AS 13 – ACCOUNTING FOR INVESTMENT AS 13.

AS 13 - ACCOUNTING FOR INVESTMENT

INDEX
SR. QUESTIONS TO REVISE ONE
NAME OF THE CONCEPT
NO. CONCEPT DAY BEFORE
1
2
3
4
5

ATTEMPT WISE ANALYSIS

AS 13 - ACCOUNTING FOR INVESTMENT
6

0
May-18 Nov-18 May-19 Nov-19 Dec-20 Jan-21 Jun-21 Dec-21 May-22 Nov-22 May-23
Marks 5 5 5 5

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.2

This standard deals with This standard does not deal with :
accounting for • The bases for recognition of interest, dividend and rental
investment in the earned on investments [covered in AS – 9]
financial statement of
• Operating or finance lease [covered in AS – 19]
enterprises and related
• Investment of retirement benefit plans and life insurance
disclosure requirements
enterprises [IRDA guidelines]
• Mutual Funds [Guidance Note]
• Venture Capital Funds and / or the related asset management
companies
• Banks and public financial institutions [RBI Guidelines]

• Prescribe accounting treatment of various investments in the financial statements of the

enterprises.
• Disclosure of Investment

Investments are assets held by an

Fair value is the amount for which an asset could
enterprise for earning income by way of
be exchanged between a knowledgeable, willing
dividends, interest, and rentals, for
buyer and a knowledgeable, willing seller in an
capital appreciation, or for other benefits
arm’s length transaction. Under appropriate
to the investing enterprise. Assets held
circumstances, market value or net realisable value
as stock – in – trade are not
provides an evidence of fair value.
investments.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.3

1. Readily realisable Investment other than Investment in Land or building

2. Intended to be held for current Investment that is not intended to be
not more than one year occupied for use in their
operation
The intention to hold for not more than one year is to be
judged at the time of purchase of investment.
Valued at cost as per AS-10

TYPES OF ACQUISITION COST OF INVESTMENTS

Cash price including charges such

IN CASH / BANK
as brokerage, fees and duties

BY ISSUE OF SHARES /
Fair value of securities issued
OTHER SECURITIES
Fair value of asset given up or fair
IN EXCHANGE FOR
value of investment acquired,
ANOTHER ASSET
whichever is more clearly evident

ACCOUNTING FOR INTEREST ACCRUED /

PRE- ACQUISITION POST- ACQUISITION

PERIOD PERIOD

DEDUCTED FROM
COST OF RECOGNISED AS AN
INCOME
INVESTMENT

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.4

Finance and borrowing

cost is part of cost of
Brokerage, Fees &
investment property Duties Payable
subject to AS- 16

INVESTMENT
INVESTMENT
ACQUIRED BY
ACQUIRED IN
ISSUE OF SHARES
EXCHANGE OF
OR OTHER

Cost of Investment Interest accrued in Dividend declared from

Cost of Investment
= Fair Value of pre-acquisition pre acquisitions profits
= Fair Value of
Securities Issued period & was and later on received
asset given up or
included in cost of by the purchases of
fair value of
investment at the investment, then such
investment
time of acquisition amount of dividend is
acquired whichever
[Cum – interest deducted from the cost
is more clearly
Fair value may not price] then of investment.
evident
necessarily be subsequent receipt
equal to the of such pre
nominal or par acquisition interest
value of the is deducted from
securities issued. the cost of
investment.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.5

Lower of cost and Valuation Carried Valuation

fair value

At cost

any reductions to fair value valuation on overall (or global) where there is a decline, other Determined on an individual

and is debited to profit and basis is not considered than temporary in the carrying investment basis

loss account, however, if appropriate: prudent method is amounts of long term valued

fair value of investment is to carry investment individually investment, the resultant

increased subsequently, the reduction in the carrying amount

increase in value of current is charged to the profit and loss

investment up to the cost statement. The reduction in the

of investment is credited to carrying amount is reversed

the profit and loss account when there is a rise in the value

(and excess portion, if any of the investments, or if the

is ignored) reasons for the reduction no

longer exists.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.6

EXAMPLE 1:
An unquoted long term investment is carried in the books of the investor at Rs. 2 lakhs. The
published accounts of the investee received by the investor subsequent to its own balance sheet
date showed that the company was incurring cash losses with declining market share and the
investment may not fetch more than Rs. 20,000. How will you deal with this in preparing the
financial statements of R Ltd. for the year ended 31st March, 20X1?
SOLUTION :
As it is stated in the question that financial statements for the year ended 31st March, 20X1 are
under preparation, the views have been given on the basis that the financial statements are yet
to be completed and approved by the Board of Directors. Also, the fall in value of investments has
been considered on account of conditions existing on the balance sheet date.
Investments classified as long term investments should be carried in the financial statements at
cost. However, provision for diminution should be made to recognise a decline, other than
temporary, in the value of the investments, such reduction being determined and made for each
investment individually. AS 13 (Revised) ‘Accounting for Investments’ states that indicators of
the value of an investment are obtained by reference to its market value, the investee's assets
and results and the expected cash flows from the investment. On these bases, the facts of the
given case clearly suggest that the provision for diminution should be made to reduce the carrying
amount of long term investment to ` 20,000 in the financial statements for the year ended 31st
March, 20X1.

EXAMPLE 2:
X Ltd. in its balance sheet discloses its accounting policy regarding investments as : The profit or
loss on long term investment are recognized at the time of sale of such investment. Hence, no
provision has been made with respect to decrease in value of its investment. Comment.
SOLUTION :
Contention of the management is not right. As per AS –13 if there is a permanent decline in the
Market Value of the long term investment, the company must make a provision for it. Therefore
X Ltd. Must make a provision for decline in the Market Value of the shares.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.7

Where long-term investments are reclassified as current investments → Transfers are made at
the lower of cost and carrying amount at the date of transfer.

Where investments are reclassified from current to long-term → Transfers are made at the lower
of cost and fair value at the date of transfer.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.8

RIGHT SHARE ISSUE BONUS ISSUE

When right shares offered are If rights are not subscribed for
subscribed for but are sold in the market No amount is entered in the
capital column of investment
account.
Cost of right shares is added to
carrying amount of investment
Original shares on which right Where the investments are acquired on
is received is not acquired at cum-right basis and becoming ex-right
cum- right is lower than the cost for which they
were acquired, it may be appropriate to
apply the sale proceeds of rights to
Sale proceed credited to P&L A/C
reduce the carrying amount of such
investments to the market value.

On disposal of an investment, the difference between the carrying amount and the disposal proceeds,

net of expenses, is recognised in the profit and loss statement.

When disposing of a part of the holding of an individual investment, the carrying amount to be allocated

to that part is to be determined on the basis of the average carrying amount of the total holding of the

investment.

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AS 13 – ACCOUNTING FOR INVESTMENT AS 13.9

EXAMPLE:
100 Shares of Info Co. Ltd. purchased cum right @ Rs. 150 each. Brokerage etc. paid Rs. 200. 20
Rights shares were offered which were renunciated at Rs. 1000. Market price of shares after rights
issue was Rs. 146 each. Suggest the treatment of the amount received on sale of rights.
SOLUTION:
Cost of investment Rs.
Purchase cost 100 x 150 15,000
Add :- Brokerage 200
15,200
Market value after the right issue is over
100 shares x 146= 14,600
The amount realised by selling of right to be adjusted against cost of investment = 15,200 – 14,600
= 600
Amount realised to be credited to profit and loss account = 1000-600 = Rs . 400

DISCLOSURES
a. The accounting policies for determination of carrying amount of investments, and

b. The amounts included in profit and loss statement for:

i. Interest, dividends (showing separately dividends from subsidiary companies), and

rentals on investments showing separately such income from long-term and current

investments. Gross income should be stated, the amount of income-tax deducted at

source being included under Advance Taxes paid.

ii. Profits and losses on disposal of current investments and changes in the carrying

amount of such investments.

iii. Profits and losses on disposal of long-term investments and changes in the carrying
amount of such investments.

c. Significant restrictions on the right of ownership, realisability of investments or the remittance

of income and proceeds of disposal.

d. The aggregated amount of quoted and unquoted investments, giving the aggregate market

value of quoted investments.

e. Other disclosures as specifically required by the relevant statue governing the enterprise.

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