ankit_as_13

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.


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


• 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


• 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)


• 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.


• 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

THANK YOU

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