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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Kaveri Textiles Ltd. acquired 2,000 equity shares of Mehta Spinners Ltd. (face value Rs 10) as a long-term investment at Rs 85 per share, and paid brokerage of Rs 3,400 and stamp duty of Rs 600 on the purchase. As per AS 13, at what amount should the investment be initially recorded?

The investment is recorded at Rs 1,74,000. AS 13 requires cost to include acquisition charges like brokerage and stamp duty along with the purchase price of Rs 1,70,000 (2,000 shares at Rs 85), so Rs 4,000 of charges are added to it.

  1. ARs 1,70,000
  2. BRs 1,74,000Correct
  3. CRs 1,73,400
  4. DRs 20,000

Explanation

Cost of investment includes acquisition charges such as brokerage, fees and duties. Purchase price = 2,000 x 85 = Rs 1,70,000. Add brokerage 3,400 and stamp duty 600 = Rs 4,000. Total = Rs 1,74,000. Rs 1,70,000 wrongly ignores acquisition costs; Rs 1,73,400 omits stamp duty.

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