Advanced Accounting · AS 13 Accounting for Investments

AS 13 Scope, Definitions and Forms of Investments for CA Inter

Updated 4 October 2026 · Fact-checked

AS 13 Accounting for Investments covers how investments are classified, carried and disclosed. It defines an investment as an asset held to earn income or capital appreciation. To solve questions, check the exclusions first, then classify each item as current or long-term, then apply the definitions of fair value and market value.

Understand AS 13 Scope, Definitions and Forms of Investments

An investment under AS 13 is an asset 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. The key test is the purpose of holding. Shares held by a dealer as stock-in-trade are dealt with under AS 2, not AS 13.

AS 13 classifies investments into two groups. A current investment is readily realisable and is intended to be held for not more than one year from the date of its acquisition. A long-term investment is an investment other than a current investment. So the test is intention and ready realisability, not what the instrument looks like.

AS 13 also defines investment property: 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. Investment property is covered by AS 13 and is treated as an investment.

Two value terms matter. 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. Market value is the amount obtainable from the sale of an investment in an open market, net of expenses necessarily to be incurred on disposal.

AS 13 does not deal with some items because other standards or rules cover them. The main exclusions are: bases for recognition of interest, dividends and rentals earned on investments (covered by AS 9); operating or finance leases (AS 19); investments of retirement benefit plans and life insurance enterprises; and mutual funds, venture capital funds, banks and public financial institutions formed under a Central or State Act or so declared under the Companies Act. These entities are outside AS 13.

Key rules to remember

Definition of investment: Investment = asset held for income (dividends, interest, rentals), capital appreciation or other benefits; The purpose of holding decides the classification. Stock-in-trade is not an investment.
Current investment: Readily realisable AND intended to be held for not more than 1 year from acquisition; Both conditions must be met. Intention at the time of acquisition matters.
Long-term investment: Long-term investment = investment other than a current investment; It is a residual definition. Anything not current is long-term.
Investment property: Investment in land or buildings not intended to be occupied substantially for use by, or in the operations of, the investing enterprise; It is treated as an investment under AS 13.
Fair value: Amount exchanged between knowledgeable, willing parties in an arm's length deal; Learn the wording separately from market value.
Market value: Amount obtainable from sale in an open market, net of disposal expenses; Expenses necessarily incurred on disposal are deducted.
Items outside AS 13: Interest, dividend and rental recognition (AS 9); leases (AS 19); retirement benefit plan investments; life insurance enterprises; mutual funds, venture capital funds, banks and public financial institutions under Central or State Act; Learn this list as the exclusions. The listed entities are outside AS 13.

How to solve AS 13 Scope, Definitions and Forms of Investments questions

Use this order for any scope or definition question on AS 13.

1Read the facts and identify what the asset is and why the enterprise holds it.
2Check the exclusions first. Is it stock-in-trade (AS 2), a lease (AS 19), or income recognition (AS 9)? Is the holder an excluded entity?
3If AS 13 applies, confirm the item meets the definition of investment by purpose of holding.
4Classify as current if readily realisable and held for one year or less from acquisition. Otherwise it is long-term.
5Check whether the asset is investment property: land or buildings not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.
6Apply the correct value term if asked: fair value (willing parties, arm's length) or market value (open market, net of disposal costs).
7Write the conclusion in one line with the reason, quoting the definition.

Quickest way: Purpose, period, exclusion check

When to use it: Use this for MCQs and short scope questions where you have about one minute.

Ask why it is held. Trading stock means not AS 13.
Ask how long. One year or less and easily saleable means current. Else long-term.
Scan for exclusion words: lease, interest recognition, mutual fund, insurance, retirement plan.
For descriptive answers, write: definition, facts applied, conclusion. This earns step marks.
In MCQs, eliminate options that mix up fair value with market value or that call a trading stock an investment.

Common mistakes in AS 13 Scope, Definitions and Forms of Investments

Treating shares held by a share dealer as AS 13 investments.
Students see 'shares' and assume investment.
Fix: Check the purpose. Shares held for sale in the ordinary course are stock-in-trade.
Classifying by the type of instrument, such as calling all equity shares long-term.
Students link the form to the period.
Fix: Classify by intention and ready realisability. Equity shares can be current.
Using the one-year test from the balance sheet date instead of the acquisition date.
Balance sheet presentation uses 12 months from the reporting date.
Fix: AS 13 counts one year from the date of acquisition.
Treating fair value and market value as the same.
Both sound like current price.
Fix: Fair value is an arm's length exchange amount. Market value is open-market sale amount net of disposal expenses.
Thinking AS 13 sets rules for recognising dividend and interest income.
Income is part of the investment topic.
Fix: Recognition bases for interest, dividends and rentals are covered by AS 9, not AS 13.
Excluding investment property from AS 13.
Students think property belongs to AS 10.
Fix: Land or buildings not intended to be occupied substantially for use by, or in the operations of, the investing enterprise are investment property and are treated as an investment under AS 13.

Worked examples

Example 1

Classify the following under AS 13: (a) Shares bought on 1 January 2027 by a manufacturing company with the intention to sell them within six months, which are readily marketable. (b) Debentures of another company bought to earn interest for five years. (c) Shares held by a stockbroking firm for sale to clients. State the reasons.

Show the solution

(a) The shares are held to earn gains and are readily realisable. The intended holding is six months, which is not more than one year from acquisition.
So (a) meets both conditions of a current investment.
(b) The debentures are held for earning interest and the intended period is five years. They are not a current investment, so they are a long-term investment.
(c) The shares are held for sale in the ordinary course of business. They are stock-in-trade and are not investments under AS 13. AS 2 applies.

Answer: (a) Current investment. (b) Long-term investment. (c) Not an investment under AS 13; it is stock-in-trade.

Example 2

State with reasons whether AS 13 applies to: (i) a building let out by a company to earn rent; (ii) a building used as the company's own factory; (iii) the basis of recognising interest income on debentures held.

Show the solution

(i) The building is let out and is not intended to be occupied substantially for use by, or in the operations of, the company. It is investment property. AS 13 treats it as an investment.
(ii) A building used for production is occupied for the company's operations. It is not investment property. It is a fixed asset under AS 10.
(iii) The bases for recognising interest, dividends and rentals earned on investments are covered by AS 9. AS 13 does not deal with them.

Answer: (i) AS 13 applies. (ii) AS 13 does not apply; AS 10 applies. (iii) AS 13 does not apply; AS 9 covers it.

Exam tips

Memorise the exclusions as a short list. Scope questions often ask 'what is not covered'.
Quote the definition in your answer, then apply it to the facts. Markers look for both.
For classification cases, state both conditions of a current investment: readily realisable and held for one year or less from acquisition.
Learn the exact wording of fair value and market value. MCQs test the difference, including disposal expenses.
Check who the holder is. A share dealer, a mutual fund or an insurer changes the answer.

Practice questions from AS 13 Accounting for Investments

AS 13 Scope, Definitions and Forms of Investments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

AS 13 Scope, Definitions and Forms of Investments: frequently asked questions

What is the difference between a current and a long-term investment under AS 13?

A current investment is readily realisable and intended to be held for not more than one year from acquisition. A long-term investment is any investment that is not current. The test is intention and realisability, not instrument type.

Is investment property covered by AS 13?

Yes. 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. AS 13 treats it as an investment.

What is not covered under AS 13?

Recognition of interest, dividends and rentals on investments (AS 9), leases (AS 19), investments of retirement benefit plans and life insurance enterprises, and mutual funds, venture capital funds, banks and public financial institutions of the specified kinds are outside its scope. Stock-in-trade is also not an investment.

How is fair value different from market value in AS 13?

Fair value is the amount at which an asset could be exchanged between knowledgeable, willing parties at arm's length. Market value is the amount obtainable from sale in an open market, net of expenses necessarily incurred on disposal.