Skip to content

CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Vindhya Ltd. acquired 1,000 equity shares of Satpura Ltd. by issuing 600 of its own equity shares of face value Rs 10 each, whose fair value was Rs 50 per share. Satpura's shares had a market price of Rs 32 per share at that time. As per AS 13, at what amount will the investment be recorded?

The investment is recorded at Rs 30,000. AS 13 says that when an investment is acquired by issuing shares, its cost is the fair value of the securities issued, here 600 shares at Rs 50. Face value of Rs 6,000 is not used, since fair value governs.

  1. ARs 30,000Correct
  2. BRs 32,000
  3. CRs 6,000
  4. DRs 62,000

Explanation

When an investment is acquired by issue of shares, cost is the fair value of the securities issued (or, where more clearly evident, the fair value of the asset acquired). Here the fair value of shares issued is 600 x 50 = 30,000. Rs 6,000 uses face value, which is wrong; Rs 32,000 uses market value of the investment acquired, which AS 13 gives as an alternative only when it is more clearly evident, not stated here.

Did you get it right without looking?

One question tells you little. A timed set on AS 13 Accounting for Investments shows your real accuracy, how long you take and where you lose marks.

Practise AS 13 Accounting for InvestmentsFree diagnostic mock

More AS 13 Accounting for Investments questions