Advanced Accounting · AS 13 Accounting for Investments

AS 13: Disposal, Reclassification, Transfers and Disclosures of Investments

Updated 4 October 2026 · Fact-checked

On disposal of an investment, gain or loss is sale proceeds (net of expenses) minus carrying amount, and it goes to the Statement of Profit and Loss. Transfers between categories are made at the lower of cost and carrying amount (long-term to current) or the lower of cost and fair value (current to long-term). Investments held in another's name still belong to you if you own them. Disclose policies, carrying amounts, and restrictions.

Understand Disposal, Reclassification, Transfers and Disclosures

An investment is an asset held to earn income or capital gain. AS 13 asks you to carry it at a figure based on its category. When you sell it, that figure must be removed from the books and the difference against the sale money recognised as profit or loss.

On disposal, the difference between the net sale proceeds and the carrying amount is taken to the Statement of Profit and Loss. Net proceeds means sale price less brokerage and other selling costs. The carrying amount is what the books show at that date, after any earlier write-down. If part of a holding is sold, you must work out the carrying amount of the part sold, usually by an average cost of the holding. If a long-term investment was earlier written down for a permanent decline, the carrying amount (after the write-down) is the basis for the part sold.

For reclassification, AS 13 deals with transfers between current investments and long-term investments. The two directions use different bases. Where a long-term investment becomes current, the transfer is made at the lower of cost and carrying amount on the date of transfer. Where a current investment becomes long-term, the transfer is made at the lower of cost and fair value on the date of transfer. Any write-down that arises on the transfer is charged to the Statement of Profit and Loss. You never record a gain by transferring.

Sometimes investments are held in the name of a person other than the investor, such as a nominee. Ownership, not the name on the certificate, decides who accounts for it. The investor accounts for such investments where it owns them and has the right to the benefits, and discloses the details, including those required by law.

Finally, AS 13 needs disclosures: the accounting policies for determining the carrying amount, amounts included in the Statement of Profit and Loss for interest, dividends and rentals on investments (separating those from long-term and current), profits and losses on disposal, and changes in carrying amount. You also disclose significant restrictions on the right of ownership, realisability or remittance of income and proceeds of disposal. Aggregate amounts of quoted and unquoted investments, with aggregate market value of quoted ones, are also disclosed.

Key rules to remember

Gain or loss on disposal: Profit or (Loss) = Net sale proceeds − Carrying amount of investments sold; Net sale proceeds = sale price less brokerage and other costs of sale. Credit or debit the Statement of Profit and Loss.
Carrying amount of part sold: Carrying amount sold = (Total carrying amount ÷ Total units held) × Units sold; Use average cost for the holding unless the question tells you to use another basis. Cum-rights and bonus adjustments come first.
Transfer from long-term to current: Transfer value = Lower of (Cost, Carrying amount) on the date of transfer; Any resulting write-down is charged to the Statement of Profit and Loss.
Transfer from current to long-term: Transfer value = Lower of (Cost, Fair value) on the date of transfer; Different basis from long-term to current. Any write-down on transfer is charged to the Statement of Profit and Loss.
Disclosure rule on ownership: Investments in another's name: account for them if you own them and disclose the details; Substance (who owns and gets benefits) decides, not the name on the certificate.

How to solve Disposal, Reclassification, Transfers and Disclosures questions

Use this order for any question on disposal, transfer or an investment account.

1Read the question and list each holding with number of units, cost, and the date of each event.
2Adjust for bonus shares, rights shares and cum or ex-interest, so the opening holding and average cost are correct.
3If a transfer is involved, find the transfer value as lower of cost and carrying amount (or cost and fair value for current to long-term) on the date of transfer, and record any write-down.
4For a sale, compute the carrying amount of the units sold on an average basis and the net sale proceeds after expenses.
5Find profit or loss as net proceeds minus carrying amount. For interest-bearing securities sold cum-interest, treat the accrued interest portion of the receipt as interest income, not as sale proceeds.
6Draw the Investment Account with columns for number, interest or dividend, and amount; balance it to get closing carrying amount.
7Check closing balance against fair value or market value if the category needs a write-down.
8Add the note on disclosures if the question asks for it.

Quickest way: Four-line exam routine for investment problems

When to use it: Use it for MCQs and for any written question with a sale or transfer, where time is short.

Pick up the transfer rule: lower of cost and carrying amount is the answer for long-term to current, and lower of cost and fair value for current to long-term. Eliminate any MCQ option that books a gain on transfer.
For a sale, write net proceeds, then carrying amount, then subtract. If interest-bearing securities are sold cum-interest, take the accrued interest part of the receipt to interest income before you find the gain; it is not sale proceeds.
In written answers, draw the Investment Account first. Marks are given for each correct line, such as the opening balance, purchase, bonus, sale, and closing balance.
End with one line of the profit or loss and one line of the note for disclosure, with the heading of the account.

Common mistakes in Disposal, Reclassification, Transfers and Disclosures

Taking sale price instead of net sale proceeds when finding profit.
The brokerage line is given in a small clause and is missed.
Fix: Underline expenses in the question and always subtract them before comparing with carrying amount.
Including accrued interest in the gain on sale.
Students treat the whole receipt as sale proceeds in a cum-interest deal.
Fix: Split the receipt: interest for the period goes to Interest Income, only the balance is sale proceeds.
Recording a gain when a transfer is made at a higher fair value.
It feels natural to bring the asset to market value.
Fix: Transfer at lower of cost and carrying amount, or lower of cost and fair value where the rule says so. A write-down is charged to profit and loss, but no gain is booked.
Using the carrying amount of the whole holding for a part sale.
Students forget that only the units sold leave the books.
Fix: Compute average cost per unit and multiply by the units sold.
Leaving out an investment held in a nominee's name.
The certificate is not in the company's name, so it looks like it belongs to someone else.
Fix: Account for it if you own it and disclose the details.
Writing disclosures as one vague sentence.
Students do not remember the separate heads.
Fix: List them: policies, income by category, profit or loss on disposal, restrictions, quoted and unquoted amounts, and market value of quoted investments.

Worked examples

Example 1

Aarav Ltd holds 1,000 equity shares of Zed Ltd as a long-term investment at a carrying amount of ₹1,20,000. It sells 400 shares at ₹140 per share and pays brokerage of ₹1,000. Find the profit or loss on sale and the closing carrying amount.

Show the solution

Sale price = 400 × ₹140 = ₹56,000.
Net sale proceeds = ₹56,000 − ₹1,000 = ₹55,000.
Average carrying amount per share = ₹1,20,000 ÷ 1,000 = ₹120.
Carrying amount of shares sold = 400 × ₹120 = ₹48,000.
Profit = ₹55,000 − ₹48,000 = ₹7,000.
Closing carrying amount = ₹1,20,000 − ₹48,000 = ₹72,000 for 600 shares.

Answer: Profit on sale of investments is ₹7,000, credited to the Statement of Profit and Loss. Closing carrying amount is ₹72,000.

Example 2

On 1 January a company transfers 500 equity shares from long-term to current investments. The shares cost ₹80 each. Carrying amount after an earlier permanent write-down is ₹60 each. Market value on the date is ₹90 each. Give the transfer value and the effect on profit or loss.

Show the solution

Cost = 500 × ₹80 = ₹40,000.
Carrying amount = 500 × ₹60 = ₹30,000.
Market value is ₹45,000, but you do not use it for a gain.
Transfer value is the lower of cost and carrying amount = ₹30,000.
Carrying amount is already ₹30,000, so no further write-down arises on transfer.

Answer: The shares are transferred to current investments at ₹30,000. No gain is recognised and no further loss arises on transfer.

Exam tips

Show the Investment Account in proper format even if the question asks only for the profit. Step marks are usually given for it.
Write the transfer rule in one line in the answer before the working, so the examiner sees you know it.
Do not forget brokerage on sales, and separate accrued interest in cum-interest sales of interest-bearing securities.
For disclosure questions, give points as short bullets with the head first, as it is easy to mark.
In MCQs, reject options that credit a gain on transfer between categories.

Practice questions from AS 13 Accounting for Investments

Disposal, Reclassification, Transfers and Disclosures in other exams

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

Disposal, Reclassification, Transfers and Disclosures: frequently asked questions

Where is profit on sale of investments shown?

It is credited to the Statement of Profit and Loss, and a loss is debited there. For a sale you work it out as net sale proceeds minus the carrying amount of the investments sold.

At what value are investments transferred between current and long-term?

A transfer from long-term to current is made at the lower of cost and carrying amount. A transfer from current to long-term is made at the lower of cost and fair value. Any write-down is charged to the Statement of Profit and Loss.

How are investments held in the name of another person treated?

If the investor owns them and has the right to the benefits, it accounts for them in its books. The details of the arrangement, including those required by law, are disclosed.

What should I write for AS 13 disclosures?

Cover accounting policies, income from investments by category, profit or loss on disposal, restrictions on ownership or realisability, and quoted and unquoted amounts with market value of quoted ones.