What Is AS 13 Accounting For Investments?

What is an Accounting Standard?

An accounting standard is a framework or set of principles and guidelines that dictate how financial transactions and events should be recorded, presented, and reported in a company's financial statements. These standards are established to ensure consistency, comparability, transparency, and accuracy in financial reporting across different organizations.

What is the AS 13 Accounting Standard?

The accounting standard 13 deals with the accounting for investments. It specifies how the investments should be accounted for or reported in the financial statements of a company. It guides companies on the ways in which different types of investments, like fixed assets, current investments, and other investments, can be accounted for. As per AS 13, the companies have to classify their investments in the specified manner and report them in their financial statements.

Applicability of AS 13 Accounting Standard

• AS 13 accounting standard doesn’t apply in the following cases -
• The interest, rent, or dividend earned on any investment is covered under AS 9. Therefore, the AS 13 on accounting for investments does not apply to income from investments.
• AS 13 accounting standard is not applicable to finance and operating leases that are covered by AS 19.
• Any investments made in life insurance plans or retirement benefit plans are covered under AS 15. Therefore, investment accounting AS 13 is not applicable to such investments.
• Following that were formed under any Central or State government act and declared under the Companies Act, 2013 -
  • Mutual funds, venture capital funds, or related asset management companies
  • Banks and public financial institutions.

How are Investments Classified Under AS 13 Accounting Standard?

AS 13 accounting standard requires companies to classify their investments in the following manner -

Current Investments: Current investments are investments that are supposed to be held for less than one year from the date of investment. In other words, these are investments that can be sold immediately and are liquid in nature.

Long-Term Investments: Long-term investments are investments that are supposed to be held for the long term. It can include fixed investments like land and buildings and even include freely marketable securities that are held for a long term, like long-term investments in shares or mutual funds, FDs, etc.

Cost of Investments

The cost of investments includes the following:

• Fees and duties of a Broker - It includes the cost of acquisition, fees, brokerage, and duties.
• Non-cash Consideration - If investments are acquired by issuing security, shares, or any other non-cash consideration.
• Interest, dividend, or other receivables - Dividends, interest, and other income related to investments are considered as recovery of cost in some situations.
• Right Shares - If rights shares are issued and subscribed, then its cost also forms part of the cost of investments.

Carrying Amount of Investments

The carrying amount of investments refers to the value at which investments are carried in the financial statements.

Current investments should be carried to the financial statements at cost or fair value, whichever is lower. The value is calculated either by individual investment or investment category.

Long-term investments are recorded in the financial statements at full cost. However, in case of a decrease in the value, the carrying amount is also decreased.

• Investment Property:
  It refers to investments in fixed assets like land and buildings that are not supposed to be used for commercial operations.
• Investment Treatment on Disposal:
  When the investment is sold or disposed of, the difference between the carrying cost and the sale proceeds is transferred to P&L.
• Reclassification of Investments:
  When a long-term asset is reclassified as a current investment, it is transferred at the lower of the carrying cost and cost on the date of transfer. When a current investment is classified as a long-term investment, the transfer is made at a lower cost or fair value at the date of transfer.

Disclosures in the Financial Statements

AS 13 accounting standard requires companies to disclose the investments in the financial statements in the below-mentioned manner -

• It is necessary to mention the accounting policies used to calculate the carrying amount of investments.
• The amount that is to be included in the profit and loss statement for -
  • Report income from long-term and current investments separately. Include the total income, including tax deducted at source (TDS) under Advance Taxes Paid.
  • Record gains and losses when selling current investments and any changes in their value.
  • Record gains and losses when selling long-term investments and any changes in their value.
• Significant restrictions on ownership rights, the ability to sell investments, or receive income from them.
• Report the total value of both quoted and unquoted investments and specify the market value of the quoted investments.
• Include any additional disclosures required by applicable laws and regulations.

It is essential for companies to adhere to AS 13 accounting standards to ensure that their investment-related transactions are transparent, comparable, and compliant with relevant regulations. Ultimately, the principles outlined in AS 13 boost investor confidence, help stakeholders make informed decisions, and maintain the transparency and integrity of financial reporting.