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Quick Reference on Accounting Standard (AS) 13

Download Quick Reference on Accounting Standard (AS) 13 Accounting for Investments

This Standard deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.

Exclusions (Not dealt by AS 13)

  • Recognition of interest, dividends and rentals earned on investments covered by AS 9
  • Operating or finance leases
  • Investment of retirement benefit plans and life insurance enterprises
  • Mutual funds and venture capital funds and/or the related asset management companies, banks and public financial institutions formed under a Central or State Government Act or so declared under the Companies Act, 2013

Shares, debentures and other securities held as stock-in-trade (i.e., for sale in the ordinary course of business) are not ‘investments’ as defined in this Standard. However, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provisions of this Standard, to the extent that they relate to current investments, are also applicable to shares, debentures and other securities held as stock-in-trade, with suitable modifications as specified in this Standard.

Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not ‘investments’.

Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable willing seller. Under appropriate circumstances, market value or net realisable value provides an evidence of fair value.

Types of Investments:

  • Current Investments:
    • Readily realisable and is intended to be held for not more than one year from the date on which such investment made.
    • Carrying Value– Lower of cost and fair value.
    • Reduction to fair value or any reversals of such reductions are included in Statement of Profit and Loss
  • Long Term Investments:
    • Other than current investment
    • Carried at cost
    • In case of decline, other than temporary, carrying amount is reduced to recognise the decline- Resultant reduction and any reversal thereof are included in the Statement of Profit and Loss

Cost of an investment:

Mode of acquisition of investment Acquisition cost
By actual cash payment Actual cash price
By issue of shares or other securities Fair value of the securities issued. In appropriate cases, this may be indicated by the issue price as determined by statutory authorities
In exchange for another asset Fair value of the asset given up or fair value of the investment acquired, whichever is more clearly evident

Cost of an investment includes acquisition charges such as brokerage, fees and duties.

Pre-acquisition dividend or interest- Deducted from the purchase price

Right shares- When right shares offered are subscribed for, the cost of the right shares is added to the carrying amount of the original holding. If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the Statement of Profit and Loss.

Investment acquired on cum-right basis- Where the investments are acquired on cum-right basis and the market value of investments immediately after their becoming ex-right is lower than the cost for which they were acquired then, it may be appropriate to apply the sale proceeds of rights to reduce the carrying amount of such investments to the market value.

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.
  • Accounted for in accordance with cost model as prescribed in AS 10

Disposal of an investment

  • Difference between the carrying amount and net disposal proceeds should be charged or credited to the Statement of Profit and Loss.
  • When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that part is determined on the basis of the average carrying amount of the total holding of that investment.

Reclassification of investments

  • Current to Long-term- Transfer at lower of cost and fair value at the date of transfer
  • Long-term to current- Transfer at lower of cost and carrying amount at the date of transfer

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