asserts compliance with IFRS Standards.
IAS 34 prescribes the minimum content of such an interim financial report. It also specifies the
accounting recognition and measurement principles applicable to an interim financial report. The
minimum content is a set of summarized financial statements for the current period and
comparative prior period information, ie statement of financial position, statement of
comprehensive income, statement of cash flows, statement of changes in equity, and selected
explanatory notes. In some cases, a statement of financial position at the beginning of the prior
period is also required. Generally, information available in the entity’s most recent annual report
is not repeated or updated in the interim report. The interim report deals with changes since the
end of the last annual reporting period.

The same accounting policies are applied in the interim report as in the most recent annual
report, or special disclosures are required if an accounting policy is changed. Assets and
liabilities are recognised and measured for interim reporting on the basis of information available
on a year-to-date basis. While measurements in both annual financial statements and interim
financial reports .are often based on reasonable estimates, the preparation of interim financial
reports will generally require a greater use of estimation methods than annual financial
statements

IAS 19- Employee Benefits

Employee benefits are all forms of consideration given by an entity in exchange for service
rendered by the employees or for the termination of employment, including:

(a) short-term employee benefits are expected to be paid wholly before 12 months after the end
of the annual reporting period in which the employee render the related services for the entity
such as:

(i) wages and salaries, social security;

(ii) annual leave and sick leave;

(iii) profit distribution and bonus; and

(iv) non-monetary benefits (such as medical care, housing, cars, and free or subsidized
goods or services) to current employees;

(b) post-employment benefits, such as:

(i) retirement benefits (e.g. pension and lump sum payments in retirement); and

(ii) other post-employment benefits, such as life insurance and post-employment medical
care;
(c) other long-term benefits, such as:

(i) long-term paid leave, such as seniority leave or paid leave for research;

(ii) holidays and other long-term benefits;

(iii) long-term disability benefits; and

(d) benefits after resignation