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From Http://caknowledge - In/: AS - 13 Accounting For Investments

This document discusses accounting for investments under Accounting Standard 13. It defines current investments as those held for less than 12 months for trading purposes, and permanent/long-term investments as those other than current. Current investments are valued at the lower of cost or fair value, while permanent investments are valued at cost, with provisions for any permanent decline in value. The document provides examples of accounting for investments including initial recording, receipt of dividends, rights shares, and reclassification between current and long-term.

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From Http://caknowledge - In/: AS - 13 Accounting For Investments

This document discusses accounting for investments under Accounting Standard 13. It defines current investments as those held for less than 12 months for trading purposes, and permanent/long-term investments as those other than current. Current investments are valued at the lower of cost or fair value, while permanent investments are valued at cost, with provisions for any permanent decline in value. The document provides examples of accounting for investments including initial recording, receipt of dividends, rights shares, and reclassification between current and long-term.

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B GANAPATHY
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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in/
AS 13
Accounting for Investments
- C.A. Final
- A.B.Sonpal

Investment means
Asset held for appreciation or earning income. (Does not include Stock)

Current Investment
Short term in nature. These Investment are held for the purpose of disposal
within 12 month from the date of acquisition.
Permanent Investment
Long term in nature. These are Investment other than Current Investment.
Cost of Investment
Purchase Price
Add : Taxes on purchase (S.T.T)
Add : Exp. on purchase (Commsn)
Add : Exp. to obtain title (Stamp dty)
Less: Pre Acqusition dividend

xxx
xxx
xxx
xxx
(x x x )
xxx

This AS is mandatory in nature and no partial exemption is


available

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Exchanged Investment
Whenever Investment is obtained through exchange their value shall be Fair value of the Investment obtained
or
Fair value of the Asset Given
Whichever is lower

Valuation of Investment
Current Investment is valued at Cost or Fair Value whichever is lower. Such should
be on each security basis. It is possible that each category of Investment are taken
for comparison i.e we can solve it category basis also.
Eg. ABS ltd has the following Investment
Investment In shares
A
B
C

Cost
70
80
90
240

FV
60
85
95
240

70
80
170
480

60
85
150
470

Debentures
L
M
N
Mutual Fund
G
H
I

200
220
270
690

170
150
290
610

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Find the value assuming Current Investment
Solution
Category Basis
Equity
Debenture
Mutual Fund

Cost
240
480
690

Fair value
240
470
610

Value
240
470
610
1320

Long term Investment i.e. Permanent Investment are valued at Cost only.
However if there is any permanent decline in the value of Investment then
provision of such decline should be made.

Noteworthy points
When Current Investment are reclassified as Long Term Investment, they should
be valued at Cost or Market price whichever is lower.
When Long term investment are classified as current Investment then they should
be valued at cost or Carrying Amount whichever is lower.
Eg. ABS ltd acquired 100 % shares of MNO ltd which is a defunct company having
Net worth as Land and Building. Discuss
Solution
As per para 20, the cost of any shares in a company, holding of which is directly
related with the right to hold Investment property, is added to the carrying
amount of Investment property as Long term Investment.
Say in our example investment in shares is 100 lacs and Land and building is 400
lacs then total investment in ABS ltd is 500 lacs. This shall be disclosed as Long
term investment in ABS ltd, under the head Fixed Asset.
When this Investment is to be converted as Current Investment then it shall be
valued at Carrying Amount or Cost whichever is lower.

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E.g A.B.S. purchased 1000 shares of Rs.100 on 1/7/2000 at Rs.150000. Brokerage
2 % Stamp Duty Rs.2000. Journalise
Solution
Investment A/c
dr. 155000
(150000 + 2 % of 150000 + 2000)
To Bank

155000

Now say on 1/11/01 , 20 % dividend is received for the year 1/4/2000 to 31/3/01
so the journal would be :
Bank a/c

dr 20000

To Investment (pre acq dividend)

5000

To Dividend Income

15000

Pre- acquisition dividend = 20000 x 3/12

Right Shares
When right shares offered are subscribed Cost to be added to the Carrying
amount of original holding.
When right sold in the market

Sale proceeds charged to


Statememt of profit and loss.

But when Investment are acquired cum-right basis and Market Value of
Investment immediately after their becoming ex-right is lower than the cost for
which they were acquired then :
Apply sale proceeds of right to reduce the Carrying amount of Investment to
Market Value. ( We have an Eg so dont worry agar samaj me nai aaya toh )

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If the market value of Investment immediately after their becoming ex- right >
cost for which they were acquired then Credit sale proceeds to P/L a/c.
Eg. Abs holds 1000 shares at cost Rs 20. He receives right 1 : 2 i.e. 500 shares at
Rs. 15. Now consider the following :
Allows the right to lapse = No accounting treatment.
Subscribes to the share = Investment a/c
To Bank

dr 7500
7500

(This shall be clubbed with Rs 20000 which is our original investment)


Sells the right at Rs.3, the original lot was purchased ex-right
Bank a/c

dr 1500

To Income from right shares

1500

Sells the right at Rs.3. The original lot was purchased cum right
If market value of the shares ex-right is Rs. 20 or more
Bank a/c

dr 1500

To P/L

1500

If market value of share ex-right is Rs.18.5 ( Now note here that ex right
price is less than Rs 20, the price at which it was acquired )
Bank a/c

dr 1500

To Investment

1500 (1000 x 1.5 )

Market value of shares ex-right is 19


Bank a/c

dr 1500

To Investment

1000 (1000 X 1)

To P/L

500
Investment ko utne se kam kar do jitne se daam gira hai

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Synopsis
If shares are acquired cum-right and Market value of the investment on becoming
ex-right is :
Greater than cost - T/f sale proceeds to P/l
Less than cost
-Reduce the investment to the extent of its original cost.

Investment is associate shall be treated as Long term as they are not intended
to be liquidated within one year from the date of its acquisition.

Bas Itna hi tha Thanks

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