On 15th June, 2024, Y limited wants to re-classify its investments in accordance with AS 13 (revised). Decide and state the amount of transfer,…

CA Intermediate · Advanced Accounting · MTP · May 2024
On 15th June, 2024, Y limited wants to re-classify its investments in accordance with AS 13 (revised). Decide and state the amount of transfer, based on the following information: (1) A portion of long term investments purchased on 1st March, 2023 are to be re-classified as current investments. The original cost of these investments was 14 lakhs but had been written down by 2 lakhs (to recognise 'other than temporary' decline in value). The market value of these investments on 15th June, 2024 was 11 lakhs. (2) A portion of current investments purchased on 15th March, 2024 for 7 lakhs are to be re-classified as long term investments, as the company has decided to retain them. The market value of these investments on 31st March, 2024 was 6 lakhs and fair value on 15th June 2018 was - 8.5 lakhs.

Suggested Answer and Working Notes:

As per AS 13 (Revised) ‘Accounting for Investments', where long-term investments are reclassified as current investments, transfers are made at the lower of cost and carrying amount at the date of transfer; and where investments are reclassified from current to long term, transfers are made at lower of cost and fair value on the date of transfer. Accordingly, the re-classification will be done on the following basis: (i) In this case, carrying amount of investment on the date of transfer is less than the cost; hence this re-classified current investment should be carried at 12 lakhs in the books. (ii) In this case, reclassification of current investment into long-term investments will be made at 7 lakhs as cost is less than its fair value of 8.5 lakhs on the date of transfer.

Topics: AS 13

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