## AS 13 — Classification and Measurement of Investments

### Two Categories

Feature	Current Investment	Long-term Investment
Holding Period	Less than 12 months	12 months or more (by intention)
Measurement Basis	Lower of Cost or Market Value	Cost
Which decreases are recorded?	Any decrease → P&L	Only permanent / other-than-temporary decrease → P&L
How is decrease recorded?	Directly write down investment; debit P&L	Create Provision for Diminution in Value account; debit P&L

---

### Current Investments — Measurement Detail

Always apply: Lower of Cost (C) or Market Value (MV)

Cost	Market Value	Carry At	Journal Entry Required?
₹100	₹110	₹100	No — cost is lower
₹100	₹80	₹80	Yes — P&L A/c Dr ₹20 / To Investment A/c ₹20

---

### Long-term Investments — Measurement Detail

Carry at cost unless there is a permanent (other-than-temporary) decline:

Cost	Market Value	Nature of Decline	Carry At	Entry
₹100	₹90	Temporary	₹100	None
₹100	₹90	Permanent	₹90	P&L A/c Dr ₹10 / To Provision for Diminution ₹10

Balance Sheet presentation after permanent decline:

```

Investment (at cost): ₹100

Less: Provision for Diminution: (₹10)

Net Carrying Value: ₹90

```

### Indicators of a Permanent (Other-than-Temporary) Decrease

Sustained cash operating losses in the investee company
New regulations with severe adverse impact on the investee
Significant financial difficulty of the investee

### Special Exam Assumption

> If Gold or Silver investments appear in a problem without stating the category, assume they are Long-term investments and value at cost.

Worked example

### Example 1

Example 1 — Current Investment

Cost ₹1,00,000 | Market Value ₹80,000

Since current investment → apply lower of cost or MV:

Carry at: ₹80,000

Journal Entry:

```

P&L A/c Dr 20,000

To Investment A/c 20,000

(Being current investment written down to market value)

```

### Example 2

Example 2 — Long-term Investment (Permanent Decline)

Cost ₹1,00,000 | Market Value ₹90,000 | Decline is permanent

Journal Entry:

```

P&L A/c Dr 10,000

To Provision for Diminution A/c 10,000

(Being permanent decline in long-term investment recognised)

```

Balance Sheet:

```

Investment A/c ₹1,00,000

Less: Provision (10,000)

Net ₹90,000

```

### Example 3

Example 3 — Mixed Portfolio (Q2 from class)

Investment in equity shares:

Cost: ₹3,00,000 | Market Value: ₹1,00,000 | Decrease: ₹2,00,000

	If Current	If Long-term (permanent decline)
Entry	P&L Dr ₹2,00,000 / To Investment ₹2,00,000	P&L Dr ₹2,00,000 / To Provision ₹2,00,000
Revised Carrying Amount	₹1,00,000	₹1,00,000 (net of provision)

### Example 4

Example 4 — Miscellaneous Assets (Page 5 of notes)

Asset	Cost	MV	Category	Carry At
Shares	₹2,50,000	₹2,25,000	Current	₹2,25,000 (MV)
Shares	₹2,50,000	₹2,25,000	Long-term (temporary decline)	₹2,50,000 (cost)
Shares	₹2,50,000	₹2,25,000	Long-term (permanent decline)	₹2,25,000 (provision created)
Gold	₹4,00,000	₹6,00,000	Long-term (assumed)	₹4,00,000 (cost; appreciation not recognised)
Silver	₹2,00,000	₹3,50,000	Long-term (assumed)	₹2,00,000 (cost)

⚠️ Common exam mistakes

Applying the 'permanent decline only' rule to current investments — for current investments, ANY decrease (even temporary) must be recorded.
Directly reducing the Investment account for long-term permanent declines — the correct treatment is to credit a separate 'Provision for Diminution in Value of Investment' account, not the investment directly.
Recognising unrealised appreciation on long-term investments — appreciation is ignored under AS 13 (cost model); only declines are recorded.
Assuming Gold and Silver are current investments — unless stated otherwise, always treat them as long-term.
Treating a market dip as 'permanent' without evidence — temporary fluctuations do not trigger write-downs for long-term investments.

Bare-Act text Paras 7, 8, 19, 20 · AS 13 — Accounting for Investments (ICAI) · click to expand

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. The carrying amount for current investments is the lower of cost and fair value. 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. The reduction in carrying amount is charged to the profit and loss statement.

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