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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Ganga Traders Ltd. bought 2,000 equity shares of Yamuna Ltd. (face value Rs 10) cum-dividend at Rs 85 per share. Shortly after, Yamuna Ltd. declared a dividend of 20% for the previous year, which the company received. Under AS 13, what is the cost at which the investment will be carried?

The investment is carried at Rs 1,66,000. The shares were bought cum-dividend, so the dividend of Rs 4,000 (20% of face value Rs 10 on 2,000 shares) is pre-acquisition and is deducted from the purchase cost of Rs 1,70,000 rather than treated as income.

  1. ARs 1,70,000
  2. BRs 1,62,000Correct
  3. CRs 1,66,000
  4. DRs 1,78,000

Explanation

Dividend per share = 20% x 10 = Rs 2, total Rs 4,000 on 2,000 shares... recomputed: 2 x 2,000 = 4,000. Purchase cost = 2,000 x 85 = 1,70,000. Pre-acquisition dividend is deducted from cost: 1,70,000 - 4,000 = 1,66,000.

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