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ACCOUNTING STANDARD 13

INVESTMENT
• It is the assets held by way of dividend, interest,
and rentals, for capital appreciation or for other
benefits.
• Enterprises hold investments for diverse
reasons. For some enterprises, investment
activity is a significant element of operations,
and assessment of the performance of the
enterprise may largely, or solely, depend on the
reported results of this activity.
INVESTMENT
• Some investments have no physical existence and are
represented merely by certificates or similar documents
(e.g., shares) while others exist in a physical form (e.g.,
buildings). The nature of an investment may be that of a
debt, other than a short or long term loan or a trade debt,
representing a monetary amount owing to the holder and
usually bearing interest; alternatively, it may be a stake in
the results and net assets of an enterprise such as an equity
share. Most investments represent financial rights, but
some are tangible, such as certain investments in land or
buildings.
INVESTMENT
• For some investments, an active market exists from which
a market value can be established. For such investments,
market value generally provides the best evidence of fair
value. For other investments, an active market does not
exist and other means are used to determine fair value.
SCOPE OF AS-13
• This statement deals with accounting for investment in the
financial statements. However as per opinion issused by
ICAI, This AS to the extent it relates to current is also
applicable to shares, debentures and other securities held
as “stock in trade” with suitable modifications
AS-13 DEALS WITH
• THIS STANDARD DEALS WITH FOLLOWING ASPECTS;

• Classification Of Investment,
• Cost Of Investment,
• Carrying Amount/Valuation Of Investment
• Disposal Of Investment,
• Reclassification Of Investment &
• Disclosure Of Investment In Financial Statement.
AS-13 DOES’NT DEALS WITH
• THIS STATEMENT DOES NOT DEAL WITH

• The Basis of recognition of interest, dividend And Rentals


earned on investment.
• Operating Or Finance Leases,
• Investment on retirement benefit plans & life insurance
enterprises
• Mutual Funds, Venture Capital Fund, and/or related
management companies, banks and public financial
institutions.
DEFINATIONS
• Current Investments :-
• A current investment is an investment that is by its nature
readily realizable and is intended to be held for not more
than one year from the date on which such investment is
made.
• Long Term Investments :-
• A long term investment is an investment other than a
current investment
DEFINATIONS
• Investment Property:-
An investment property is an investment in land or
buildings that are not intended to be occupied substantially
for use by, or in the operations of, the investing enterprise.
For Example:-If a company purchases land or building
not for its business use but for earning a rent by letting a
land or building, land or building is not a fixed assets but
it is an investment or even if building is not let out but is
held with an intention of capital appreciation, then it is an
investment
DEFINATIONS
• Fair Value :-
• Fair value is the amount for which an asset could be
exchanged between a knowledgeable, willing buyer and a
knowledgeable, willing seller in an arm's length
transaction. Under appropriate circumstances, market
value or net realizable value provides an evidence of fair
value.
• Market Value:-
• Market value is the amount obtainable from the sale of an
investment in an open market, net of expenses necessarily
to be incurred on or before disposal.
CLASSIFICATION OF
INVESTMENT
• Investment is classified as below:-
• Long Term Investment
• Current Investment
• Current investments are in nature of
current assets, although the common
practice may be to include them in
investment
• Shares, dentures & other securities held
for sale in the ordinary course of business
are disclosed as ‘stock-in-trade’ under the
head ‘current assets’
COST OF INVESTMENT
Cost of Investment comprises of purchases price & acquisitions charges such as brokerages, fees & duties

Cost=Purchases+Brokerages+Fees & Duties

Investment is acquired by issue of shares\other securities :-

purchase price of security is fair value of securities issued.

Investment is acquired in exchange of an asset :- Acquisition cost of investment is fair value of asset given up

OR Fair value of the investment received if more clearly
evident
COST OF INVESTMENT
• Pre-Acquisition Interest :- When Interest has accrued in
pre acquisitions period and has also included in cost of
investment at the time of acquisition, then subsequent
receipt of such pre-acquisition interest is deducted from
the cost of investment
• Dividend :- When dividend is received from pre-
acquisition profits, and later on received purchaser of
investment, then such amount of dividend is deducted
from cost of investment.
COST OF INVESTMENT
• Right Shares :-
• If right shares offered are subscribed, then cost of right
shares is added to carrying amount of investment.
• If right shares offered are not subscribed but rights are sold in
the market, then sale profit are taken to profit and loss a/c
provided original shares on which right is received is not
acquired on cum-right
• Investment purchased on cum-right basis :-
• If investment are purchased on cum right price and after that it
becomes ex-right, the market value of such investments will
fall below the acquisition cost of investment. The cost of
investment is reduced by amount received on sale of rights.
CARRYING COST \ VALUATION OF
INVESTMENTS
• Current Investment:-
• Carrying amount of each investment is lower of cost and realizable value. Any
reduction in realizable value is debited to profit and loss account; however if
realizable value of investment is increased subsequently , the increase in value
of current investment to the level of the cost is credited to P/L A/C
• Long Term Investments
• It is Usually carried/valued at cost.
If there is a decline in value of investment and, if such decline is not
temporary, then carrying amount of investment is reduced by the amount of
such decline.
The resultant reduction in carrying amount is charged to profit & loss A/c.
this reduction is reversed when there is a rise in value of investment but such
rise in value should not be temporary.
CARRYING COST \ VALUATION OF
INVESTMENTS
Indicators of the value of an Investment are obtained by
reference to
• (a) its market value,
• (b) The investment assets and the results,
• (c) Expected cash flows from the investment,
• (d) the type and extent of the investor’s stake in the
investee
• (e) restrictions on distribution by investee or on disposal
by the investor may affect the value attributed to the
investment
CARRYING COST \ VALUATION OF
INVESTMENTS
• Investment Property:-
• The cost of shares held in co-operative society is added to
cost of investment properties if the shares in co-operative
societies are necessary to acquire the investment
properties. Investment properties account as long term
investments
CARRYING COST \ VALUATION OF
INVESTMENTS
• Valuation of current investments on overall (or global) basis
is not considered appropriate. Sometimes, the concern of an
enterprise may be with the value of a category of related
current investments and not with each individual investment,
and accordingly the investments may be carried at the lower of
cost and fair value computed category wise (i.e. equity shares,
preference shares, convertible debentures, etc.). However, the
more prudent and appropriate method is to carry investments
individually at the lower of cost and fair value.
DISPOSAL OF INVESTMENT
• When Investment is disposed off, difference between the
carrying amount and net sales proceeds(gross sales less
exp.) is recognized in profit and loss a/c
• When only a part of total investment is disposed of, the
carrying amount of that part of investment is determined
on the basis of the average carrying amount of total
investment
RECLASSIFICATION OF
INVESTMENT
• From long Term Investment To Current Investments
Transfers are made lower of cost and carrying amount at
the date of transfer.
• From Current Investment To Long Term Investments
Transfers are made at lower of cost and fair value at the
date of transfer.
DISCLOSURES
• Accounting Policies Followed For Investments
• Classification of investment into Current & long term in
addition to classification as per schedule VI of Indian
Companies Act, 1956.(In case of a company)
• Aggregate amount of quoted and unquoted Securities
separately.
• Any significant restriction on investment like minimum
holding period for sale disposal, utilization of sale
proceeds, or non-remittance of sale proceeds of investment
held outside India.
OVERVIEW OF ACCOUNTING
STANDARD
Overview Of Accounting Standard
INVESTMENT ACCOUNTING
(For Investor)
• During Profit/loss on sale of an assets,
• Investment A/c…….Dr
To P/L A/C (Profit)
• P/L A/c…….Dr
To Investment A/c (Loss)
• Valuation of Cost preferably must be done at weighted
Average Cost (WAC)
INVESTMENT ACCOUNTING
(For Investor)
• WAC = Balance in cost/Balance in face value* face Value
Sold.
• During valuation of carrying cost When Market Price (Fair
Value) is MORE than cost price.
Investment should be valued at cost price no journal entry may
be passed
• During valuation of carrying cost When Market Price (Fair
Value) is LOWER than cost price.
The investment should be valued at market price.Therefore loss
on revaluation (CP-Market price) should be transferred to P/L.
I.e.
P/L A/c……Dr
To Investment.
INVESTMENT ACCOUNTING
(For Investor)
• Brokerage is always calculated on market price of
investment, expect in case of government securities. It is
calculated on face value.(SEBI)
• Brokerage is always added to cost of investments, &
subtracted from sellins price during sale
Convertible Debentures
• Debentures which are converted into Equity shares after a pre-
determined period are called Convertible Debenture.
• During conversion a company is first liable to pay accrued interest.
• The entry in the books of investor Should be
Bank A/c…….Dr
Tds A/C…….Dr
TO Interest A/C
• During the conversion the Following entry should be passed
Equity Shares A/C…..Dr
To Debentures A/c
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