as 13 - 26

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UNIT: 2

Prepared by: Togadiya Jignesh

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Accounting Standard - 13

Accounting For Investment

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Definition of Investment:

An Investment means The assets held for earning income

by way of dividend, interest and rental, for capital

appreciation or for other benefits (Like. Diversification)

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Scope of AS - 13This Standard does not deal with the following aspects

Operating and Financing lease

Investment by retirement benefits plans.

Investment by life insurance companies.

Investment by mutual funds.

Investment by bank and public financial institution.

Investment by venture capital funds.

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Some investment have no physical existence and are

represented merely by certificate. (Shares and Debentures)

Some investment exist in physical form, (Land, building

etc. )

Forms of Investment

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Current Investment means an Investment Intended to be

held for not more than one year from the date on which

such investment is made.

ex: (investment in shares of RIL only for six month.)

Long term Investment means an Investment Intended to

be held for more than one year from the date on which

such investment is made.

ex: (Purchase Shares of HDFC for 3 year.)

Classification of Investments

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Cost of Investment The cost of investment includes,

Prime cost 10,00,000

(Add:) Brokerage 1,00,000(Add:) advisor Fees 50,000

(Add:) Duties or tax etc.. 50,00

Cost of Investment 12,00,000

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Investment acquired by issued of securities At that time cost of investment is the fair market value of

the securities issued.

Fair Market value means the price at which Buyer and

seller agree to transact.

Ex: X Ltd. Buy a building of Rs. 14,50,000 for the

purpose of investment. It issues 6,500 equity shares of

company and price of share is 200 per share at BSE.

Cost of Investment in Building = (6500 * 200) = 13,00,000

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Investment acquired in exchange for

another asset Cost of Investment is determined with reference to the fair

value of the investment given up or the Fair value of the

investment acquired. (Which ever is Lower)

EX:

Fair value of the investment acquired (Assets acquired) 16,00,000

Fair value of the investment given up (Assets Given) 15, 50,000

Cost of Investment 15,50,000

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Carrying Amount of investment in the

Balance Sheet

Current investment are carried in the balance sheet at the

lower of cost or Fair market Value. It is on individual

basis or by category of investments such as shares and

debentures but not on an overall basis.

Long term Investment are Carried at Cost.

Investment Cost Fair Value Lower of Cost

or Fair Value

Shares of X ltd. 5,00,000 4,00,000 4,00,000

Shares of Y Ltd. 10,00,000 12,00,000 10,00,000

Total 15,00,000 16,00,000 14,00,000

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Reclassification of Investments

In Case of Reclassification of Long term investment as

current Investment, transfer are made at cost on that date.

(Profit or Loss will be booked in P&L A/c.)

In Case of Reclassification of current Investment as

Long term investment , transfer are made at the lower of

Cost or Fair value on that date(Profit or Loss will be

booked in P&L A/c.)

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Disposal of Investment

When an investment is Disposed off, the Difference

between the carrying amount and net disposal of

investment is charged to P&L A/c.

Example:

Disposal of Investment: 16,00,000

Carrying amount of investment: 18,00,000

(Loss of 2,00,000 charged to P&L A/c)

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Accounting Standard - 26

Intangible Assets

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Definition of Intangible Assets

Intangible assets is an identifiable non monetary assets,

without physical Substance, held for use in the production

or supply of goods or services, for rental to others, or for

administrative purposes.

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Cont

Useful life is either:

(a) the period of time over which an asset is expected to beused by the enterprise; or

(b) the number of production or similar units expected to beobtained from the asset by the enterprise.

An active market is a market where all the followingconditions exist:

(a) the items traded within the market are homogeneous;

(b) willing buyers and sellers can normally be found at anytime; and

(c) prices are available to the public.

Amortization is the systematic allocation of the depreciableamount of an intangible asset over its useful life.

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Categories of intangible assets

a) Human resources: (Collective expertise, Innovation &leadership, Entrepreneur & mgt.skills etc)

b) Intellectual property assets: (Goodwill, patent, copy right,

trademark etc)

c) Internal Assets: (computer Software, Research & development,System, technology, processes & tools etc)

d) External Assets: (Customer loyalty, Brand Value, Licenses,

import quota, franchises, market share etc...)

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Scope of AS - 26

It Excludes the following items:

Wasting assets (Mines of Minerals, Oil wells etc)

financial assets

intangible assets arising in insurance enterprises from

contracts with policyholders.

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Conditions For recognition and

measurement of intangible assets.

it should satisfy the definition of intangible assets.

The cost of the assets can be measured reliable.

Assets is capable for generating future benefit.

The enterprise make necessary judgement for future

benefit.

The intangible assets should be disclosed at cost.

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Method of Valuation of intangible assets

(A): in case of Separate Acquisition:

The cost of an intangible assets comprises its (Purchase

price + import duties + other taxes + Directly expenses on

making the asset ready for its intended use)

If an intangible assets is acquired in exchange for shares

or other security.. The assets recorded at its cost or fair

value of the securities issued (which ever is More)

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(B): in case of Acquisition as part of an Amalgamation:

Active Market provide Most reliable measurement of

intangible assets is fair value. The appropriate market priceis usually the current bid price.

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(C): in case intangible assets acquired by way of a

Government Grant: (Import licenses, Fishing Licenses,

radio or television station etc )

If it is given at a concessional rate should be accounted for

on the basis of their acquisition cost.

If it is free of cost, it should be recorded at a nominal value.

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(D): in case intangible assets acquired in exchange of assets:

Fair value of intangible assets and fair value of exchanged

assets (Which ever is More)

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Cost of Internally Generated intangible

asset

The following cost can be include in intangible assets

internally generated.

Cost of raw material and services.

The salaries, wages and other employment related cost.

Direct expenditures. (fees, taxes etc )

Overhead that are necessary to generate the assets

(Depreciation, rent, insurance premium etc)

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Internally Generated Goodwill

Net Assets = (Assets taken overLiabilities taken over)

Goodwill = Amount PaidNet Assets

Example: X co ltd acquired ABC co. ltd for purchase

consideration of 10,00,000 payable by way of fully paidequity shares. The Assets of ABC co. ltd as under

Particular Book Value Fair Value

Land 1,50,000 2,00,000

Building 1,00,000 1,50,000

Plant 2,80,000 3,50,000

Patents 1,50,000 2,00,000

Other Cr. assets 3,75,000 4,00,000

Other Cr. Liabilities 3,90,000 4,00,000

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