Accounting for Investments

• This Standard deals with accounting for investments in the

financial statements of enterprises and related disclosure
requirements.1
2. This Standard does not deal with:
• (a) the bases for recognition of interest, dividends and rentals
earned on investments which are covered by Accounting
Standard 9 on Revenue Recognition;
• (b) operating or finance leases;
• (c) investments of retirement benefit plans and life insurance
enterprises; and
• (d) mutual funds and venture capital funds and/or the related
asset management companies, banks and public financial
institutions formed under a Central or State Government Act or
so declared under the Companies Act, 1956.
• 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 as stock-in-trade are not
‘investments’.
• A current investment is an investment that is by its nature readily realisable
and is intended to be held for not more than one year from the date on
which such investment is made.
• A long term investment is an investment other than a current investment.
• 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.
• 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
realisable value provides an evidence of fair 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.
 Forms of Investments
• 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.
• For some investments, an active market exists from
which a market value can be established.
• 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).
 Cost of Investments
• The cost of an investment includes acquisition charges such as brokerage,
fees and duties.
• If an investment is acquired, or partly acquired, by the issue of shares or
other securities, the acquisition cost is the fair value of the securities
issued (which, in appropriate cases, may be indicated by the issue price as
determined by statutory authorities).
• If an investment is acquired in exchange, or part exchange, for another
asset, the acquisition cost of the investment is determined by reference to
the fair value of the asset given up.
• Interest, dividends and rentals receivables in connection with an
investment are generally regarded as income, being the return on the
investment.
• 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
the profit and loss statement.
 Carrying Amount of Investments
• Current Investments: The carrying amount for current investments is the
lower of cost and fair value. In respect of investments for which an
active market exists, market value generally provides the best evidence
of fair value.
• For current investments, any reduction to fair value and any reversals of
such reductions are included in the profit and loss statement.
• Long-term investments are usually carried at cost. However, 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.
• Long-term investments are usually of individual importance to the
investing enterprise. The carrying amount of long-term investments is
therefore determined on an individual investment basis.
• Where there is a decline, other than temporary, in the carrying amounts
of long term investments, the resultant reduction in the carrying
amount is charged to the profit and loss statement.
• Investment Properties: The cost of any shares in a co-operative
society or a company, the holding of which is directly related to
the right to hold the investment property, is added to the carrying
amount of the investment property.
• 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.
• When disposing of a part of the holding of an individual
investment, the carrying amount to be allocated to that part is to
be determined on the basis of the average carrying amount of the
total holding of the investment.
• 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.
 Disclosure
• (a ) The accounting policies for the determination of carrying amount
of investments;
• (b) the amounts included in profit and loss statement for:
• (i) 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;
• (ii) profits and losses on disposal of current investments and changes in
carrying amount of such investments;
• (iii) profits and losses on disposal of long term investments and
changes in the carrying amount of such investments;
• (c) significant restrictions on the right of ownership, realisability of
investments or the remittance of income and proceeds of disposal;
• (d) the aggregate amount of quoted and unquoted investments, giving
the aggregate market value of quoted investments;
• (e) other disclosures as specifically required by the relevant statute
governing the enterprise. the accounting policies for the determination of
carrying amount of investments;
• (b) the amounts included in profit and loss statement for:
• (i) 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;
• (ii) profits and losses on disposal of current investments and changes in
carrying amount of such investments;
• (iii) profits and losses on disposal of long term investments and changes in
the carrying amount of such investments;
• (c) significant restrictions on the right of ownership, realisability of
investments or the remittance of income and proceeds of disposal;
• (d) the aggregate amount of quoted and unquoted investments, giving the
aggregate market value of quoted investments;
• (e) other disclosures as specifically required by the relevant statute
governing the enterprise.