ACCOUNTING STANDARDS 13

& 20

- BY SAKSHAM K JOSHI
 AS 13 – ACCOUNTING FOR
INVESTMENTS

Introduction:
AS 13 was introduced with the intention to create a uniform
criteria for recording and classification of investments.
It is widely used and deals with accounting for investments
in financial statements prepared by a Company and
prescribes various disclosure requirements.
It excludes the following from its scope:
 Basis for recognition of Dividend, Interests etc.(AS 9)
Finance or Operating Lease (AS 19)
Mutual Funds, Venture Capitalists, Companies formed
under CG/SG acts.
CLASSIFICATION OF INVESTMENTS – AS 13

Investments are classified as follows under AS13:

I. Current Investments: Investments made with
the intention of being held for less than a year
which are also readily realizable are Current
Investments.
II. Non-Current Investments: Investments other
than Current Investments, even though they
might be freely marketable are Non-Current
Investments.
 COST OF INVESTMENTS

 Investments are valued at acquisition cost(COA)

or the cost of asset given up.
 If Investment is acquired by issuing shares or
securities CoA is cost of asset given up/issued.
 Fair Value of the asset may not necessarily be
equal to nominal value of asset.
 Transaction costs such as brokerage, duties
and fees should be capitalized along with CoA.
RECOGNITION OF INCOME/RECOVERY OF COST

 Dividend, Interest received are treated as

income.
 They are termed as Return on Investment

 It is transferred straight to P&L.

 However if the income is of a period prior to

purchase of investment then it is treated as
recovery of cost.
 RIGHT SHARES/BONUS SHARES

 Cost of such shares is added to carrying

amount of original holding.
 If shares are not subscribed and the rights are
sold, sales proceeds are transferred to P&L.
 Bonus Shares are added to the number of
shares without any decrease in the cost.
 They lower the average cost of investment in
shares.
 MISCELLANEOUS
 Current Investments must be carried at cost or
fair value whichever is lower.
 Long Term Investments are always carried at
cost.
 On sale the difference between sales proceeds
and carrying cost is transferred to P&L
 When investments are reclassified from CI to
NCI they are transferred at lower of cost or fair
value and vice versa.
 DISCLOSURES

Following disclosures need to be made:

 Accounting policies employed for determining
carrying amount of investment.
 Amounts transferred to P&L.

 Total Value of quoted and unquoted

investments.
 Any other disclosures required by statute.
 AS 20-EARNINGS PER SHARE
 Earnings per share (EPS) is a financial ratio.
 It provides information regarding earnings
available on each equity share held in a
company.
 EPS not only helps in financial analysis but also
gives the per capita income of company.
 It’s a financial tool which facilitates
comparability between 2 companies
 TYPES OF EPS

EPS is basically of 2 types. They are as follows:

 Basic EPS

 Diluted EPS
 BASIC EPS

 Basic EPS = Net profit or loss attributable to equity shareholders

Weighted average number of outstanding equity shares

Particulars Amt.

Earnings Before Tax Xxx

Calculation of Profit (+) income from extraordinary items Xxx
for the purpose of (-) expenses on extraordinary items Xxx
calculating EPS
(-) tax attributable to the period Xxx

(-) preference dividend Xxx

Profit for the purpose of calculating EPS xxx

WEIGHTED AVERAGE NUMBER OF EQUITY SHARES

 Time weighing factor = No. of days for which share is o/s

Total No. of days in period
Lets see some examples:
 Example 1: Number of shares outstanding as on 01-01-2010
are 2000. Fresh issue of 600 shares for cash on 31-05-2010.
Buy back of 300 shares on 01-11-2010.
 Solution: The weighted average outstanding number of shares
= (2000 x 12/12) + (600 x 7/12) – (300 x 2/12) = 2300 share
 IF PAID UP VALUE IS NOT EQUAL

 As per AS 20, partly paid up equity shares should

be calculated in the ratio of amount paid up to
face value (amount paid / face value)
 Example 2: Opening balance of shares as on 01-
01-2010 is 2000 shares. On 31-10-2010, issue of
600 shares of Rs. 10 each, Rs. 5 paid up
 Solution: The weighted average outstanding
number of shares = (2000 x 12/12) + (600 x
5/10 x 2/12) = 2050 shares
 BONUS SHARES
 As per AS 20, when bonus shares are issued during the year, it
should be calculated in the weighted average from the beginning of
reporting period irrespective of issue date. Therefore, the bonus
issue is treated as if it had occurred prior to the beginning of the year
2010, the earliest period reported.
Particulars Amount
Net profit for the year 2010 18,00,000

Net profit for the year 2011 60,00,000

Number of equity shares 20,00,000

outstanding till 30-09-2011

Bonus issue on 01-10-2011 20,00,000 x 2 = 40,00,000

Earnings per share for the year 60,00,000 /(20,00,000 +
2011 40,00,000) = Re. 1

Adjusted Earnings per share for the 18,00,000 / (20,00,000 +

year 2010 40,00,000) = Re. 0.30
 DILUTED EPS
 For calculating diluted earnings per share, the net profit or loss for
the period attributable to equity shareholders and the weighted
average number of shares outstanding during the period should be
adjusted for the effects of all dilutive potential equity shares.
 Any convertible preference share or debenture need to be included in
the weighted average number of equity shares.
 However any dividend paid out or interest disbursed against these
convertible shares or debentures, then they would have to be added
back to Net Profit
 But tax shield earned on interest disbursed must also be deducted
from the Net Profit thereon.
 EXAMPLE

Particulars Amount Particulars Amount

Net profit for the current year Rs. 1,00,00,000 Adjusted Net profit for the Rs. (1,00,00,000 + 12,00,000
current year – 3,60,000) = Rs.
Number of equity shares 50,00,000 1,08,40,000
outstanding

Basic EPS 1,00,00,000/50,00,000 = 2 Number of equity shares 10,00,000

resulting from conversion of
Number of 12% convertible 1,00,000 debentures
debentures of Rs. 100 each
Each debenture is convertible
Number of equity shares used 50,00,000 + 10,00,000 =
into 10 equity shares
to calculate diluted earnings 60,00,000
Interest expense for the current Rs. 12,00,000 per share
year
Diluted earnings per share 1,08,40,000/60,00,000 = Rs.
Tax relating to interest expense Rs. 3,60,000 1.81
(30%)