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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Ganga Pharma Ltd. bought 5,000 equity shares of Yamuna Ltd. (face value Rs 10) cum-dividend at Rs 120 per share. The price included a declared dividend of Rs 4 per share for the preceding year, which was an already-declared pre-acquisition dividend. Ganga received the dividend later. What is the cost of the investment to be recorded as per AS 13?

The cost is Rs 5,80,000. Because the shares were bought cum-dividend, the Rs 20,000 of dividend relating to the pre-acquisition period is a recovery of capital, not income. It is deducted from the Rs 6,00,000 paid, so the investment is carried at Rs 5,80,000.

  1. ARs 6,00,000
  2. BRs 5,80,000Correct
  3. CRs 6,20,000
  4. DRs 5,60,000

Explanation

Dividend for periods before acquisition is not income; it is deducted from cost. Total paid = 5,000 x 120 = 6,00,000. Pre-acquisition dividend = 5,000 x 4 = 20,000. Cost = 6,00,000 - 20,000 = Rs 5,80,000. Treating it as income leaves cost at Rs 6,00,000, which is wrong.

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