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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Gupta Enterprises Ltd acquired 500 debentures of face value Rs 1,000 of Vishal Ltd by issuing 8,000 of its own equity shares of face value Rs 10 each, whose fair value at that time was Rs 70 per share. How should the investment be recorded under AS 13?

The investment should be recorded at Rs 5,60,000. When an investment is acquired by issuing the company's own shares, AS 13 requires cost to be the fair value of the shares issued, here 8,000 shares at Rs 70 each, not the face values involved.

  1. ARs 5,00,000, the face value of the debentures
  2. BRs 80,000, the face value of the shares issued
  3. CRs 5,60,000, the fair value of shares issuedCorrect
  4. DRs 6,00,000, the redemption value

Explanation

When an investment is acquired by issuing shares or other securities, cost is the fair value of the securities issued. Fair value = 8,000 x 70 = Rs 5,60,000. Using face value of shares (Rs 80,000) or of debentures ignores this rule.

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