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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Kaveri Textiles Ltd. holds 2,000 equity shares of Narmada Ltd. as a long-term investment, carried at cost of Rs 150 per share. Narmada Ltd. is facing a temporary fall in market price to Rs 120 per share, and there is no indication that the decline is other than temporary. At the year-end, how should Kaveri Textiles Ltd. carry this investment under AS 13?

The investment stays at its cost of Rs 3,00,000. AS 13 carries long-term investments at cost and requires a write-down only when the fall in value is other than temporary. Since the decline here is temporary, no provision is made.

  1. AAt Rs 3,00,000, being cost, with no write-downCorrect
  2. BAt Rs 2,40,000, being market value, with Rs 60,000 charged to profit and loss
  3. CAt Rs 3,00,000 with Rs 60,000 shown as reserve
  4. DAt Rs 2,70,000, being the average of cost and market value

Explanation

Long-term investments are carried at cost. A provision is made only for a decline other than temporary. Here the decline is temporary, so cost of 2,000 x 150 = Rs 3,00,000 is retained. Writing down to Rs 2,40,000 would wrongly apply the current-investment lower-of-cost-or-market rule.

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