Advanced AccountingQuestion 5304 of 305
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7. How will you recognize the reduction in the value of the investments in the financial statements for the year ended 31st March 2024 as per AS 13 (Revised)?

Options

AThe reduction of ` 50 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
BThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
CThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ` 75 Lakhs in the carrying value of long-term investment will also be charged to the profit and loss account.
DThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ` 75 Lakhs in the carrying value of long-term investment will also be charged to capital reserve account.
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Correct Answer

✅ Option C — The reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ` 75 Lakhs in the carrying value of long-term investment will also be charged to the profit and loss account.

All Options:

  • AThe reduction of ` 50 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
  • BThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
  • CThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ` 75 Lakhs in the carrying value of long-term investment will also be charged to the profit and loss account. ✓
  • DThe reduction of ` 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ` 75 Lakhs in the carrying value of long-term investment will also be charged to capital reserve account.

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Detailed Solution & Explanation

Under AS 13 (Accounting for Investments):
1. Current Investments: Valued at the lower of cost and fair value. Cost is ‘ 100\displaystyle `\,100 lakhs, fair value is ‘ 25\displaystyle `\,25 lakhs. The reduction of 100−25=‘ 75\displaystyle 100 - 25 = `\,75 lakhs must be charged to the Profit & Loss Account.
2. Long-term Investments: Valued at cost. However, when there is a decline in value which is other than temporary, the carrying amount is reduced. Since Rose Ltd. lost a copyright and it is not temporary, the reduction of 100−25=‘ 75\displaystyle 100 - 25 = `\,75 lakhs must be charged to the Profit & Loss Account.
Hence, **Option C** is the correct answer.

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