Accounting Standard 13

ACCOUNTING STANDARD 13
ACCOUNTING FOR INVESTMENTS
1. Meaning of Investments:
Investments are assets held by an enterprise for
• earning income by way of dividends, interest, and rentals,
• capital appreciation, or
• other benefits.
Attention:
✓ Shares, debentures and other securities held as stock-in-trade are not
‘investments’.
✓ However, they are accounted for and disclosed in the financial
statements as per AS-13 to the extent they relate to current
investment.

2. Classification of Investments:
An enterprise should classify and disclose investment as
- current investments and
- long-term investments

3. Current Investments:
Meaning: A current investment is an investment which is
- readily realisable and
- is intended to be held for not more than one year from the date on
which such investment is made.
Carrying amount of Investments:
Current investment should be valued at
- Cost Price or
- Fair Value
whichever is lower

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Note:
a) 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.
Market value or net realisable value provides evidence of fair value.
b) The carrying amount of Current investments is determined on an
individual basis or on category of investment, but not on an overall
(or global) basis.
b) For current investments, any reduction to fair value and any reversal
of such reduction are included in the profit and loss statement.
Accounting Treatment:
Reduction in Fair Value:
Profit and Loss A/c
To Investment A/c
Reversal of such reduction:
Investment A/c
To Profit and Loss A/c

4. Long Term Investments:

Meaning:
A long term investment is an investment other than a current investment.
Carrying Amount of Investments:
Long-term investments are valued at
Cost price xxx
Less: Provision for Permanent diminution xxx
Carrying Amount xxx
Note
✓ Provision for diminution shall be made to recognize a decline, other
than temporary in the value of the investments.

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✓ Where there is a permanent decline in the carrying amounts of long-

term investments, the resultant reduction in the carrying amount is
charged to the profit and loss statement.
Proft and Loss A/c
To Provision for Permanent decline in Investment A/c
✓ The reduction in carrying amount is reversed when there is a rise in
the value of the investment, or if the reason for the reduction no
longer exists.
Provision for Permanent decline in Investment A/c
To Proft and Loss A/c
✓ The carrying amount of long-term investments is determined on an
individual investment basis.

5. Investment properties:
➢ Investment properties are always considered as Long-Term Investment.
➢ An investment property is an investment in land or buildings that are
held for
- earning income by way of rentals,
- capital appreciation, or
- both
➢ An Investment Properties is accounted as per cost model as prescribed
in AS 10.
➢ Carrying amount of Investments:
Cost price xxx
Less: Accumulated Depreciation xxx
Less: Accumulated Impairment Loss xxx
Carrying Amount xxx

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 Accounting Standard 13

6. Cost Price of Investments

Acquisition against monetary consideration:
Purchase Price XXX
Add: Brokerage and fees XXX
Add: Taxes on Purchase XXX
Add: Expenses to claim titles XXX
Cost Price XXX
Acquired in Exchange of Non-monetary assets:
Cost price of Investment acquired will be equal to
• Fair value of asset given up ± cash adjustment
(or)
• Fair value of asset received (or) acquired
Whichever is clearly evident.
Acquired in Exchange of for shares or other securities
Cost price of Investment acquired will be equal to
• Fair value of securities issued

7. Reclassification of Investments
➢ 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 current investment are reclassified as long-term, transfer are
made at the lower of
- cost and
- fair value at the date of transfer.

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8. Disposal of Investments:
➢ On disposal of an investment,
Net Disposal Proceeds XXX
Less: Carrying amount XXX
Gain or Loss on Sale (PL) XXX

➢ When a part of the holding of an individual investment is disposed,

the carrying amount is required to be allocated to that part on the
basis of the average carrying amount of the total holding of the
investment.

9. Applicability of AS-13:
This Standard does not deal with
✓ The bases for recognition of interest, dividends and rentals;
✓ Operating or finance leases;
✓ Investments of retirement benefit plans and life insurance enterprises;
✓ Mutual funds, banks and public financial institutions

10. Disclosure requirements:

✓ Accounting policies followed for valuation of investments.
✓ Classification of investment into current and long term.
✓ The amount included in profit and loss statements for:
• Interest, dividends and rentals for long term and current
investments
• Profits and losses on disposal of current investment and long term
investment and changes in carrying amount of such investments;
✓ Aggregate amount of quoted and unquoted investments, giving the
aggregate market value of quoted investments;
✓ Any significant restrictions on investments.

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