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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Kiran Ltd. acquired 1,000 fully paid equity shares of Lakshya Ltd. in exchange for issuing 2,000 of its own equity shares of Rs 10 each, whose fair value was Rs 35 per share. The fair value of the Lakshya Ltd. shares at that date was Rs 68 per share. How should Kiran Ltd. record the investment as per AS 13?

The investment is recorded at Rs 70,000. AS 13 states that when an investment is acquired in exchange for the enterprise's own shares, cost is determined by the fair value of the shares issued. Here 2,000 shares at Rs 35 fair value give Rs 70,000, not face value or the fair value of shares received.

  1. ARs 68,000, the fair value of the shares acquired
  2. BRs 70,000, the fair value of the shares issuedCorrect
  3. CRs 20,000, the face value of shares issued
  4. DRs 35,000, the fair value per share issued

Explanation

When an investment is acquired by issuing shares, cost is the fair value of the shares issued, though the net book value of the issuing company's shares is not the basis. 2,000 x 35 = Rs 70,000. Rs 68,000 uses the fair value of the shares acquired, which is not the prescribed basis, and Rs 20,000 uses face value.

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