UNIT: 2

Prepared by: Togadiya Jignesh

Accounting Standard - 13

Accounting For Investment

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)

Scope of AS - 13

This 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.

Forms of Investment

Some investment have no physical existence and are

represented merely by certificate. (Shares and Debentures)

Some investment exist in physical form, (Land, building etc. )

Classification of Investments

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.)

Cost of Investment

The cost of investment includes,

Prime cost (Add:) Brokerage (Add:) advisor Fees (Add:) Duties or tax etc.. 10,00,000 1,00,000 50,000 50,00

Cost of Investment

12,00,000

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

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:
16,00,000 15, 50,000 15,50,000

Fair value of the investment acquired (Assets acquired) Fair value of the investment given up (Assets Given) Cost of Investment

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.
Cost
5,00,000 15,00,000

Investment
Shares of X ltd. Total

Fair Value
4,00,000 12,00,000 16,00,000

Lower of Cost or Fair Value

4,00,000 10,00,000 14,00,000

Shares of Y Ltd. 10,00,000

Long term Investment are Carried at Cost.

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.)

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)

Accounting Standard - 26

Intangible Assets

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.

Cont

Useful life is either: (a) the period of time over which an asset is expected to be used by the enterprise; or (b) the number of production or similar units expected to be obtained from the asset by the enterprise. An active market is a market where all the following conditions exist: (a) the items traded within the market are homogeneous; (b) willing buyers and sellers can normally be found at any time; and (c) prices are available to the public. Amortization is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

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...)

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.

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.

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)

Method of Valuation of intangible assets

(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 price is usually the current bid price.

Method of Valuation of intangible assets

(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.

Method of Valuation of intangible assets

(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)

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)

Internally Generated Goodwill

Net Assets = (Assets taken over Liabilities taken over) Goodwill = Amount Paid Net Assets Example: X co ltd acquired ABC co. ltd for purchase consideration of 10,00,000 payable by way of fully paid equity shares. The Assets of ABC co. ltd as under
Particular Land Building Plant Patents Other Cr. assets Book Value 1,50,000 1,00,000 2,80,000 1,50,000 3,75,000 Fair Value 2,00,000 1,50,000 3,50,000 2,00,000 4,00,000

Other Cr. Liabilities

3,90,000

4,00,000