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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 at Rs 85 per share, paying brokerage of Rs 3,400 and stamp duty of Rs 600 in addition. What is the cost of the investment to be recorded under AS 13?

The investment is recorded at Rs 1,74,000. AS 13 states that cost includes brokerage, fees and duties paid on acquisition, so the purchase price of Rs 1,70,000 is increased by brokerage of Rs 3,400 and stamp duty of Rs 600.

  1. ARs 1,70,000
  2. BRs 1,74,000Correct
  3. CRs 1,73,400
  4. DRs 40,000

Explanation

Cost of an investment includes acquisition charges such as brokerage and stamp duty. Purchase price = 2,000 x 85 = Rs 1,70,000. Adding brokerage 3,400 and stamp duty 600 gives Rs 1,74,000. Rs 1,73,400 omits stamp duty; Rs 40,000 wrongly uses a different base (Rs 20 per share).

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