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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Hooghly Ltd holds 1,000 shares of Padma Ltd as a long-term investment, cost ₹90 per share. Padma Ltd's market price has fallen to ₹60 because of a temporary market downturn, and the fall is not considered permanent. What is the correct treatment at year-end under AS 13?

The investment stays at ₹90,000 with no provision. AS 13 requires long-term investments to be carried at cost and reduced only when the decline is other than temporary. A temporary fall in market price does not justify a write-down.

  1. AWrite down the investment to ₹60,000 through profit and loss
  2. BCarry at ₹90,000 with no provision, since the decline is not other than temporaryCorrect
  3. CWrite down to ₹75,000, the average of cost and market value
  4. DCredit a revaluation reserve of ₹30,000

Explanation

Long-term investments are carried at cost; a reduction is made only for a decline other than temporary. Here the decline is temporary, so no write-down. Writing to market value applies to current investments, not this case.

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