1. Valuation of Investments

2. AS-13: Accounting for Investments
 Meaning and significance of Investments
 Scope and coverage
 Forms of investments
 Principles and norms
 Disclosure requirements

3. Meaning and significance
 Investments – are assets held by an
enterprise for earning income by way of
dividends, interest and rentals, for capital
appreciation, or for other benefits. Assets
held as stock-in-trade are not
‘investments’

4. Scope and coverage
 AS 13 does not deal with
 The bases for recognition of interest,
dividends and rentals earned on investments
(AS 9 – Revenue recognition)
 Operating or financing leases (AS 19)
 Investment in retirement benefit plans and life
insurance enterprises
 Mutual funds and venture capital funds and/
or related AMCs, banks and public FIs.

5. Forms of investments
 Physical existence
 No physical existence

6. Principles and Norms
 Classification of investments – current
investments and long-term investments
 Current Investments – readily realizable
and is intended to be held for not more
than one year from the date on which such
investments are made.
 Long-term investments – investments
other than current (properties)

7. Principles and Norms
 Cost of Investments
 The cost includes, in addition to the prime
cost, acquisition charges.

8. Cost of investment-shares
Bombay Dyeing Ltd – sought the advise of
an investment advisor for deploying surplus
cash. The advisor advised to invest in
Reliance Industries and charged Rs.5000 as
his fee. Accordingly, the company bought
5000 shares of face value Rs.10 each of RIL
@Rs.356 per share from the NSE through a
broker. The broker charged a fee of 0.5%.
Determine the cost of investment

9. Cost of Investments
 When an investment is acquired, partly or
fully, by the issue of shares or other
securities, the acquisition cost is the fair
value of the securities issued (determined
as issue price by statutory authorities).
The fair value may not necessarily be
equal to the nominal or par value of the
securities issued.

10. Cost of Investments-property
Reliance Energy buys a building for the purpose of
investments. It issues 65,000 equity shares of its
company, which are quoted on the day of the deal
at Rs.180 share at BSE. The company also pays
brokerage of Rs.2 lakhs to the property dealer
involved in the deal. The stamp duty is also incurred
@8% of the value of the building. Determine the
value of this investment property.

11. Cost of Investments
 When acquired in exchange for another,
its cost is determined with reference to the
fair value of the asset given up or the
investment acquired, if it is more clearly
evident.
 In some circumstances, income from
investments represents a recovery cost
and not revenue

12. Cost of Investments - cum
Bombay dyeing purchases 10,000 8% secured
redeemable bonds of face value Rs.100 each of
TNPL on July 1 for a consideration of
Rs.10,60,000 net of brokerage. The interest on the
bonds is payable every six months on 30 th
September and 31st March. Determine the cost of
this investment on 30th September.

13. Cost of Investments
 When right shares offered are subscribed for, the cost of
the right shares is added to the carrying amount of the
original holding.
 If rights are not subscribed for, but are sold in the
market, the sale proceeds are taken to P&L statement.
 Where the investments are acquired on cum-rights and
the market value of investments immediately after their
becoming ex-rights is lower than the cost for which they
were acquired, apply the sale proceeds of rights to
reduce the carrying amount to the market value.

14. Reclassification of Investments
 Where long-term investments are
reclassified as current investments,
transfers are made at the lower of the cost
and carrying amount at the date of
transfer.
 Where investments are classified from
current to long-term, made at the lower of
cost and fair value at the date of transfer.

15. Reclassification
Bombay dyeing had intended to keep the shares
in RIL as current. But, looking at the long-term
prospects, it now wants to reclassify the same
as long-term. At what amount will it make the
transfer in the following two situations
1. The quoted price as on date is Rs.370 per share
and a brokerage of 0.5% is payable
2. The quoted price as on date is Rs.350 per share
and a brokerage of 0.5% is payable.

16. Carrying amount of Investments
 Current investments are carried in the
balance sheet at the lower of cost and fair
value determined on an individual basis.
 Lon-term investments are carried at cost.
 Any reduction in the carrying amount and
any reversal of such reduction is charged
or credited to the profit and loss account
as loss or revenue as the case may be.

17. Carrying amount determination
If Bombay dyeing were to continue with the
classification of RIL as current investments, and
the fair market value as on the balance sheet date
was Rs.17,65,000, at what value will the
investment be carried in the balance sheet as on
date?

18. Disposal of investments
 When an investment is disposed off, the
difference between the carrying amount
and the net disposal proceeds, that is,
disposal proceeds minus expenses of
disposal should be charged or credited to
the profit and loss statement.

19. Investments of Indian Companies
 Types of Investments
 G-Secs
 Real estates
 Share application money
 Cash and Bank balances
 ICDs
 Exposure to subsidiaries and affiliates as loans and
advances
 Non-cash exposure

20. Examples
 Cos with ‘nil’ investments –
Glaxosmithkline Consumer Healthcare ltd,
Indrarastha Gas, Hindustan Copper
 Cos with significant investments – Bharti
Televentures ltd (99.32% of total assets),
Tata Tea (64%), Hero Honda Motors
(59%)

21. investme Tata Tea Hero Bajaj HLL
nts Honda Auto
Subsi / 81% 14%
affiliates
G-Sec 91%
85% 34%
MFs 10% 8%
Loans 5% 7%
and Adv
Others 3% 15% 16%