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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Prakash Ltd. holds 8,000 equity shares of Zenith Ltd. (face value Rs 10) as a long-term investment at cost Rs 120 per share. Zenith Ltd. has suffered continuous losses and the market price has fallen to Rs 70 per share, which management believes to be a permanent decline. As per AS 13, what amount should be charged to the profit and loss account?

Rs 4,00,000 is charged to profit and loss. A long-term investment is carried at cost, but AS 13 requires a write-down when the decline is other than temporary. The fall is Rs 50 per share on 8,000 shares.

  1. ARs 4,00,000Correct
  2. BRs 5,60,000
  3. CRs 9,60,000
  4. DNil, as the investment is long term

Explanation

Long-term investments are carried at cost, but a reduction is made to recognise a decline other than temporary. Reduction per share = 120 - 70 = Rs 50. Total = 8,000 x 50 = Rs 4,00,000. Nil is wrong because the decline is permanent; Rs 5,60,000 is the market value, not the decline.

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