Introduction
- This Standard deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.
- This Standard does not deal with:The base for recognition of interest, dividends and rentals earned on investments which are covered by Accounting Standard 9 on Revenue Recognition;Operating or finance leases;Investments of retirement benefit plans and life insurance enterprises; andMutual funds and venture capital funds and/or the related asset management companies, banks and public financial institutions formed under a Central or State Government Act or so declared under the Companies Act, 1956.
Definitions
Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not ‘investments’.
A current investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made.
A long term investment is an investment other than a current investment.
An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.
Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction. Under appropriate circumstances, market value or net realisable value provides an evidence of fair value.
Market value is the amount obtainable from the sale of an investment in an open market, net of expenses necessarily to be incurred on or before disposal.
Classification of Investments
An enterprise should disclose current investments and long term investments distinctly in its financial statements.
Further classification of current and long-term investments should be as specified in the statute governing the enterprise. In the absence of a statutory requirement, such further classification should disclose, where applicable, investments in:
(a) Government or Trust securities
(b) Shares, debentures or bonds
(c) Investment properties
(d) Others- specifying nature.
Cost of Investments
- The cost of an investment should include acquisition charges such as brokerage, fees and duties.
- If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost should be the fair value of the securities issued (which in appropriate cases may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition cost of the investment should be determined by reference to the fair value of the asset given up. Alternatively, the acquisition cost of the investment may be determined with reference to the fair value of the investment acquired if it is more clearly evident.
Investment Properties
An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment.
Carrying Amount of Investments
- Investments classified as current investments should be carried in the financial statements at the lower of cost and fair value determined either on an individual investment basis or by category of investment, but not on an overall (or global) basis.
- Investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually.
Changes in Carrying Amounts of Investments
Any reduction in the carrying amount and any reversals of such reductions should be charged or credited to the profit and loss statement.
Disposal of Investments
On disposal of an investment, the difference between the carrying amount and net disposal proceeds should be charged or credited to the profit and loss statement.
Disclosure
The following information should be disclosed in the financial statements:
(a) the accounting policies for determination of carrying amount of investments;
(b) classification of investments as specified above;
(c) the amounts included in profit and loss statement for:
- interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid;
- profits and losses on disposal of current investments and changes in the carrying amount of such investments; and
- profits and losses on disposal of long term investments and changes in the carrying amount of such investments;
(d) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal;
(e) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments;
(f) other disclosures as specifically required by the relevant statute governing the enterprise.
Effective Date
This Accounting Standard comes into effect for financial statements covering periods commencing on or after April 1, 1995.