Check out Examples in AS 13 and also PPT Presentation. Accounting Standard (AS) 13 deals with procedure for Accounting of Investments by a Company. AS 13 is one of the widely used and relevant topic while dealing with Accounts of a Company. Below, we have covered certain important issues like AS 13 like Non Applicability of AS 13, Important Definitions prescribed in AS 13, Basic classification of Investments under AS 13 etc. In our earlier post, we have already provided 3 Minute Revision of AS 9 Revenue Recognition.
Non Applicability of AS 13
- Basis of accounting for interest, dividends etc.
- Investments of retirement benefit plans and life insurance enterprises.
- Mutual funds , AMCs, banks and Financial institutions.
- Venture capital funds.
Definitions under AS 13
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 a stock-in-trade are not ‘investments’.
current investment :
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Current Investment :
It 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 Investment :
It’s an investment other than a current investment.
Investment Property :
It 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.
Fair Value under AS 13:
It is the amount for which an asset could be exchanged between a willing buyer , willing seller in an arm’s length transaction. Under appropriate circumstances, market value or net realizable value provides a evidence of fair value.
Market Value under AS 13:
It 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.
Cost Definition under AS 13 :
Cost Includes Acquisition charges like brokerage , fees and duties and Fees paid to SEBI/ merchant bankers, advertising costs incurred for acquiring shares, legal costs for acquiring shares net of incentives received for investment If acquired by issue of shares etc, measured by fair value (market value) of such shares issued Interest received after acquisition to be allocated to pre and post acquisition period.
Classification of Investments in AS 13
Enterprises present financial statements that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets, although the common practice may be to include them in investments.
Investments other than current investments are classified as long term investments, even though they may be readily marketable.
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 investments are reclassified from current to long-term, transfers are made at the lower of cost and fair value at the date of transfer.
Valuation of Current Investments in AS 13
Any investment which is converted in to cash within one year. All current investments will be calculated on cost or fair market price which is less.
How to Value Long-Term Investments in AS 13
Long term investments are valued at its original cost for recording in the books of accounts.
It is very necessary to disclose the method of valuation of investments in the financial statements because of other investor’s interest are affected from this point.
Carrying Amount of Investments
Investments classified as current investments should be carried in the financial statements at the lower of cost and fair value determined either on an individual investment basis or by category of investment, but not on an overall (or global) basis.
Investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall 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 Investment Treatment On Disposal :
At the time of sale of investment Difference between carrying cost and sale value net of expenses is taken to P&L.
On Sale of part holding-Carrying amount to be allocated determined on the basis of average carrying amount of the total holdings.
Disclosure Requirements under AS 13 :
- Accounting policy.
- Classification of investments.
- Separately for long term and short term investments
- Income to be disclosed as gross and TDS.
- show income from subsidiaries separately.
- Profit/loss on disposal.
- Changes in carrying amounts
- significant restrictions on ownership rights, realisability.
Conclusion : AS 13 Accounting for Investments
AS 13 has many complications and the way you read AS 13 changes from one Industry to the other and for each company.