AS 13 - Accounting for Investments

Purpose: This statement deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.

Definitions

• 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'.

Classification of Investments: Investments are classified as Long Term Investments and Current Investments.

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 and if it is acquired in exchange or part exchange, for another asset, the acquisition cost of the investment will be the Fair Value of the asset given up. Alternatively the acquisition cost of the investment may be determined with reference to the fair value of the investment acquired if it is more clearly evident.

Interest, dividend and rentals receivable in respect of such investments are treated as income except where such interest or dividend relates to pre-acquisition period, in which case, such interest or dividend received is reduced from the acquisition cost.

The cost of the right shares, if subscribed to is added to the carrying amount of original shares but if rights are sold, the sale proceeds are treated as income and credited to profit and loss statement.

Carrying Amount of Investments

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 basis.

Long Term Investments should be carried 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.

Any reduction in the carrying amount and any reversals of such reductions should be charged or credited to the profit and loss statement.

Disposal of Investments

When any investments is sold, the difference between the carrying amount and net sale proceeds should be charged or credited to 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.

Disclosures

1. Classification of investments, the accounting policies for determination of carrying amount of investments.
2. The amounts included in profit and loss statement for interest, dividends, rentals, profits and losses on disposal of investments, and changes in the carrying amount of investments
3. Significant restriction on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal.
4. The aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments.
5. Other disclosures specifically required by the relevant statute.