CA NITIN GOEL AS 13 CH-13G

AS
13
Investments are assets held by an enterprise for:
✓ Earning income by way of dividends, interest, and rentals,
✓ Capital appreciation, or
Meaning ✓ Other benefits
to the investing enterprise.
Note: Assets held as stock-in-trade are not ‘investments’.
This Standard does not deal with:
❖ Bases for recognition of interest, dividends and rentals earned on
investments which are covered by AS:9 on Revenue Recognition
Non ❖ Operating or finance leases
Applicability ❖ Investments 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
→ Some investments have no physical existence and are represented
merely by certificates or similar documents (e.g., shares) while others
Forms of exist in a physical form (e.g., buildings).
Investments → 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.
An investment property is an investment in land or buildings that are not
Investment intended to be occupied substantially for use by, or in the operations of, the
Properties investing enterprise. An enterprise holding investment properties should
account for them in accordance with cost model as prescribed in AS 10,
Current It is an investment that is by its nature readily realisable and
Classification Investment is intended to be held for not more than one year from the date
of on which such investment is made.
Investments Long Term It is an investment other than a current investment.
Investment
COST OF INVESTMENTS
Direct The cost of an investment includes acquisition charges such as brokerage,
Purchase fees and duties.
In exchange Cost of Investment is
for share ➢ Fair Market Value (FMV) of Securities issued or
/Other ➢ Fair Market Value (FMV) of the Investment acquired
Securities whichever is more clearly evident.
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
Note the profit and loss statement. However, where the investments are acquired
PARA 13 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,
it may be appropriate to apply the sale proceeds of rights to reduce the
carrying amount of such investments to the market value.

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CARRYING AMOUNT OF INVESTMENTS

Current Lower of Cost and Fair value.
Investments
Usually Carried at cost.
Where there is a decline, other than temporary, in the carrying amounts of
Long Term long term investments, the resultant reduction in the carrying amount is
Investments charged to the profit and loss statement.
The reduction in carrying amount is reversed when there is a rise in the
value of the investment, or if the reasons for the reduction no longer exist.
RECLASSIFICATION OF INVESTMENTS
Reclassified from Long Term to Current Reclassified from Current to Long Term
Transfers are made at the lower of cost and Transfers are made at the lower of cost
carrying amount at the date of transfer and fair value at the date of transfer.
DISPOSAL OF INVESTMENTS
On disposal of an investment, the difference between the carrying amount and the
disposal proceeds, net of expenses, is recognised in the profit and loss statement.
DISCLOSURE REQUIREMENTS
Following disclosures in financial statements in relation to investments are appropriate: -
(i) The accounting policies for the determination of carrying amount of investments.
(ii) The amounts included in profit and loss statement for:
a. Interest, dividends (showing separately dividends from subsidiary companies), and
rentals on investments showing separately such income from long term and current
investments. Gross income should be stated, the amount of income tax deducted at
source being included under Advance Taxes Paid.
b. Profits and losses on disposal of current investments and changes in carrying
amount of such investments.
c. Profits and losses on disposal of long term investments and changes in the carrying
amount of such investments.
(iii) Significant restrictions on the right of ownership, realizability of investments or the
remittance of income and proceeds of disposal.
(iv) The aggregate amount of quoted and unquoted investments, giving the aggregate market
value of quoted investments.
(v) Other disclosures as specifically required by relevant statute governing the enterprise.

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ASSIGNMENT QUESTIONS

Question 1
Give your comments on the following situations, each being independent of the other.
1) Current Investments are valued at ₹ 60 Lakhs, being the cost of acquisition, fair value of
these investments on the Balance Sheet date is ₹ 48 Lakhs.
2) Current investments were acquired at a cost of ₹ 86 lakhs whereas their fair market value
as on the Balance Sheet Date was ₹ 90 lakhs. Due to insufficiency of profits from
operations, the Company would like to recognize the profit on these investments for
‘improving’ its Financial Statements.

Solution
1) As per AS 13 “Accounting for Investments”, current investments should be carried at cost
or fair value, whichever is lower. Here, the current Investment should be carried at fair
value of ₹ 48 Lakhs, being the lower of ₹ 60 Lakhs (cost) or ₹ 48 Lakhs (fair value). The
difference of ₹ 12 Lakhs should be charged to profit and loss account.
2) Current investment should be carried at cost or fair value, whichever is lower. In the given
case, the current investments should be carried at cost of ₹ 86 Lakhs, being the lower of
₹ 86 Lakhs (cost) or ₹ 90 Lakhs (fair value).

Question 2
M/s Naren Garments Company Limited invested in the shares of another company on 1 st
November, 2021 at a cost of ₹ 3,00,000. It also earlier purchased Gold of ₹ 3,50,000 and Silver
of ₹ 1,50,000 on 1st April, 2021. Market value as on 31st March, 2022 of above investments are
as follows:
₹
Shares 2,50,000
Gold 5,00,000
Silver 2,80,000
How above investments will be shown in the books of accounts of M/s Naren Garments
Company Limited for the year ending 31st March, 2022 as per provisions of AS 13?

Solution
As per AS 13 ‘Accounting for Investments’, for investment in shares - if the investment is
purchased with an intention to hold for short-term period then it will be shown at the
realizable value of ₹ 2,50,000 as on 31st March, 2022.
If equity shares are acquired with an intention to hold for long term period then it will continue
to be shown at cost in the Balance Sheet of the company. However, provision for diminution
shall be made to recognize a decline, if other than temporary, in the value of the investments.
As per the standard, investment acquired for long term period shall be shown at cost. Gold
and silver are generally purchased with an intention to hold it for long term period until and
unless given otherwise. Hence the investment in Gold and silver (purchases on 1st April 2021
shall continue to be shown at cost as on 31st March 2022 i.e. ₹ 3,50,000 and ₹1,50,000
respectively, though their realizable values have been increased. If held as short term then it
should be valued at lower of cost or fair value (Market price)

Question 3
Albert Ltd. has made the following investments:
(a) Purchased the following equity shares from stock exchange on 1st June, 2021:

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 CA NITIN GOEL AS 13 CH-13G

Cost
Scrip X 1,80,000
Scrip Y 50,000
Scrip Z 1,70,000
4,00,000
(b) Purchased government securities at a cost of ₹ 5,00,000 on 1st April, 2021. How will you
treat these investments as per applicable AS in the books of the company for the year
ended on 31st March, 2022, if the values of these investments are as follows
Shares ₹ ₹
Scrip X 1,90,000
Scrip Y 40,000
Scrip Z 70,000 3,00,000
Government securities 7,00,000

Solution
As per AS 13 ‘Accounting for Investments’, current investments should be carried at 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.
Also as per standard, long-term investments are carried at cost except when there is a
decline, other than temporary, in the value of a long term investment, the carrying amount is
reduced to recognise the decline.

a) If the investment in shares is intended to be held as current investment then

Scrip X should be valued at cost i.e. ₹1,80,000 (lower of cost and fair value),
Scrip Y should be valued at fair value i.e. ₹ 40,000 (lower of cost and fair value) and
Scrip Z should be valued at fair value i.e. ₹ 70,000 (lower of cost and fair value).
The total loss of ₹ 1,10,000 on scrip’s purchased on 1st June, 2021 is to be charged to profit
and loss account for the year ended 31st March, 2022.
If investment is intended to be held as long term investment, then it will continue to be
shown at cost in the balance sheet of the company. However, provision for diminution shall
be made to recognize a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
b) Value of government securities (purchased on 1st April, 2021) is to be shown at cost of ₹
5,00,000 in the balance sheet as on 31.3.2022

Question 4
The Investment portfolio of XYZ Ltd. as on 31.03.2022 consisted of the following:
(₹ In Lacs)
Current Investments Cost Fair Value as on
31.03.2022
1 1000 Equity Shares of A Ltd. 5 7
2 500 Equity Shares of B Ltd. 10 15
3 1000 Equity Shares of C Ltd. 15 12
30 34
Give your comments on below:
(i) The company wants to value the above portfolio at ₹ 30 lakhs being lower of cost or fair
market value.
(ii) Company wants to transfer 1000 Equity Shares of C Ltd. from current investments to long
term investments on 31.03.2022 at cost of ₹ 15 lakhs.

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Solution
As per AS 13 “Accounting for 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.
(i) Hence the company has to value the current investment at ₹ 27 Lacs (A Ltd. shares at ₹ 5
lacs; B Ltd. shares at ₹ 10 lacs and C Ltd. shares at ₹ 12 lacs). The company’s decision to
value the portfolio at ₹ 30 lacs is not appropriate.
(ii) Moreover, 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. Hence, the company has
to make transfer of 1,000 equity shares of C Ltd.at ₹ 12 lacs (fair value) and not ₹ 15 lacs
(cost) as the fair value is less than cost.

Question 5 (ICAI Study Material)

ABC Ltd. wants to re-classify its investments in accordance with AS–13. Decide and state on
the amount of transfer, based on the following information:
a) A portion of Current Investments purchased for ₹ 20 lakhs, to be reclassified as Long
Term investment, as the company has decided to retain them. The market value as on the
date of Balance Sheet was ₹ 25 lakhs.
b) Another portion of current investments purchased for ₹ 15 lakhs, to be reclassified as
long term investments. The market value of these investments as on the date of balance
sheet was ₹ 6.5 lakhs
c) Certain long-term investments no longer considered for holding purposes, to be
reclassified as current investments. The original cost of these was ₹18 lakhs but had been
written down to ₹ 12 lakhs to recognize permanent decline as per AS 13.

Solution
As per AS 13, 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.
a) In the first case, the market value of the investment is ₹ 25 lakhs, which is higher than its
cost i.e. ₹ 20 lakhs. Therefore, the transfer to long term investments should be carried at
cost i.e. ₹ 20 lakhs.
b) In the second case, the market value of the investment is ₹ 6.5 lakhs, which is lower than
its cost i.e. ₹ 15 lakhs. Therefore, the transfer to long term investments should be carried
in the books at the market value i.e. ₹ 6.5 lakhs. The loss of ₹ 8.5 lakhs should be charged
to profit and loss account.
As per AS 13, where long-term investments are re-classified as current investments,
transfers are made at the lower of cost and carrying amount at the date of transfer.
c) In the third case, the book value of the investment is ₹ 12 lakhs, which is lower than its cost
i.e. ₹ 18 lakhs. Here, the transfer should be at carrying amount and hence this reclassified
current investment should be carried at ₹ 12 lakhs.

Question 6 (RTP May 2020) (Similar) / (ICAI Study Material)

Bluechip Equity Investments Ltd, wants to reclassify its investments in accordance with AS13
a) Long term investments in Company A, costing ₹ 8.5 lakhs are to be re-classified as current.
The company had reduced the value of these investments to ₹ 6.5 lakhs to recognize a
permanent decline in value. The fair value on date of transfer is ₹ 6.8 lakhs.

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b) Long term investments in Company B, costing ₹ 7 lakhs are to be re-classified as current.

The fair value on date of transfer is ₹ 8 lakhs and book value is ₹ 7 lakhs.
c) Current investment in Company C, costing ₹ 10 lakhs are to be re-classified as long term
as the company wants to retain them. The market value on date of transfer is ₹ 12 lakhs.
d) Current investment in Company D, costing ₹ 15 lakhs are to be re-classified as long term.
The market value on date of transfer is ₹ 14 Lakhs.

Solution
As per AS 13 ‘Accounting for 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 lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
a) In this case, carrying amount of investment on the date of transfer is less than the cost;
hence this re-classified current investment should be carried at ₹ 6.5 lakhs in the books
b) The carrying / book value of the long term investment is same as cost i.e. ₹ 7 lakhs. Hence
this long term investment will be reclassified as current investment at book value of ₹ 7
lakhs only.
c) In this case, reclassification of current investment into long-term investments will be made
at ₹ 10 lakhs as cost is less than its market value of ₹ 12 lakhs.
d) In this case, market value is ₹ 14 lakhs which is lower than cost of ₹ 15 lakhs. The
reclassification of current investment as long-term investments will be made at ₹ 14 lakhs

Question 7 (Inter May 2019) (5 Marks)

On 15th June, 2021, Y limited wants to re-classify its investments in accordance with AS 13
(revised). Decide and state the amount of transfer, based on the following information:
1) A portion of long term investments purchased on 1st March, 2020 are to be reclassified as
current investments. The original cost of these investments was ₹ 14 lakhs but had been
written down by ₹ 2 lakhs (to recognise 'other than temporary' decline in value). The market
value of these investments on 15th June, 2021 was ₹ 11 lakhs.
2) Another portion of long term investments purchased on 15th January, 2020 are to be re-
classified as current investments. The original cost of these investments was ₹ 7 lakhs but
had been written down to ₹ 5 lakhs (to recognize 'other than temporary' decline in value).
The fair value of these investments on 15th June, 2021 was ₹ 4.5 lakhs.
3) A portion of current investments purchased on 15th March, 2021 for ₹ 7 lakhs are to be re-
classified as long term investments, as the company has decided to retain them. The
market value of these investments on 31st March, 2021 was ₹ 6 lakhs and fair value on 15th
June 2021 was ₹ 8.5 lakhs,
4) Another portion of current investments purchased on 7th December, 2020 for ₹ 4 lakhs are
to be re-classified as long term investments. The market value of these investments was:
on 31st March, 2021 ₹ 3.5 lakhs on 15th June, 2021 ₹ 3.8 lakhs

Solution
As per AS 13 (Revised) ‘Accounting for 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; and where investments are reclassified from current to long
term, transfers are made at lower of cost and fair value on the date of transfer. Accordingly,
the re-classification will be done on the following basis:
1) In this case, carrying amount of investment on the date of transfer is less than the cost;
hence this re-classified current investment should be carried at ₹ 12 lakhs in the books.

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2) In this case also, carrying amount of investment on the date of transfer is less than cost;
hence this re-classified current investment should be carried at ₹ 5 lakhs in the books.
3) In this case, reclassification of current investment into long-term investments will be made
at ₹ 7 lakhs as cost is less than its fair value of ₹ 8.5 lakhs on the date of transfer.
4) In this case, market value (considered as fair vale) is ₹ 3.8 lakhs on the date of transfer
which is lower than the cost of ₹ 4 lakhs. The reclassification of current investment into
long-term investments will be made at ₹ 3.8 lakhs.

Question 8 (RTP Nov 2020) / (ICAI Study Material)

X Ltd. on 1-1-2022 had made an investment of ₹ 600 lakhs in the equity shares of Y Ltd. of
which 50% is made in the long term category and the rest as temporary investment. The
realizable value of all such investment on 31-3-2022 became ₹ 200 lakhs as Y Ltd. lost a case
of copyright.
How will you recognize the reduction in financial statements for the year ended on 31-3-2022
assuming that this decline in value is not temporary in nature?

Solution
X Ltd. invested ₹ 600 lakhs in the equity shares of Y Ltd. Out of the same, the company intends
to hold 50% shares for long term period i.e. ₹ 300 lakhs and remaining as temporary (current)
investment i.e. ₹ 300 lakhs. Irrespective of the fact that investment has been held by X Ltd.
only for 3 months (from 1.1.2022 to 31.3.2022), AS 13 lays emphasis on intention of the investor
to classify the investment as current or long term even though the long term investment may
be readily marketable.
In the given situation, the realizable value of all such investments on 31.3.2022 became ₹ 200
lakhs i.e. ₹ 100 lakhs in respect of current investment and ₹ 100 lakhs in respect of long term
investment.
As per AS 13, ‘Accounting for Investment’, the carrying amount for current investments is the
lower of cost and fair value. In respect of current investments for which an active market
exists, market value generally provides the best evidence of fair value.
Accordingly, the carrying value of investment held as temporary investment should be shown
at realizable value i.e. at ₹ 100 lakhs. The reduction of ₹ 200 lakhs in the carrying value of
current investment will be charged to the profit and loss account.

Standard further states that long-term investments are usually carried at cost. However,
when there is a decline, other than temporary, in the value of long term investment, the
carrying amount is reduced to recognise the decline. Here, Y Ltd. lost a case of copyright
which drastically reduced the realisable value of its shares to one third which is quiet a
substantial figure. Losing the case of copyright may affect the business and the performance
of the company in long run. Accordingly, it will be appropriate to reduce the carrying amount
of long term investment by ₹ 200 lakhs and show the investments at ₹ 100 lakhs, since the
downfall in the value of shares is other than temporary. The reduction of ₹ 200 lakhs in the
carrying value of long term investment will be charged to the Statement of profit and loss.

Question 9 (ICAI Study Material)

An unquoted long–term investment is carried in the books at cost of ₹ 2 lacs. The published
accounts of unlisted company received in May, 2021 showed that the company has incurred
cash losses with decline market share and the long–term investment may not fetch more
than ₹ 20,000. How you will deal with it in preparing the financial statements of investing
company for the year ended 31.3.2021?

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Solution
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 ‘Accounting for Investments’ states that indicators of the
value of an investment are obtained by reference to its market value, the investee's assets
and results and the expected cash flows from the investment. On these bases, the facts of
the given case clearly suggest that the provision for diminution should be made to reduce the
carrying amount of long term investment to ₹ 20,000 in the financial statements for the year
ended 31st March, 2021.

Question 10 (RTP Nov 2019) / (RTP Nov 2021)

Sabka Bank has classified its total investment on 31-3-2022 into three categories (a) held to
maturity (b) available for sale (c) held for trading as per the RBI guidelines.
‘Held to maturity’ investments are carried at acquisition cost less amortised amount.
‘Available for sale’ investments are carried at marked to market. ‘Held for trading’
investments are valued at weekly intervals at market rates. Net depreciation, if any, is
charged to revenue and net appreciation, if any, is ignored. Comment whether the policy of
the bank is in accordance with AS 13?

Solution
As per AS 13 ‘Accounting for Investments’, the accounting standard is not applicable to Bank,
Insurance Company, Mutual Funds. In this case Sabka Bank is a bank, therefore, AS 13 does
not apply to it. For banks, the RBI has issued guidelines for classification and valuation of its
investment and Sabka Bank should comply with those RBI Guidelines/Norms. Therefore,
though Sabka Bank has not followed the provisions of AS 13, yet it would not be said as non-
compliance since, it is complying with the norms stipulated by the RBI.

Question 11
Whether the accounting treatment ‘at cost’ under the head ‘Long Term Investments’ without
providing for any dimunition in value is correct and in accordance with the provisions of AS
13. If not, what should have been the accounting treatment in such a situation? What
methodology should be adopted for ascertaining the provision for dimunition in the value of
investment, if any. Explain in brief.

Solution
The accounting treatment ‘at cost’ under the head ‘Long Term Investments’ in the financial
statements of the company without providing for dimunition in value is correct and is in
accordance with the provisions of AS 13 provided that there is no decline, other than
temporary in the value of investment. If the decline in the value of investment is other than
temporary compared to the time when the shares were purchased, provision is required to
be made. The reduction in market value should not be considered, in isolation to determine
the decline, other than temporary. The amount of the provision for dimunition in the value of
investment may be ascertained considering the factors indicated in AS 13.

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PRACTICE QUESTIONS

Question 1 (Inter May 2019) (1 Marks)

State whether the following statement is 'True' or 'False'. Also give reason for your answer.
As per the provisions of AS-13, a current investment is an investment, that by its nature, is
readily realisable and is intended to be held for not more than six months from the date on
which such investment is made.
Solution
False: 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.

Question 2 (RTP Nov 2018)

M/s Active Builders Ltd. invested in the shares of another company on 31st October, 2021 at a
cost of ₹ 4,50,000. It also earlier purchased Gold of ₹ 5,00,000 & Silver of ₹ 2,25,000 on 31st
March, 2019.
Market values as on 31st March, 2022 of the above investments are as follows:
Shares ₹ 3,75,000; Gold ₹ 7,50,000 and Silver ₹ 4,35,000
How will the above investments be shown in the books of account of M/s Active Builders Ltd.
for the year ending 31st March, 2022 as per the provision of AS-13?
Solution
As per AS 13 ‘Accounting for Investments’, if the shares are purchased with an intention to
hold for short-term period then investment will be shown at the realizable value. If equity
shares are acquired with an intention to hold for long term period then it will continue to be
shown at cost in the Balance Sheet of the company. However, provision for diminution shall
be made to recognize a decline, if other than temporary, in the value of the investments. In
the given case, shares purchased on 31st October, 2021, will be valued at ₹ 3,75,000 as on 31st
March, 2022.
Gold and silver are generally purchased with an intention to hold it for long term period
until and unless given otherwise. Hence, the investment in gold and silver (purchased on 31st
March, 2019) shall continue to be shown at cost as on 31st March, 2022 i.e., ₹ 5,00,000 and ₹
2,25,000 respectively, though their realizable values have been increased.
Thus the shares, gold and silver will be shown at ₹ 3,75,000, ₹ 5,00,000 and ₹ 2,25,000
respectively and hence, total investment will be valued at ₹ 11,00,000 in the books of account
of M/s Active Builders for the year ending 31st March, 2022 as per provisions of AS 13.

Question 3 (ICAI Study Material)

M/s Innovative Garments Manufacturing Company Limited invested in the shares of another
company on 1st October, 2021 at a cost of ₹ 2,50,000. It also earlier purchased Gold of ₹
4,00,000 and Silver of ₹ 2,00,000 on 1st March, 2019. Market value as on 31st March, 2022 of
above investments are as follows: Shares 2,25,000 Gold 6,00,000 Silver 3,50,000
How above investments will be shown in the books of accounts of M/s Innovative Garments
Manufacturing Company Limited for the year ending 31st March, 2022 as per the provisions of
Accounting Standard 13 "Accounting for Investments"?
Solution
As per AS 13 (Revised) ‘Accounting for Investments’, for investment in shares - if the
investment is purchased with an intention to hold for short-term period (less than one year),

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then it will be classified as current investment and to be carried at lower of cost and fair
value, i.e., in case of shares, at lower of cost (₹ 2,50,000) and market value (₹ 2,25,000) as on
31 March 2022, i.e., ₹ 2,25,000.
If equity shares are acquired with an intention to hold for long term period (more than one
year), then should be considered as long-term investment to be shown at cost in the Balance
Sheet of the company. However, provision for diminution should be made to recognise a
decline, if other than temporary, in the value of the investments.
Gold and silver are generally purchased with an intention to hold it for long term period (more
than one year) until and unless given otherwise. Hence, the investment in Gold and Silver
(purchased on 1st March, 2019) should continue to be shown at cost (since there is no ‘other
than temporary’ diminution) as on 31st March, 2022, i.e., ₹ 4,00,000 and ₹ 2,00,000
respectively, though their market values have been increased.

Question 4 (Inter Nov 2020) (5 Marks)

A Limited invested in the shares of XYZ Ltd. on 1st December, 2021 at a cost of ₹ 50,000. Out
of these shares, ₹ 25,000 shares were purchased with an intention to hold for 6 months and
₹ 25,000 shares were purchased with an intention to hold as long-term Investment.
A Limited also earlier purchased Gold of ₹ 1,00,000 and Silver of ₹ 30,00,000 on 1st April, 2021.
Market value as on 31st March, 2022 of above investments are as follows:
Shares ₹ 47,500 (Decline in the value of shares is temporary.)
Gold ₹ 1,80,000
Silver ₹ 30,55,000
How above investments will be shown in the books of accounts of M/s A Limited for the year
ended 31st March, 2022 as per the provisions of AS 13 (Revised)?

Solution
As per AS 13 ‘Accounting for Investments’, for investment in shares - if the investment is
purchased with an intention to hold for short-term period (less than one year), then it will be
classified as current investment and to be carried at lower of cost and fair value.
In the given case ₹ 25,000 shares held as current investment will be carried in the books at
₹ 23,750 (₹ 47,500/2). If equity shares are acquired with an intention to hold for long term
period (more than one year), then should be considered as long-term investment to be shown
at cost in the Balance Sheet of the company. However, provision for diminution should be
made to recognize a decline, if other than temporary, in the value of the investments. Hence,
₹ 25,000 shares held as long-term investment will be carried in the books at ₹ 25,000.
Gold and silver are generally purchased with an intention to hold them for long term period
(more than 1 year) until & unless given otherwise. Hence, investment in Gold & Silver
(purchased on 1st April, 2021) should continue to be shown at cost (since there is no ‘other
than temporary’ diminution) as on 31st March, 2022. Thus Gold at ₹ 1,00,000 & Silver at ₹
30,00,000 respectively will be shown in the books.

Question 5
X Ltd. wants to re-classify its Investment in accordance with AS 13. Decide on the treatment
to be given in each of the following cases:
a) A portion of Current Investments purchased for ₹ 10 lakhs to be reclassified as long-term
Investments, as the company has decided to retain them. The market value as on the date
of Balance Sheet was ₹ 12 lakhs.
b) Another portion of Current Investments purchased for ₹ 8 lakhs has to be re classified as
Long-term Investments. The market value of these investments as on the date of Balance
Sheet was ₹ 5 lakhs

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 CA NITIN GOEL AS 13 CH-13G

Solution
As per AS 13 ‘Accounting for Investments’, 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.
a) In the first case, the market value of the investment is ₹ 12 lakhs, which is higher than its
cost i.e. ₹ 10 lakhs. Therefore, the transfer to long term investments should be made at
cost i.e. ₹ 10 lakhs.
b) In the second case, the market value of the investment is ₹ 5 lakhs, which is lower than its
cost i.e. ₹ 8 lakhs. Therefore, the transfer to long term investments should be made in the
books at the market value i.e. ₹ 5 lakhs. The loss of ₹ 3 (8 – 5) lakhs should be charged to
profit and loss account.

Question 6
Sun Ltd. wants to re-classify its investments in accordance with AS-13. State the values at
which the investments have to be re-classified as per AS-13 in the following cases:
(1) Current investments in Company Fine Ltd. costing ₹ 39,000 are to be re-classified as long
term investments. The fair value on the date of transfer is ₹ 37,000.
(2) Long term investment in Company Bold Ltd., costing ₹ 16 lakhs are to be reclassified as
current investments. Fair value on date of transfer is ₹ 15 lakhs & book value is ₹ 16 lakhs.

Solution
Re-classification will be done on the following basis:
(1) As per AS 13, where investments are reclassified from current to long term, transfers are
made at lower of cost and fair value on the date of transfer. In this case, fair value is ₹
37,000 which is lower than the cost of ₹ 39,000. The reclassification of current investment
as long-term investments will be made at ₹ 37,000.
(2) As per AS 13 ‘Accounting for 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. The carrying / book value of the long term investment is same as
cost i.e. ₹ 16 lakhs. Hence this long term investment will be reclassified as current
investment at book value of ₹ 16 lakhs only.

Question 7
Mother Mart Ltd wants to reclassify its investment in accordance with AS 13. Decide treatment
to be given in each of the following cases assuming that market value has been determined
in an arm's length transaction between knowledgeable and willing buyer and seller:
(i) A portion of current investments purchased for ₹ 25 lakhs to be reclassified as long term
investments, as the company has decided to retain them. The market value as on the
date of balance sheet was ₹ 30 lakhs.
(ii) Another portion of current investments purchased for ₹ 20 lakhs has to be reclassified
as long-term investments. The market value of these investments as on the date of the
balance sheet was ₹ 12.5 lakhs.
(iii) One portion of long-term investments, no longer considered for holding purposes, to be
reclassified as current investments. The original cost of these was ₹ 15 lakhs, but had
been written down to ₹ 11 lakhs to recognize permanent decline as per AS 13.

Solution
As per AS 13 ‘Accounting for Investments’, 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.
When long-term investments are re-classified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer.

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 CA NITIN GOEL AS 13 CH-13G

(i) In the first case, the market value of the investments is ₹ 30 lakhs, which is higher than
its cost i.e. ₹ 25 lakhs. Therefore, the transfer to long term investments should be made
at cost i.e. ₹ 25 lakhs
(ii) In the second case, the market value of the investment is ₹ 12.5 lakhs, which is lower than
its cost i.e. ₹ 20 lakhs. Therefore, the transfer to long term investments should be made
in the books at the market value i.e. ₹ 12.5 lakhs. The loss of ₹ 7.50 lakhs (20-12.5) should
be charged to Profit and Loss account.
(iii) In the third case, the book value of the investments is ₹ 11 lakhs, which is lower than its
cost, i.e. ₹ 15 lakhs. As the transfer should be at carrying amount, hence this reclassified
current investment should be carried at ₹ 11 lakhs.

Question 8 (Inter Jan 2021) (5 Marks)

Kunal Securities Ltd. wants to reclassify its investments in accordance with AS-13 (Revised).
State the values, at which the investments have to be reclassified in the following cases:
(i) Long term investment in Company A, costing ₹ 10.5 lakhs is to be re-classified as current
investment. The company had reduced the value of these investments to ₹ 9 lakhs to
recognize a permanent decline in value. The fair value on the date of reclassification is
₹ 9.3 lakhs.
(ii) Long term investment in Company B, costing ₹ 14 lakhs is to be re-classified as current
investment The fair value on the date of reclassification is ₹ 16 lakhs and book value is ₹
14 lakhs.
(iii) Current investment in Company C, costing ₹ 12 lakhs is to be re-classified as long term
investment as the company wants to retain them. The market value on the date of
reclassification is ₹ 13.5 lakhs.
(iv) Current investment in Company D, costing ₹ 18 lakhs is to be re-classified as long term
investment. The market value on the date of reclassification is ₹ 16.5 lakhs.

Solution
As per AS 13 (Revised) ‘Accounting for 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. And where investments are reclassified from current to long
term, transfers are made at lower of cost and fair value on the date of transfer.

Accordingly, the re-classification will be done on the following basis:

(i) In this case, carrying amount of investment on the date of transfer is less than the cost;
hence this re-classified current investment should be carried at ₹ 9 lakhs in the books.
(ii) The carrying / book value of the long-term investment is same as cost i.e., ₹ 14 lakhs.
Hence this long-term investment will be reclassified as current investment at book value
of ₹ 14 lakhs only.
(iii) In this case, reclassification of current investment into long-term investments will be
made at ₹ 12 lakhs as cost is less than its market value of ₹ 13.5 lakhs.
(iv) Market value of the investment is ₹ 16.5 lakhs, which is lower than its cost i.e., ₹ 18 lakhs.
Therefore, the transfer to long term investments should be done in the books at the
market value i.e., ₹ 16.5 lakhs.

Question 9
Rose Ltd. had made an investment of ₹ 500 lakhs in the equity shares of Nose Ltd. on
10.01.2022. The realisable value of such investment on 31.03.2022 became ₹ 200 lakhs as Nose
Ltd. lost a case of patent rights. Rose Ltd. follows financial year as accounting year. How will
you recognize this reduction in financial statements for the year 2021–22.

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 CA NITIN GOEL AS 13 CH-13G

Solution
Recognition of reduction in value of investment would depend upon the nature of investment
and nature of decline as per Accounting Standard 13 “Accounting for Investments”. As per
provisions of the standard, if the investments were acquired for long term and decline is
temporary in nature, reduction in value will not be recognized and investments would be
carried at cost. If the decline is of permanent nature, it will be charged to profit and loss
account. If the investments are current investments, then the reduction should be recognized
and charged to Profit and Loss Account as the current investments are carried at cost or fair
value, whichever is less.

Question 10 (RTP May 2018) / (RTP May 2019)

How you will deal with following in the financial statement of the Paridhi Electronics Ltd. as
on 31.3.22 with reference to AS-13?
a) Paridhi Electronics Ltd. invested in the shares of another unlised company on 1st May 2018
at a cost of ₹ 3,00,000 with the intention of holding more than a year. The published
accounts of unlisted company received in January, 2022 reveals that the company has
incurred cash losses with decline market share and investment of Paridhi Electronics Ltd.
may not fetch more than ₹ 45,000.
b) Also Paridhi Electronics Ltd. has current investment (X Ltd.’s shares) purchased for ₹5
lakhs, which the company want to reclassify as long term investment. The market value of
these investments as on date of Balance Sheet was ₹ 2.5 lakhs.
Solution
a) As per AS 13, “Accounting for investments” 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. The standard
also states that indicators of the value of an investment are obtained by reference to its
market value, the investee's assets and results and the expected cash flows from the
investment. On this basis, the facts of the given case clearly suggest that the provision for
diminution should be made to reduce the carrying amount of shares to ₹ 45,000 in the
financial statements for the year ended 31st March, 2022 and charge the difference of loss
of ₹ 2,55,000 to Profit and Loss account.
b) As per AS 13 ‘Accounting for Investments’, where investments are reclassified from current
to long-term, transfers are made at the lower of cost or fair value at the date of transfer.
In the given case, the market value of the investment (X Ltd. shares) is ₹ 2.50 lakhs, which
is lower than its cost i.e. ₹5 lakhs. Therefore, the transfer to long term investments should
be made at cost i.e. ₹2.50 lakhs. The loss of ₹ 2.50 lakhs should be charged to profit and
loss account.

Question 11 (RTP May 2021)

Paridhi Electronics Ltd. invested in the shares of Dhansukh Ltd. on 1st May 2021 at a cost of ₹
10,00,000. Three fourth of these investments were current investments and the remaining
investments were intended to be held for more than a year. The published accounts of
Dhansukh Ltd. received in January, 2022 reveals that the company has incurred cash losses
with decline in market share and investment of Paridhi Electronics Ltd. may not fetch more
than 7,50,000. The reduction in value is apparent to be non-temporary.
You are required to explain how you will deal with the above in the financial statements of the
Paridhi Electronics Ltd. as on 31.3.22 with reference to AS 13?

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 CA NITIN GOEL AS 13 CH-13G

Solution
As per AS 13, “Accounting for Investments”, carrying amount for current investments is the
lower of cost and fair value. But long term investments should be carried in the financial
statements at cost. However, provision for diminution shall be made to recognize a decline,
other than temporary, in the value of the investments, such reduction being determined and
made for each investment individually. The standard also states that indicators of the value
of an investment are obtained by reference to its market value, the investee's assets and
results and the expected cash flows from the investment.
Paridhi Ltd. made three fourth of ₹ 10,00,000 ie. ₹7,50,000 as current investment and
remaining ₹ 2,50,000 as long term. The facts of the case given in the question clearly suggest
that the provision for diminution should be made to reduce the carrying amount of shares for
both categories of shares to bring them to market value. Hence the carrying value of
investments will be shown at amount of ₹ 7,50,000 in the financial statements for the year
ended 31st March, 2022 and charge the difference of loss of ₹ 2,50,000 to profit and loss
account

Question 12 (Inter Dec 2021) (5 Marks)

Mr. Mohan has invested some money in various Mutual funds. Following information in this
regard is given:
Mutual Date of purchase Purchase Brokerage Stamp Market value as
Funds cost (₹) Cost (₹) duty (₹) on 31.03.2021 (₹)
A 01.05.2017 50,000 200 20 48,225
B 05.08.2020 25,000 150 25 24,220
C 01.01.2021 75,000 300 75 78,190
D 07.05.2020 70,000 275 50 65,880
You are required to:
a) Classify his investment in accordance with AS-13 (revised).
b) Value of Investment in mutual fund as on 31.03.2021

Solution
As per AS 13 “Accounting for 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. The carrying amount for current investments is the
lower of cost and fair value.
A long-term investment is an investment other than a current investment. Long term
investments are usually carried at cost. If there is a decline, other than temporary, in the
value of a long-term investment; the carrying amount is reduced to recognize the decline.
Mutual Funds Classification Cost (₹) Market value (₹) Carrying value (₹)
A Long-term 50,220 48,225* 50,220
Investment
B Current Investment 25,175 24,220 24,220
C Current Investment 75,375 78,190 75,375
D Current Investment 70,325 65,880 65,880
Total 2,15,695
Note: *The reduction in value of Mutual fund A is considered to be temporary. If reduction in
Market value is assumed as other than temporary in nature, then the carrying value of
₹48,225 will be considered.

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