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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Mahanadi Ltd. acquired 1,000 shares of Krishna Ltd. in exchange for a plot of land whose book value is Rs 4,00,000 and fair value is Rs 5,50,000. The shares' fair value is not reliably determinable separately. At what amount should the investment be recorded under AS 13?

The investment is recorded at Rs 5,50,000. When shares are acquired in exchange for another asset, AS 13 requires cost to be measured at the fair value of the asset given up, not its book value, unless the investment's own fair value is more evident.

  1. ARs 4,00,000
  2. BRs 5,50,000Correct
  3. CRs 1,50,000
  4. DRs 9,50,000

Explanation

AS 13 says that when an investment is acquired in exchange for another asset, the acquisition cost is determined by the fair value of the asset given up, or the fair value of the investment acquired if more clearly evident. Here the asset's fair value is Rs 5,50,000. Book value of Rs 4,00,000 is the wrong base, and Rs 1,50,000 is merely the gain difference.

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