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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Tungabhadra Ltd. acquired 500 equity shares of Cauvery Ltd. (face value Rs 100) as a long-term investment by issuing 800 of its own equity shares of face value Rs 10 each, whose fair value was Rs 90 per share. The fair value of Cauvery Ltd. shares was not reliably determinable. At what amount should the investment be recorded under AS 13?

The investment is recorded at Rs 72,000. AS 13 says an investment acquired in exchange for shares is recorded at the fair value of the shares issued. Here 800 shares at Rs 90 give Rs 72,000, not their face value of Rs 8,000.

  1. ARs 72,000Correct
  2. BRs 8,000
  3. CRs 50,000
  4. DRs 80,000

Explanation

When an investment is acquired by issue of shares, cost is determined from the fair value of the shares issued, or the net book value of the investment received if that is more clearly evident. Here the fair value of the shares issued is 800 x 90 = Rs 72,000. Face value of Rs 8,000 is wrong because nominal value is not the measure.

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