Accounting Standard 13 is used across the board. This standard deals with financial statements and accounting prepared by a company and prescribes disclosure requirements.
How AS 13 applies
The standard, while versatile, does not apply in the following instances:
• Finances or leases dealt with by AS 19
• Retirement plans, life insurance policies, or other similar investments covered in AS 15
• For investments that earn dividends, rentals and interest—all covered in AS 9
• Any of the below which are included in the Central or State Government Act, or declared under the Companies Act of 2013:
1. Mutual funds
2. Funds from venture capital or other asset management companies
3. Banks and financial institutions
Cataloging investments
Below is a brief overview of the two different classifications of investments covered by accounting standard 13.
A. Current investments— These are the investments usually aimed to be held less than a year and are in a current status.
B. Long-Term Investments— These investments are any investments other than the current ones
Investment cost
Accounting standard 13 deals with several major costs including the following:
- No-cash option— If an investment is acquired, by supplying shares, securities, or other assets
In essence, the cost of acquisition is the value of securities issued or assets given up. - Duties, broker, and charges— investments will include fees associated with brokerage, duties, and charges
Fair value
Fair value may not be equal to the nominal value of securities that are issued. Interest, dividends or receivables are considered as income, as these are the return on investment (ROI). There are specific cases, however, in which these influxes of cash are considered recover of the cost and do not form part of the income.
Right shares
The cost of right shares is supplemented to carrying the amount of he the original holding. If the rights that are not subscribed to are sold, the P/L statement receives the sale proceeds. If one acquires an investment, however, on market value and a cum-right basis for a lower rate than when the investment was acquired, one may apply the dividends from the sale of rights in order to decrease the investment amount to the market value.
Carrying amount
In AS 13, the carrying amount of your investments must be carried in the form of financial statements. After a steady decline in the value of a long-term investment, the carrying amount can be reduced to recognize this.
Disposal
In the event of a disposal of the investment, the difference between carrying costs and sales proceeds from net expenses gets moved to P&L.
Disclosures
Regarding AS 13 and accounting for investments, here are some of the disclosures in financial statements in respect to Accounting for Investments:
A. Accounting policies that determine carrying amount of investment
B. Cash in profit and loss statements for dividends, rentals, and interest, profits and losses on current and long-term investment disposal, quoted and unquoted investments, and other disclosures.
Investment reclassification
- When a long-term investment becomes a current investment, transfers can be made at the carrying amount that decrease the cost. When the investment transfers from current to long-term, transfers are made on the lesser cost and the fair value of the investment is at the date of the transfer.
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