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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Sundaram Textiles Ltd. acquired 2,000 equity shares of Kaveri Mills Ltd. (face value Rs 10) as a long-term investment for Rs 50 per share, paying brokerage of Rs 2,000 and stamp duty of Rs 500 at purchase. At what total amount should the investment be initially recorded as per AS 13?

The investment is recorded at Rs 1,02,500. Under AS 13, cost includes the purchase price of Rs 1,00,000 plus acquisition charges like brokerage of Rs 2,000 and stamp duty of Rs 500. Face value is irrelevant to the initial measurement.

  1. ARs 1,00,000
  2. BRs 1,02,000
  3. CRs 1,02,500Correct
  4. DRs 20,000

Explanation

Cost of an investment includes acquisition charges such as brokerage, fees and duties. Cost = 2,000 x 50 = Rs 1,00,000 + 2,000 + 500 = Rs 1,02,500. Excluding stamp duty gives Rs 1,02,000, which is wrong because duty is an acquisition charge. Using face value gives Rs 20,000, which ignores the price paid.

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