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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Kaveri Textiles Ltd. acquired 5,000 equity shares of Mehta Mills Ltd. (face value Rs 10) as a long-term investment at Rs 120 per share, paying brokerage of Rs 6,000 in addition. Under AS 13, at what amount should the investment be initially recorded?

The investment is recorded at Rs 6,06,000. AS 13 requires cost to include acquisition charges like brokerage, so the purchase price of Rs 6,00,000 (5,000 shares at Rs 120) is added to the Rs 6,000 brokerage paid, giving the initial carrying amount.

  1. ARs 6,00,000
  2. BRs 6,06,000Correct
  3. CRs 50,000
  4. DRs 5,94,000

Explanation

Cost of an investment includes acquisition charges such as brokerage. Cost = 5,000 x 120 = Rs 6,00,000, plus brokerage Rs 6,000 = Rs 6,06,000. Rs 6,00,000 wrongly excludes brokerage; Rs 50,000 uses face value instead of price paid.

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