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 · September 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) Another portion of long term investments purchased on 15th January, 2023 are to be re-classified as current investments. The original cost of these investments was 7 lakhs but had been written down to 5 lakhs (to recognize 'other than temporary' decline in value). The fair value of these investments on 15th June, 2024 was - 4.5 lakhs. (3) 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 2024 was - 8.5 lakhs. (4) Another portion of current investments purchased on 7th December, 2023 for 4 lakhs are to be re-classified as long term investments. The market value of these investments was: on 31st March, 20243.5 lakhson 15th June, 20243.8 lakhs

Suggested Answer and Working Notes:

As per AS 13 ‘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 also, carrying amount of investment on the date of transfer is less than the cost; hence this re-classified current investment should be carried at 5 lakhs in the books. (iii) 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. (iv) In this case, market value (considered as fair vale) is 3.8 lakhs on the date of transfer which is lower than the cost of 4lakhs. The reclassification of current investment into long-term investments will be made at 3.8 lakhs.

Topics: AS 13

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