Page 270 - Corporate Finance PDF Final new link

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270 Corporate Finance BRILLIANT’S

B. Purchase/Sale of Investment before B. ã¶mO Ho$ ^wJVmZ H$s {XZm§H$ Ho$ nhbo B§doñQ>‘|Q>
the date of payment of Interest
H$m H«$¶/{dH«$¶
When investments are purchased or sold O~ B§doñQ>‘|Q²>g H$mo ã¶mO H$s {ZpíMV {XZm§H$ Ho$
before the due date of interest, a problem may nhbo IarXm ¶m ~oMm OmVm h¡ Vmo EH$ g‘ñ¶m CËnÝZ hmo
arise whether the quotation price includes the
interest (upto the date of purchase/sale) or not. gH$Vr h¡ {H$ ³¶m H$moQ>oeZ àmBg ‘| ã¶mO (H«$¶/{dH«$¶ H$s
The quotation price may be ex-interest or cum- {XZm§H$ VH$) gpå‘{bV h¡ ¶m Zht& H$moQ>oeZ àmBg E³g-
interest B§Q>aoñQ> ¶m H$‘-B§Q>aoñQ> hmo gH$Vr h¡&
Meaning of Cum-interest and Ex-interest H$‘-B§Q>aoñQ> VWm E³g-B§Q>aoñQ> H$m AW©
‘Cum’ and ‘Ex’ are Latin words. 'H$‘' VWm 'E³g' b¡{Q>Z eãX h¢&
‘Cum’ means with and ‘Ex’ means with- 'H$‘' H$m AW© 'Ho$ gmW' VWm 'E³g' H$m AW© 'Ho$
out. The term ‘Cum-interest’ can be expanded {~Zm' h¡& 'H$‘-B§Q>aoñQ>' eãX H$m ã¶mO Ho$ ³¶y‘wbo{Q>d ¶m
as cumulative or inclusive of interest and ‘Ex- B§³by{gd Ho$ ê$n ‘| {dñVma {H$¶m Om gH$Vm h¡ VWm 'E³g-
interest’ can be expanded as exclusive of inter- B§Q>aoñQ>' H$m ã¶mO Ho$ E³g³by{gd Ho$ ê$n ‘| {dñVma {H$¶m
est. The term ‘cum-interest’ and ‘Ex-interest’
Om gH$Vm h¡& 'H$‘-B§Q>aoñQ>' VWm 'E³g-B§Q>aoñQ>' eãX
relate to fixed investments and come up for
{’$³ñS> B§doñQ>‘|Q> go g§~§{YV h¢ VWm {dMma ‘| bm¶o OmVo h¢
consideration when those securities are pur-
O~ CZ {g³¶mo[aQ>rO H$mo IarXm ¶m ~oMm OmVm h¡&
chased or sold.
It has already been stated that interest on ¶h nhbo hr ~Vm¶m Om MwH$m h¡ {H$ EH$ {’$³ñS>
a fixed investment accrues on specific due B§doñQ>‘|Q> na ã¶mO {d{eï> {ZpíMV {XZm§H$ na bJVm h¡&
dates. The important point is to note that the ܶmZ XoZo H$m ‘hÎdnyU© {~ÝXþ h¡ {H$ {g³¶mo[aQ>rO Ho$
holder of the securities is entitled to the whole
hmoëS>a H$mo ã¶mO H$s nyar am{e H$m A{YH$ma hmoVm h¡ Omo
amount of interest that accrues on the due date
CgHo$ hmopëS>¨J nr[a¶S> H$m {dMma {H$¶o {~Zm {ZpíMV
irrespective of his period of holding. This is
{XZm§H$ na bJVm h¡& Bgr H$maU EH$ H§$nZr Ho$db Cg
because a company can pay interest only to
that person whose name appears in the books ì¶{³V H$mo ã¶mO ^wJVmZ H$a gH$Vr h¡ {OgH$m Zm‘
of company as a holder on the date of payment H§$nZr H$s ~w³g ‘| ã¶mO Ho$ ^wJVmZ H$s {XZm§H$ na EH$
of interest. hmoëS>a Ho$ ê$n ‘| hmoVm h¡&
The quotation, cum-interest, covers cost + H$moQ>oeZ, H$‘-B§Q>aoñQ> H«$¶ H$s {XZm§H$ VH$ bJr
interest accrued upto the date of purchase; bmJV + ã¶mO H$mo g‘m{hV H$aVm h¡ Omo ã¶mO {ZpíMV
when interest becomes due, it would be the hmo OmVm h¡ Vmo H«o$Vm H$mo CgH$m Xmdm H$aZo H$m A{YH$ma
right of the buyer to claim that. hmoJm&
The quotation, ex-interest, only covers the H$moQ>oeZ, E³g-B§Q>aoñQ> Ho$db {Zdoe H$s bmJV H$mo
cost of the investments and the buyer is liable g‘m{hV H$aVm h¡ VWm H«o$Vm H$m {Zdoe Ho$ H«$¶ H$s {XZm§H$
to pay additional amount as interest accrued VH$ bJo ã¶mO Ho$ ê$n ‘| A{V[a³V am{e ^wJVmZ H$aZo H$m
upto the date of purchase of investments. Xm{¶Ëd hmoVm h¡&