N.Y. Comp. Codes R. & Regs. tit. 9, § 1645-2.5 – Disposition of investments.

(a) Investments which are held to maturity present no particular accounting problems on maturity. The proceeds, representing face value, will be credited, when received, to the applicable investment account through the cash receipts register. During the holding period, except for U.S. Treasury bills, for which see section 1645-2.3, supra, the purchase price will have been adjusted to face value at maturity through the periodic amortization of premium or discount. Interest will also have been accrued to the date of maturity, except for U.S. Treasury bills, the credit for the interest payment received, on maturity, going to account 1144, Accrued Interest Receivable.

(b) Investments sold prior to the date of maturity, as duly authorized by resolution of the local agency, present other elements to be accounted for. These elements, some or all of which will be present in cash sales transaction, and the accounting treatment of each element are as follows:

Element	Accounting treatment
Sales price	Credit to the appropriate account in the 1170, Investments, group of accounts.
Accrued interest sold	Credit to account 1144, Accrued Interest Receivable on Investments.
Expenses of disposition	Charge to the same account that the interest earned has been credited to. See section 1645-2.4.
Gain or loss on disposition	Development Fund Investments. Charge or credit account 1480, Other Charges and Credits to Development Costs.
	Administration Fund Investments. Charge losses to account 6100, Miscellaneous Losses; credit gains to account 3590, Miscellaneous Project Income.
	Reserve Fund Investments. Charge or credit account 2512, Gain or Loss on Reserve Fund Investments.

(c) Whether the investments have been sold at a price expressed in terms of yield or a stated amount per $1,000 face value, the statement of the bank or broker handling the transaction will give the sales price in dollars. The statement will also give, separately, the accrued interest (to the date of disposition) sold and the expense of disposition, if any. The remarks made in section 1645-2.2 in connection with the expenses of acquisition and the avoidance of broker's commissions by dealing directly with banks are also applicable to the expenses of disposition. Reference should also be made to section 1645-2.2 for an explanation of the date of disposition, which is controlling with respect to the accrued interest sold and the premium or discount amortized. Gain or loss on disposition is defined as the difference between the book value of the investment, as of the date of disposition, and the sales price. Gain or loss on disposition of development fund investments is charged or credited to account 1480, Other Charges and Credits to Development Costs, whether the sale was made prior or subsequent to the date of substantial completion. Gain or loss on the disposition of reserve fund investments is considered a gain or loss on the disposition of replacement reserve investments, notwithstanding that the investment may actually have been for the account of some other reserve.

(d) To illustrate the analysis of a transaction for the sale of investments and the entries to the accounts affected, assume that $10,000 face value of bonds, maturing July 1, 1962, were bought as a replacement reserve investment on March 1, 1955, at a price of 103. The interest rate on the bonds is two and one-half per cent, the interest payment dates being January 1 and July 1. The bonds were sold on October 1, 1955, at a price of 102 ½ and the local agency received $10,285.04 from the bank handling the transaction, representing the net proceeds of the sale, for deposit in the reserve fund. An analysis of the bank's statement shows that the net proceeds were arrived at, as follows:

Sales price of bonds—$10,000 face value at 102½	$10,250.00
Add: Interest accrued from July 1, 1955, the last interest payment date to the date of disposition	62.50
	$10,312.50
Deduct: Expenses of disposition	27.46
Net proceeds of sale	$10,285.04

The entry to record the transaction is made through the cash receipts register as follows:

Entry (2):
Debit: Account 1113, Reserve Fund	$10,285.04
Debit: Account 2511, Interest Earned on Reserve Fund Investments	$27.46
Credit: Account 1176, Reserve Fund Investments		$10,250.00
Credit: Account 1144, Accrued Interest Receivable of Investments		$62.50
Gain or loss on disposition of this investment is computed, as follows:
Purchase price ($10,000 face value, at 103)	$10,300.00
Less: Premium amortized to date of disposition (7/64 of $300)	32.81
Book value of investment at date of disposition, as reflected in investment account	$10,267.19
Sales price ($10,000 face value at 102½)	10,250.00
Loss on disposition of investment	($17.19)

The entry to record the loss on disposition is made by a journal voucher, as follows:

Entry (3):
Debit: Account 2512, Gain or Loss on Reserve Fund Investments	$16.75
Credit: Account 1176, Reserve Fund Investments		$16.75
Explanation: To record the loss on disposition of $10,000 face value U.S. Treasury bonds, 1962/60, computed, as follows:
Sales price	$10,250.00
Book value at date of disposition	10,266.75
Loss on disposition	($16.75)

Note that, in recording gain or loss on disposition of investments, the applicable investment account is credited directly for a loss and charged for a gain.