Advanced Accounting · AS 13 Accounting for Investments

Classification and Cost of Investments under AS 13

Updated 5 October 2026

AS 13 classifies investments as current or long-term and records them at cost. Cost includes the purchase price plus brokerage and duties. For shares issued, cost is the fair value of the investment acquired or the issue price as recorded. For an exchange of assets, use the fair value of the asset given up, or the fair value of the investment acquired if more clearly evident.

Understand Classification and Cost of Investments

An investment is an asset held to earn income (interest, dividends, rent) or for capital appreciation or other benefits. Stock in trade is not an investment under AS 13. Land or buildings held as investment, not for use in operations or sale in the ordinary course, are investments under AS 13.

AS 13 does not deal with the bases for recognition of interest, dividends and rentals on investments. It also does not cover the investments of certain enterprises, such as mutual funds, banks and insurance companies. Specific requirements apply to those.

AS 13 classifies investments by how long you intend to hold them. A current investment is readily realisable and intended to be held for not more than one year from the date of acquisition. A long-term investment is any investment that is not current. The test is intention plus realisability, not the legal form of the security.

An investment is first recorded at cost. Cost is what you actually pay to acquire it, plus the expenses that are directly attributable to the acquisition. Brokerage, fees and duties (such as stamp duty) paid at purchase are added to cost. They are not expensed.

When an investment is acquired by issue of shares or other securities, cost is the fair value of the investment acquired or the issue price as recorded. If the fair value of the investment acquired is not reliable, you use the issue price as recorded. Where an investment is acquired in exchange for another asset, the cost is determined by reference to the fair value of the asset given up. You may use the fair value of the investment acquired instead, if that is more clearly evident. For an exchange, fair value, not book value, is the primary test.

When you buy an investment with interest in arrears (a cum-interest purchase), the interest for the pre-acquisition period is not income and is not part of cost. Cost excludes it. You recover it from the first interest receipt by crediting it to the account in which it was debited. Commonly this is Interest Receivable or Interest on Investments, and both are acceptable. Only the post-acquisition portion of the interest received is income.

For partly paid shares, cost includes the amount paid plus any amount called and due, with a corresponding liability for the called amount that is still unpaid. The amount not yet called is not included in cost. Disclose the uncalled liability on partly paid investments as required by the applicable disclosure requirements (Schedule III / AS 13 disclosures).

Key rules to remember

Cost on cash purchase: Cost = Purchase price + Brokerage + Stamp duty + Other directly attributable fees; Add all costs of acquisition. Do not charge them to the Statement of Profit and Loss.
Cost on acquisition by issue of shares or other securities: Cost = Fair value of the investment acquired OR issue price as recorded; If the fair value of the investment acquired is not reliable, use the issue price as recorded. The issue price as recorded includes any premium, not just face value.
Cost on exchange for another asset: Cost = Fair value of asset given up (or fair value of investment acquired, if more clearly evident); The difference between the cost recognised and the book value of the asset given up goes to profit or loss on the exchange.
Current investment: Readily realisable AND intended to be held for not more than 1 year; Everything else is long-term.
Interest or dividend accrued before purchase: Cum-interest price: pre-acquisition interest is not income and is not part of cost; Cost excludes the interest for the pre-acquisition period. Recover it from the first interest receipt by crediting it to the account in which it was debited (commonly Interest Receivable or Interest on Investments; both are acceptable). Only post-acquisition interest is income.
Partly paid shares: Cost = Amount paid + Amount called and due (with a liability for any part still unpaid) + Brokerage and duties on it; The uncalled amount is not included in cost. A called amount that is unpaid is credited to a liability. Disclose the uncalled liability as required by the applicable disclosure requirements (Schedule III / AS 13 disclosures).

How to solve Classification and Cost of Investments questions

Use this order for any question on classification or cost of investments.

1Read the facts and decide whether the item is an investment or stock in trade.
2Classify as current or long-term using the intended holding period and realisability.
3List the purchase price: number of shares × rate, or the amount paid.
4Add brokerage, stamp duty and other fees attributable to the acquisition.
5If shares or securities are issued for the investment, use the fair value of the investment acquired or the issue price as recorded. If another asset is given up, use its fair value (or the fair value of the investment acquired, if more clearly evident).
6Strip out any accrued interest or dividend that relates to the period before purchase. It is not part of cost and is not income. Recover it from the first interest receipt by crediting it to the account in which it was debited (commonly Interest Receivable or Interest on Investments; both are acceptable).
7Compute the cost per share if asked, and the total cost.
8Write the journal entry, showing any gain or loss on the asset exchanged.

Quickest way: Cost build-up in one line

When to use it: Use this for MCQs and for the first few lines of any written cost question.

MCQs: write Price + Brokerage + Duty. Eliminate any option that omits brokerage or stamp duty.
If the question says shares were issued, look for the issue price as recorded (face value plus premium) or the fair value of the investment acquired. Be wary of options that use face value alone or book value.
If interest is cum-interest, subtract the accrued interest from the amount paid before stating cost.
Written answers: show Purchase price, Brokerage, Stamp duty, then Total cost on separate lines. Each line earns a step mark.
State the classification (current or long-term) in one sentence with the reason.

Common mistakes in Classification and Cost of Investments

Charging brokerage and stamp duty to the Statement of Profit and Loss.
Students treat them as ordinary expenses.
Fix: Under AS 13 they form part of cost at acquisition. Add them to the investment.
Using the book value of the asset given up as the cost of the investment acquired.
Students forget that the exchange is measured at fair value.
Fix: Use fair value. Take the difference from book value to profit or loss on the exchange.
Using face value of shares issued as cost.
Face value is the figure that is easiest to see in the question.
Fix: Cost is the fair value of the investment acquired or the issue price as recorded (face value plus any premium). Face value alone ignores the premium.
Including accrued pre-acquisition interest in cost.
The purchase price is cum-interest and students take the whole amount.
Fix: Split the price. Cost excludes the interest for the pre-acquisition period, which is not income. Recover it from the first interest receipt by crediting it to the account in which it was debited (commonly Interest Receivable or Interest on Investments; both are acceptable).
Classifying by the type of security rather than the intention.
Students assume that equity shares are always current or that debentures are always long-term.
Fix: Look at the intended holding period and whether the investment is readily realisable.
Recording the uncalled amount of partly paid shares as part of cost.
Students book the full face value at purchase.
Fix: Cost is the amount paid plus any amount called and due (a called amount that is unpaid is a liability). Do not include the uncalled amount in cost. Disclose the uncalled liability as required by the applicable disclosure requirements (Schedule III / AS 13 disclosures).

Worked examples

Example 1

Aarav Ltd purchased 2,000 equity shares of Meridian Ltd at ₹150 per share through a broker. Brokerage was 1% of the purchase price and stamp duty was ₹600. Aarav Ltd intends to hold the shares for three years. Compute the cost of the investment and classify it.

Show the solution

Purchase price = 2,000 × ₹150 = ₹3,00,000.
Brokerage = 1% × ₹3,00,000 = ₹3,000.
Stamp duty = ₹600.
Total cost = ₹3,00,000 + ₹3,000 + ₹600 = ₹3,03,600.
Cost per share = ₹3,03,600 ÷ 2,000 = ₹151.80.
Classification: the intended holding period is three years, which is more than one year, so it is a long-term investment.

Answer: Cost of investment is ₹3,03,600 (₹151.80 per share). It is a long-term investment.

Example 2

Bhaskar Ltd acquired 5,000 equity shares of Kiran Ltd. As consideration, Bhaskar Ltd issued 4,000 of its own equity shares of ₹10 each at an issue price recorded as ₹30 per share (₹20 premium). The fair value of Kiran Ltd's shares cannot be reliably determined. Brokerage of ₹2,000 was paid in cash. Compute the cost of the investment and pass the journal entry.

Show the solution

Bhaskar Ltd pays for the investment by issuing its own shares. Cost is the fair value of the investment acquired or the issue price as recorded.
The fair value of Kiran Ltd's shares cannot be reliably determined, so cost is taken as the issue price as recorded, ₹30 per share (face value ₹10 + premium ₹20).
Issue price of shares issued = 4,000 × ₹30 = ₹1,20,000.
Add brokerage paid = ₹2,000.
Total cost = ₹1,20,000 + ₹2,000 = ₹1,22,000.
Share capital = ₹10 × 4,000 = ₹40,000.
Securities premium = ₹20 × 4,000 = ₹80,000, which equals ₹1,20,000 − ₹40,000.
Journal: Investment in Kiran Ltd Dr ₹1,22,000; To Equity Share Capital ₹40,000; To Securities Premium ₹80,000; To Bank ₹2,000.

Answer: Cost of investment is ₹1,22,000. Share capital is credited ₹40,000, securities premium ₹80,000 and bank ₹2,000.

Exam tips

Always show brokerage and stamp duty as separate lines before totalling. Examiners give step marks for each.
In questions where shares are issued for an investment, state the rule first: 'cost is the fair value of the investment acquired or the issue price as recorded'. Then say which one you use and why.
For exchange of assets, compute the gain or loss as the cost of the investment recognised (using whichever fair value you adopt) less the book value of the asset given up.
Check the intention in the question for classification. Words like 'for trading' or 'for a few months' point to current, and 'strategic' or 'long run' point to long-term.
In MCQs, test each option for omitted brokerage or for accrued interest wrongly included in cost.

Practice questions from AS 13 Accounting for Investments

Classification and Cost of Investments: frequently asked questions

Is brokerage part of cost of investment under AS 13?

Yes. Brokerage, fees and duties paid at acquisition are added to the cost of the investment. They are not charged to the Statement of Profit and Loss.

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

A current investment is readily realisable and meant to be held for not more than one year from acquisition. A long-term investment is any investment that is not current.

How is cost determined when an investment is acquired by issue of shares or for another asset?

If shares or other securities are issued, cost is the fair value of the investment acquired or the issue price as recorded. If the investment is acquired in exchange for another asset, cost is the fair value of the asset given up, or the fair value of the investment acquired if that is more clearly evident.

How do you treat partly paid shares?

Record the amount paid plus any amount called and due, plus related brokerage and duties, as cost. A called amount that is unpaid is a liability. Do not include the uncalled amount in cost. Disclose the uncalled liability as required by the applicable disclosure requirements (Schedule III / AS 13 disclosures).