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    Investment Accounting W.R.T. As-13

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    navin_khubchandani
    This document discusses accounting for investments according to Accounting Standard 13. It defines investments as assets held to earn income through dividends, interest or rentals. When making investments, liquidity, security and profitability should be considered. Investments are classified as long term or current based on holding period and as fixed or variable earning based on nature. Dividends received before and after acquisition are treated differently. Bonus shares increase investment amount without payment. Rights shares allow subscription or sale of rights. Debentures can convert to equity shares. Investments are valued at cost or market price, whichever is lower at year end.

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    Investment Accounting W.R.T. As-13

    Uploaded by

    navin_khubchandani
    259 views4 pages
    This document discusses accounting for investments according to Accounting Standard 13. It defines investments as assets held to earn income through dividends, interest or rentals. When making investments, liquidity, security and profitability should be considered. Investments are classified as long term or current based on holding period and as fixed or variable earning based on nature. Dividends received before and after acquisition are treated differently. Bonus shares increase investment amount without payment. Rights shares allow subscription or sale of rights. Debentures can convert to equity shares. Investments are valued at cost or market price, whichever is lower at year end.

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    Investment Accounting w.r.t. as-13

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    This document discusses accounting for investments according to Accounting Standard 13. It defines investments as assets held to earn income through dividends, interest or rentals. When making investments, liquidity, security and profitability should be considered. Investments are classified as long term or current based on holding period and as fixed or variable earning based on nature. Dividends received before and after acquisition are treated differently. Bonus shares increase investment amount without payment. Rights shares allow subscription or sale of rights. Debentures can convert to equity shares. Investments are valued at cost or market price, whichever is lower at year end.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    259 views4 pages

    Investment Accounting W.R.T. As-13

    Uploaded by

    navin_khubchandani
    This document discusses accounting for investments according to Accounting Standard 13. It defines investments as assets held to earn income through dividends, interest or rentals. When making investments, liquidity, security and profitability should be considered. Investments are classified as long term or current based on holding period and as fixed or variable earning based on nature. Dividends received before and after acquisition are treated differently. Bonus shares increase investment amount without payment. Rights shares allow subscription or sale of rights. Debentures can convert to equity shares. Investments are valued at cost or market price, whichever is lower at year end.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    INVESTMENT ACCOUNTING W.R.T.

    AS-13 INTRODUCTION:
    An individual or an organization does investment out of savings or out of surplus finance available and not required for a specific period. If extra money is with us and it is kept idle, it will not increase or appreciate. On the other hand, if that money is used to keep it in fixed deposit or acquire securities, it will increase on a maturity date due to income earned. It may also appreciate due to increase in price of securities. Investment is parting money today in anticipation of getting more money in future. According to AS-13 investments are assets held for earning income by way of dividends, Interest, and rentals, for capital appreciation or for other benefits to the investing enterprise. While ding investments, three factors are t be considered, which are: a) Liquidity b) Security c) Profitability. Liquidity is characteristic of inc\vestments to get it converted into cash, whenever required. Security means safety of funds. If one wants more security and liquidity then he has to be satisfied with less profitability. Risk and reward go hand in hand. If you want more profits i.e. reward, then you should be ready to bear risk and sacrifice to certain extent security and liquidity. The objective of doing investment may be earn fixed periodical income or to earn profits after selling at higher price.

    TYPES OF INVESTMENTS:
    Investments

    On the basis of period of Holding

    On the basis of nature of investments

    Long term Investment

    Current Investment

    Variable Earning Securities

    Fixed Earning Securities

    ACCOUNTING SECURITIES

    FOR

    THE

    PURPOSE

    OF

    DIVIDEND

    EARNING

    Accounting for purchase of dividend earning securities i.e. either Equity shares or preference shares or units f Mutual fund:

    DIVIDEND RECEIVED:
    In case of these investments, dividend is paid out of the profits. The dividend is, therefore, uncertain. Investments purchased are always cum-dividend. The full price cum dividend is debited t Investment Account. Later, if dividend is received, then t is divided into two parts as: A] Pre-acquisition period dividend and B] Post-acquisition period dividend. Pre-acquisition dividend is treated as capital receipt and credited to Investment Account. Post-acquisition period dividend is a revenue receipt and credited to Dividend Account.

    TREATMENT OF DIVIDEND:
    Dividend Received

    Pertaining to the period prior to acquisition

    Pertaining to the period after acquisition

    Credit to investment account

    credit to profit and loss account

    BONUS SHARES:
    An inventory of equity shares may receive. Bonus shares for which shareholders do not make any payment. These shares are received because of existing holdings. The investor will record the receipt of Bonus shares on the debit side of investment account in the number f shares or face value column only. This will reduce the cost of existing holding. As per Income Tax Act, in case of sale of bonus shares, the full sale proceeds are treated as capital gains.

    RIGHTS SHARES SUBSCRIBED AND SALE OF RIGHTS:


    Right shares represent the offer given by the company to existing shareholder to subscribe shares at specific price. If the shareholder decides they can pay the amount the company will allot the shares In case they decide not to accept the shares, they may ignore the same or if possible, may dispose the offer of a consideration; the amount received is credited to profit and loss account as per AS-13.

    Rights Shares

    Acceptance of rights shares when issued Nominal value recorded in the nominal value column. Amount paid is recorded in Cost Column

    Sale of rights entitlement to outsiders Amount received is credited to profit and loss account

    Purchase of rights from outsiders Amount paid to seller of right and to company is right price is debited to the investment a/c. In cost column.

    If an investor is entitled to subscribe for further shares at concessional price, he may subscribe or he may transfer / sale his right to another person. The consideration received for sale of rights is credited to profit and loss account.

    CONVERSION OF DEBENTURES INTO EQUITIES SHARES:


    1. Close the Debentures account. 2. Transfer the balance on debenture account to newly opened share account. 3. Record the interest on debenture up to the date of conversion in income column on credit side of debenture account.

    VALUATION OF INVESTMENTS:
    At the end of accounting year the valuation of the investments is to be done appropriately. In case of current or short term investments, they are valued at cost or at market value, whichever is lower. The cost of investment at the end of the year is calculated on average basis or on first in first out basis.

    PROCEDURE OF RECORDING SHARES:


    1. Record opening balance: (a) Face value in N.V. column. (b) Cost in capital column. 2. Purchase of shares; (a) Record N.V. in N.V. column. (b) Record cost in capital column. 3. Bonus shares: (a) Record N.V. in N.V. column. (b) Do not enter anything in cost column. 4. Rights shares: (a) Record N.V. in N.V. column. (b) Record cost in capital column. 5. Dividend received: (a) Record pre-acquisition dividend in capital column. (b) Record post-acquisition dividend in dividend column. 6. Sale of shares: (a) Record N.V. in N.V. column. (b) Record amount received in capital column. 7. Loss on sale: (a) Record loss on sale in capital column on Credit side. 8. Profit on sale; (a) Record profit on sale in capital column on Debit side. 9. Balance; (a) Record closing balance, N.V. in N.V. column and cost in capital column. 10. Loss on valuation: (a) Record loss on valuation of shares in hand in capital column on Credit side. 11. Balance on dividend account: (a) Transfer balance on dividend account to Profit And Loss Account on Debit side of Investment Account.

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