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What Is AS 13 Accounting For Investments?

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What is AS 13?

The widely used standard AS 13 accounting for investments addresses how investments should be accounted for in financial statements created by a company and specifies numerous disclosure criteria.

An organisation presents financial statements which split fixed assets, investments, and financial assets. Long-term investments and current investments are the two types of investments. Current investments are in the essence of existing resources, although it is usual practice to consider them in investments. It is not possible to classify current investments as long-term assets, despite the fact that assets are readily transportable. Simply put, an investment is an asset a businessperson maintains to produce interest or dividends or for any other reason. That’s the source of income for investors. There are two categories of assets that may be invested. The first is tangible property such as land and buildings, while the second is in the form of stocks and debentures. This is a real asset; however, these certificates allow you to earn money from your investments.

Did You Know?

In order to make an informed investment decision, AS 13 offers essential advice. When it comes to property owned by the lessee within a finance lease, AS 13 is silent. When a property is purchased in exchange for another property, or in part exchange for another property, its acquisition cost is determined based on its market value. It may be appropriate to evaluate the acquired investment if its fair value is more pronounced.

Why do Businesses Make Investments?

  1. Businesses make investments for a variety of reasons. For certain companies, investment activity is a crucial component of operations, and assessing the enterprise’s performance may rely heavily, if not entirely, on the reported outcomes of this activity.

Several investments still have no physical reality and are represented only by licenses or similar paperwork, while others do. An asset can be debt, apart from a long or short-term debt or a credit obligation, signifying a monetary sum owed to the owner and frequently bearing interest, or it can be a share in an enterprise’s outcomes and net resources, including an equity position. Most investments are financial rights, but others are physical, such as investments in buildings and land.

  1. Some assets have an open economy that may determine a market value. For these kinds of ventures, market value is usually the most excellent indicator of fair value. There is no established market for other commodities; thus, different methods are needed to assess fair value.

Also Read: What Are Payroll Taxes, Payroll Calculations And Employer Pay in Them

Classification of Investments

An enterprise’s financial statement categorises its fixed assets, assets, and current investments. Investments are divided into two types: long-term investments and short-term investments.

Short-term Investments

Marketable securities, referred to as transitory or short-term investments, are financial assets that may be quickly converted to cash, usually within five years.

A short-term investment is easily realisable and kept for no longer than a year after the date of purchase.

Long-Term Investments

An account on the asset side of a company’s balance sheet that reflects the company’s holdings, including stocks, commodities, real estate, and income, is known as a long-term investment. Business plans to keep assets for more than a year are referred to as long-term investments.

A long-term investment is not a short-term investment, even if it is readily tradable.

Investment Costs

In order to record an investment purchase, a debit must be made to the appropriate investment account (an asset), offset by a credit to the account representing the consideration (e.g., cash). Listed below are some types of investment costs.

  •  Purchased Investment

The expenses required to purchase an investment are included in the overall cost of the transaction. Brokerage, taxes, and duties may be included.

  •  Investment Obtained Through the Issuing Securities

There are situations where an investment is obtained entirely or partially through the issuance of shares or other instruments. In this instance, the purchase costs of investments equal the fair market price of the shares issued. They can compute this reasonable worth of issued shares by factoring in the issuance cost of such investments as determined by state authorities. Moreover, the fair value may differ from the actual or par price of the securities provided.

  •  Purchased in Exchange for Another Asset

Some businesses may obtain an investment by swapping another asset entirely or partially. As a result, the purchase price of that kind of asset equals the item exchanged at fair value. However, this would be reasonable for an organisation to identify the fair market value of the acquired investment if they can easily calculate any such price.

  •  Pre-Acquisition Benefits-Induced Investment

Income is often defined as interest, dividends, or rents gained from an investment. In some circumstances, however, such contributions are not counted as income. However, they reflect cost recovery.

For example, a company has yet to purchase an interest-bearing investment on which they will pay interest. Such an amount is not considered income. And instead, it is covered in the cost of the investment.

As a result, when such a company obtains further attention, it is divided into pre-acquisition and post-acquisition phases. The percentage of the interest earned before an acquisition is subtracted from the price of such an asset.

Similarly, an organisation may regard dividends for equity securities again announced on pre-acquisition earnings. However, if allocating such revenue between before and after purchase periods is complex, the firm may lower its acquisition price by the number of dividends collected. This is only possible if the dividend to be earned indicates the restoration of a percentage of the invested cost.

  •  Investment Obtained Through the Purchase of Rights Shares

Sometimes, a firm will provide rights shares to its current shareholders to compensate for any stock dilution. If existing shareholders register to rights shares in such instances, the cost of these kinds of shares is linked to their current ownership in the corporation. If current shareholders do not subscribe to the rights shares, the stocks are offered in the marketplace, and the revenues are reflected in the Statement of profit or loss.

Moreover, there may be instances where investments are bought on a cost-plus basis. However, when such investments turn ex-right, their market price is lower than the price they obtained. As a result, the sales profits would decrease the carrying value of these assets to their market value.

Also Read: How to Pay Professional Tax Online – Exemption, Due Dates & Penalties

  •  Investment Carrying Amount

  1.  Current Investing

The lower price or fair market value should be considered when determining the carrying value of current assets to be reported on the income statement. Particular current investment values are often used to establish the carrying value of these investments. Moreover, it is not reasonable to evaluate the entire worth of such assets when valuing present investments. That’s because an organisation may want to determine the cost of a particular type of current asset rather than the value of every specific investment.

As a result, evaluating the lesser price or fair market worth of the current investment is appropriate in such instances. Furthermore, whether there is a fall in the fair market value or recovery of such a fall, they must record in the enterprise’s P&L.

  1. . Long-Term Investing

The sustaining amount of a long-term investment is generally the investment’s cost. Furthermore, if the price of a long-term investment falls permanently, that investment’s carrying value also decreases.

In addition, such a decline is charged to the profit and loss statement. Furthermore, such a decline in the carrying value is restored when the worth of the investment increases or the grounds for the decrease in the carrying value no longer exists.

The following elements can be used to calculate the worth of a long-term investment:

  • Investment market value
  • Assets and earnings of the investor
  • Cash flows projected from that kind of an investment
  • The kind and size of investors’ ownership in the investee’s asset

Additionally, the carrying value of a long-term investment is calculated by considering the cost of each money invested.

Investment Disposal

Whenever an asset is sold, the difference between the sale profits and the carrying value of the investment is recorded in the profit and loss statement. This gap is also compensated for any fees incurred in disposing of these kinds of investments.

However, in certain circumstances, only a portion of an investment asset is sold. In such a circumstance, the carrying value of a component of these kinds of investments is defined based on the overall investment’s average carrying value.

Investment Reclassification

The methods for reclassifying investments are as follows.

  • The first is a circumstance in which long-term assets are reclassified into current assets. In this situation, assets are transmitted at a lower cost and carry value at the transfer time.
  • The second is a circumstance in which current assets are reclassified as long-term assets. In this instance, securities are moved at the lowest possible costs and fair value on the transfer date.

Also Read: What Is Gross Total Income in Income Tax? Types, How to Calculate


A company must disclose the following disclosures on investments in its profit and loss statement.

  • Accounting policies used to establish the carrying value of investments. 
  • Amounts included in the profit and loss statement for:
  • Dividends, interest, and rents on current and long-term assets are calculated individually. Furthermore, a firm must provide its total revenue and the sum of TDS deducted under prior taxes.
  • Profits and losses resulting from the disposition of present investments, as well as changes in the carrying value of such investments
  • Profits and losses resulting from the disposition of long-term assets, as well as fluctuations in the carrying value of such investments
  • Significant limits on ownership rights, investment realisability, and the transmission of income & disposal proceeds.
  • The sum of all quoted & unquoted assets. This would aid in calculating the overall market value of the stated investments.
  • Additional disclosures required by legal authority


Accounting Standard 13 governs accounting for investments within the Indian GAP. Investments are assets a business keeps to produce revenue through dividends, interest, rents, capital appreciation, or other advantages to the investing company. Stock-in-trade properties are not ‘investments.’ It also includes a property investment which is an acquisition of buildings and land not planned to be significantly held for use by or even in the activities of the investing firm.

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