financial institutions formed under a Central or State Government Act or so declared under the Companies Act,
3 The following terms are used in this Standard with the meanings
3.1 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’.
3.2 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
3.3 A long term investment is an investment other than a
3.4 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
3.5 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
3.6 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.
4 Enterprises hold investments for diverse reasons. For some enterprises, investment activity is a significant
element of operations, and assessment of the performance of the enterprise may largely, or solely, depend on the
reported results of this activity.
5 Some investments have no physical existence and are represented merely by certificates or similar documents (e.g.,
shares) while others exist in a physical form (e.g., buildings). The nature of an investment may be that of a debt,
other than a short or long term loan or a trade debt, representing a monetary amount owing to the holder and usually
bearing interest; alternatively, it may be a stake in the results and net assets of an enterprise such as an equity
share. Most investments represent financial rights, but some are tangible, such as certain investments in land or
6 For some investments, an active market exists from which a market value can be established. For such investments,
market value generally provides the best evidence of fair value. For other investments, an active market does not
exist and other means are used to determine fair value.
Classification of Investments
7 Enterprises present financial statements that classify fixed assets, investments and current assets into separate
categories. Investments are classified as long term investments and
current investments . Current investments are in the nature of current
assets, although the common practice may be to include them in investments. 3
8 Investments other than current investments are classified as long term investments, even though they may be readily
9 The cost of an investment includes acquisition charges such as brokerage, fees and duties.
10 If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost
is 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
11 If an investment is acquired in exchange, or part exchange, for another asset, the acquisition cost of the
investment is determined by reference to the fair value of the asset given up. It may be appropriate to consider the
fair value of the investment acquired if it is more clearly evident.
12 Interest, dividends and rentals receivables in connection with an investment are generally regarded as income,
being the return on the investment. However, in some circumstances, such inflows represent a recovery of cost and do
not form part of income. For example, when unpaid interest has accrued before the acquisition of an interest-bearing
investment and is therefore included in the price paid for the investment, the subsequent receipt of interest is
allocated between pre-acquisition and post-acquisition periods; the pre-acquisition portion is deducted from cost.
When dividends on equity are declared from pre-acquisition profits, a similar treatment may apply. If it is
difficult to make such an allocation except on an arbitrary basis, the cost of investment is normally reduced by
dividends receivable only if they clearly represent a recovery of a part of the cost.
13 When right shares offered are subscribed for, the cost of the right shares is added to the carrying amount of the
original holding. If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the
profit and loss statement. However, where the investments are acquired on cum- right basis and the market value of
investments immediately after their becoming ex-right is lower than the cost for which they were acquired, it may be
appropriate to apply the sale proceeds of rights to reduce the carrying amount of such investments to the market
Carrying Amount of Investments
14 The carrying amount for current investments is the lower of cost and fair value. In respect of investments for
which an active market exists, market value generally provides the best evidence of fair value. The valuation of
current investments at lower of cost and fair value provides a prudent method of determining the carrying amount to
be stated in the balance sheet.
15 Valuation of current investments on overall (or global) basis is not considered appropriate. Sometimes, the
concern of an enterprise may be with the value of a category of related current investments and not with each
individual investment, and accordingly the investments may be carried at the lower of cost and fair value computed
category-wise (i.e. equity shares, preference shares, convertible debentures, etc.). However, the more prudent and
appropriate method is to carry investments individually at the lower of cost and fair value.
16 For current investments, any reduction to fair value and any reversals of such reductions are included in the
profit and loss statement.
17 Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the
value of a long term investment, the carrying amount is reduced to recognise the decline. Indicators of the value of
an investment are obtained by reference to its market value, the investee’s assets and results and the
expected cash flows from the investment. The type and extent of the investor’s stake in the investee are also
taken into account. Restrictions on distributions by the investee or on disposal by the investor may affect the
value attributed to the investment.
18 Long-term investments are usually of individual importance to the investing enterprise. The carrying amount of
long-term investments is therefore determined on an individual investment basis.
19 Where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant
reduction in the carrying amount is charged to the profit and loss statement. The reduction in carrying amount is
reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist.
20 An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and
Equipment . The cost of any shares in a co-operative society or a company, the holding of which is
directly related to the right to hold the investment property, is added to the carrying amount of the investment
21 On disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of
expenses, is recognised in the profit and loss statement.
22 When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that
part is to be determined on the basis of the average carrying amount of the total holding of the investment.
Reclassification of Investments
23 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.
24 Where investments are reclassified from current to long-term, transfers are made at the lower of cost and fair
value at the date of transfer.
25 The following disclosures in financial statements in relation to investments are appropriate:—
