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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Narmada Traders Ltd. purchased 1,000 equity shares of Tapi Ltd. on 1 January for Rs 80,000 in exchange for a machine whose carrying amount in its books was Rs 60,000 and whose fair value was Rs 75,000. The fair value of the shares acquired is not ascertainable reliably, and the machine's fair value is the better evidence. At what amount should the investment be recorded under AS 13?

The investment is recorded at Rs 75,000. AS 13 says an investment acquired in exchange for another asset is stated at the fair value of the asset given up, unless the fair value of the investment is more clearly evident. Here the machine's fair value is the reliable measure.

  1. ARs 80,000
  2. BRs 75,000Correct
  3. CRs 60,000
  4. DRs 15,000

Explanation

When an investment is acquired in exchange for another asset, the acquisition cost is determined by reference to the fair value of the asset given up, or the fair value of the investment acquired if that is more clearly evident. Here the machine's fair value of Rs 75,000 is the better evidence. Carrying amount Rs 60,000 is wrong because it is not fair value.

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