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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Ganga Ltd purchased 1,000 shares of Yamuna Ltd cum-dividend at ₹120 per share, total ₹1,20,000. Shortly after, Yamuna Ltd declared a dividend of 15% on shares of face value ₹10, relating to the period before the purchase, and Ganga Ltd received it. Ganga Ltd treats the shares as a long-term investment. What is the carrying cost of the investment after the dividend is received?

The carrying cost is ₹1,18,500. The ₹1,500 dividend (15% of ₹10,000 face value) was declared out of pre-acquisition profits, so AS 13 treats it as recovery of cost and deducts it from the ₹1,20,000 paid instead of crediting profit.

  1. A₹1,20,000
  2. B₹1,18,500Correct
  3. C₹1,21,500
  4. D₹1,05,000

Explanation

Dividend = 15% x 10 x 1,000 = ₹1,500, which is pre-acquisition. Under AS 13 pre-acquisition dividend is deducted from the cost of the investment. Cost = 1,20,000 - 1,500 = ₹1,18,500. Crediting it to the P&L would be wrong since it is a return of capital.

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