{"id":436,"date":"2020-10-18T11:12:14","date_gmt":"2020-10-18T05:42:14","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=436"},"modified":"2025-10-02T16:04:35","modified_gmt":"2025-10-02T10:34:35","slug":"investment-accounting","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/","title":{"rendered":"Investment Accounting AS 13 | Free Financial Accounting Lectures and Notes"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d9577896d83\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d9577896d83\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Accounting_AS_13\" >Investment Accounting AS 13<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Meaning\" >Investment Meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Forms_of_Investment\" >Forms of Investment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Classification_of_Investments\" >Classification of Investments<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#i_Current_Investments\" >(i) Current Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#ii_Long_Term_Investments\" >(ii) Long Term Investments<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Cost_of_Investments\" >Cost of Investments<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Acquired\" >Investment Acquired<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Acquired_by_Issue_of_Shares\" >Investment Acquired by Issue of Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Acquired_in_Exchange_of_Another_Asset\" >Investment Acquired in Exchange of Another Asset<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Acquired_From_Pre-Acquisition_Benefits\" >Investment Acquired From Pre-Acquisition Benefits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Investment_Acquired_Through_Rights_Shares\" >Investment Acquired Through Rights Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#i_Current_Investments-2\" >(i) Current Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#ii_Long_Term_Investments-2\" >(ii) Long Term Investments<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Disposal_of_Investments\" >Disposal of Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Reclassification_of_Investments\" >Reclassification of Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/scholarsclasses.com\/blog\/investment-accounting\/#Disclosure\" >Disclosure<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-text-align-center\"><span class=\"ez-toc-section\" id=\"Investment_Accounting_AS_13\"><\/span>Investment Accounting AS 13<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Meaning\"><\/span>Investment Meaning<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>AS 13 deals with accounting for <a href=\"https:\/\/youtu.be\/QmuUJMGdV5o\" target=\"_blank\" data-type=\"URL\" data-id=\"https:\/\/youtu.be\/QmuUJMGdV5o\" rel=\"noreferrer noopener\">investments <\/a>made by an enterprise in another enterprise and the disclosure of such investments in the&nbsp;financial statements. However, this accounting standard does not deal with the following aspects of investment:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The basis or criteria for recognition of interest, dividends, and rentals earned on investments<\/li>\n\n\n\n<li>Operating or finance leases<\/li>\n\n\n\n<li>Investments of:\n<ul class=\"wp-block-list\">\n<li>Retirement benefit plans and life insurance enterprises<\/li>\n\n\n\n<li>Mutual funds<\/li>\n\n\n\n<li>Venture Capital&nbsp;funds and\/or related asset management companies<\/li>\n\n\n\n<li>Banks and financial institutions formed under central or state government or under Companies Act, 1956<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Forms_of_Investment\"><span class=\"ez-toc-section\" id=\"Forms_of_Investment\"><\/span>Forms of Investment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An enterprise holds investments for a variety of reasons. Such investments form a significant aspect of the operations of an enterprise in certain cases. Therefore, the evaluation of the performance of such an enterprise depends upon the return earned through such investments. Now, these investments can be in the form of certificates or documents, such as enterprise shares, or in a physical form like a building.<\/p>\n\n\n\n<p>Furthermore, the investment may be a debt other than short or long-term loan or trade debt. Such an investment represents the monetary amount owed to the holder of such an investment, who earns interest for lending such an amount. On the other hand, an enterprise may invest in the net assets of another company by acquiring equity shares of such a company. Now, for investments for which there exists an active market, the value of such investments shall be taken as the market value. This is because the market value provides the closest estimate for fair value of such investments. The market value is nothing but the amount that is received from the sale of an investment in the open market.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Classification_of_Investments\"><span class=\"ez-toc-section\" id=\"Classification_of_Investments\"><\/span>Classification of Investments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The financial statement of an enterprise presents\u00a0fixed assets, investments, and current assets in different categories. Investments are classified into long-term investments and current <a href=\"https:\/\/youtu.be\/QmuUJMGdV5o\" data-type=\"link\" data-id=\"https:\/\/youtu.be\/QmuUJMGdV5o\" target=\"_blank\" rel=\"noopener\">investments<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"i_Current_Investments\"><\/span>(i) Current Investments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A current investment refers to an investment that is readily realizable and is held for not more than one year from the date on which such an investment is made.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ii_Long_Term_Investments\"><\/span>(ii) Long Term Investments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Long-term investment refers to an investment other than the current investment, even though such investments are readily marketable.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Cost_of_Investments\"><span class=\"ez-toc-section\" id=\"Cost_of_Investments\"><\/span>Cost of Investments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Acquired\"><\/span>Investment Acquired<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The total cost of investment consists of the charges incurred to acquire such an investment. These may include any brokerage, fees, and duties.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Acquired_by_Issue_of_Shares\"><\/span>Investment Acquired by Issue of Shares<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>There are scenarios where an investment is acquired wholly or partly by issuing shares or other securities. The acquisition costs of investments in such a case is the fair value of the securities issued.<\/p>\n\n\n\n<p>The fair value of shares issued can be determined by considering the issue price of such securities estimated by the statutory authorities. Furthermore, such a fair value may not be equal to the nominal or par value of securities issued.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Acquired_in_Exchange_of_Another_Asset\"><\/span>Investment Acquired in Exchange of Another Asset<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Some enterprises may acquire an investment by wholly or partly exchanging another asset. Thus, the acquisition cost of such an investment is the fair value of the asset exchanged.<\/p>\n\n\n\n<p>However, it would be appropriate for an enterprise to determine the fair value of the investment acquired if such a value can be determined readily.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Acquired_From_Pre-Acquisition_Benefits\"><\/span>Investment Acquired From Pre-Acquisition Benefits<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Typically, interest, dividends or rentals earned through an investment are regarded as income. However, in some cases, such inflows are not considered as income. Rather, they represent recovery of costs.<\/p>\n\n\n\n<p>For instance, an enterprise is yet to acquire an interest-bearing investment for which the interest becomes due. Such an interest is not regarded as income. Rather, it is included in the price paid for the investment.<\/p>\n\n\n\n<p>Thus, when such an enterprise receives interest subsequently, it is allocated between pre-acquisition and post-acquisition periods. The pre-acquisition portion of the interest received is deducted from the cost of such an investment.<\/p>\n\n\n\n<p>Likewise, an enterprise may treat the dividends on equity shares similarly to those declared from pre-acquisition profits.<\/p>\n\n\n\n<p>However, where it is challenging to allocate such an income between pre and post-acquisition periods, the enterprise may reduce the cost of its investment by the amount of dividends receivable. This can only happen in cases where the dividends to be received clearly represent the recovery of a portion of cost of investment.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_Acquired_Through_Rights_Shares\"><\/span>Investment Acquired Through Rights Shares<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>There are scenarios where an enterprise offers rights shares to its existing shareholders to prevent any dilution of shares. In such cases, if the existing shareholders subscribe to the Rights shares, the cost of such shares is added to their existing holding in the company.<\/p>\n\n\n\n<p>However, if rights shares are not subscribed by the existing shareholders, then such shares are sold in the market and the proceeds received are represented in the P&amp;L statement.<\/p>\n\n\n\n<p>Furthermore, there can be cases where investments are acquired on cum right basis. But when such investment become ex-right, their market value turns out to be lower than the cost at which such an investment was acquired. Thus, the sale proceeds would be utilized to reduce the carrying amount of these investments to the market value.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"i_Current_Investments-2\"><\/span>(i) Current Investments<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>To determine the carrying amount for current investments to be stated in the Balance sheet, lower of cost or fair value of such an investment must be considered.<\/p>\n\n\n\n<p>Typically, the value of individual current investments are considered to determine the carrying amount of such investments.<\/p>\n\n\n\n<p>Furthermore, to value the current investments, it is not appropriate to consider the overall value of such investments. This is because there can be cases where an enterprise would only want to know the value of a specific category of current investments and not each and every individual investment.<\/p>\n\n\n\n<p>Therefore, in such cases it is prudent to consider lower of the cost or fair value of a current asset category wise.<\/p>\n\n\n\n<p>In addition to this, if there is any decline in the fair value or any reversal of such a decline, then they are to be included in the P&amp;L of the enterprise.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ii_Long_Term_Investments-2\"><\/span>(ii) Long Term Investments<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The carrying amount of the long term investment is typically the cost of such an investment. However, if there is a permanent reduction in the value of the long-term investment, the carrying amount of such an investment is also reduced.<\/p>\n\n\n\n<p>Also, such a reduction is charged to P&amp;L statement. However, such a reduction in the carrying amount is reversed when there is an increase in the value of such an investment or the reasons that lead to a reduction in its carrying amount do not exist anymore.<\/p>\n\n\n\n<p>The value of the long-term investment can be determined by considering the following factors:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>market value of investment<\/li>\n\n\n\n<li>investee\u2019s assets and profits<\/li>\n\n\n\n<li>expected cash flows from such an investment<\/li>\n\n\n\n<li>type and extent of the investor&#8217;s stake in the investee\u2019s asset<\/li>\n<\/ul>\n\n\n\n<p>Furthermore, the carrying amount of a long-term investment is determined by considering the cost of every individual investment made.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Disposal_of_Investments\"><span class=\"ez-toc-section\" id=\"Disposal_of_Investments\"><\/span>Disposal of Investments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When an asset is disposed of, the difference between proceeds received from disposal and the carrying amount of investment is recognized in the P&amp;L statement. Such a difference is also adjusted for any expenses incurred with respect to disposal of such investments.<\/p>\n\n\n\n<p>However, there are cases where only a part of an individual investment is disposed of. In such a case, the carrying amount of a portion of such investment is determined on the basis of the average carrying amount of the total investment.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Reclassification_of_Investments\"><span class=\"ez-toc-section\" id=\"Reclassification_of_Investments\"><\/span>Reclassification of Investments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are the ways in which investments can be reclassified.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The first one relates to the case where long term investments are reclassified as current investments. In such a case, investments are transferred at an amount that is lower of cost and its carrying amount at the date of transfer.<\/li>\n\n\n\n<li>The second one relates to the case where current investments are reclassified as long term investments. In such a case, investments are transferred at an amount that is lower of cost and fair value at the date of transfer.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Disclosure\"><span class=\"ez-toc-section\" id=\"Disclosure\"><\/span>Disclosure<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An enterprise needs to make the following disclosures pertaining to investments made in its P&amp;L statement.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Accounting policies followed to determine the carrying amount of investments<\/li>\n\n\n\n<li>Amounts represented in P&amp;L statement for:\n<ul class=\"wp-block-list\">\n<li>Interest, dividends, and rentals on current investments and long term investments separately. Further, an enterprise must state the gross income and the amount of&nbsp;TDS must be shown under advance taxes paid.<\/li>\n\n\n\n<li>Profit and losses arising on disposing current investments and changes arising in the carrying amount of such investments<\/li>\n\n\n\n<li>Profit and losses arising on disposing of long term investments and changes arising in the carrying amount of such investments<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Major restrictions on ownership right, realisability of investments, or the remittance of income and disposal proceeds<\/li>\n\n\n\n<li>The total amount of quoted and unquoted investments. This would help in determining the total market value of quoted investments.<\/li>\n\n\n\n<li>Other disclosures as demanded by the statutory authority<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/gantt-task-and-bonus-plan\/\">Gantt Task and Bonus Plan<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/rowan-premium-plan-labour-cost\/\">Rowan Premium Plan<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":726,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[7],"tags":[263],"class_list":["post-436","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-degree-college","tag-investment-accounting-tybcom"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/436","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=436"}],"version-history":[{"count":22,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/436\/revisions"}],"predecessor-version":[{"id":38072,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/436\/revisions\/38072"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/726"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=436"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=436"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=436"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}