AS 13 (Accounting for Investments) is the Indian Accounting Standard that prescribes the recognition, measurement, and disclosure of investments in financial statements prepared under the Companies (Accounting Standards) Rules.

The Ministry of Corporate Affairs (MCA) notified AS 13 via the Companies (Accounting Standards) Rules, effective from 1 April 1995. It superseded the original ICAI standard issued in 1993 and remains mandatory for all non-Ind AS companies.

For FY 2026-27, mid-market companies using the AS framework commonly hold mutual funds and corporate bonds. The lower of cost or fair value rule for current investments ensures a conservative approach to balance sheet values.

AS 13 at a Glance

AS 13 establishes clear rules for classifying and measuring investments in Indian financial statements. Its primary users are finance teams and statutory auditors in companies not adopting Ind AS.

What is AS 13: Accounting for Investments?

AS 13 sets out how Indian companies must account for their investments, shares, debentures, mutual funds, by defining when to recognise them on the balance sheet and how to measure them over time. The standard distinguishes between current investments (short-term holdings measured at lower of cost or fair value) and long-term investments (measured at cost with provision only if there is an other than temporary decline).

ICAI introduced this standard to address inconsistencies in investment accounting before its adoption. The predecessor was ICAI's original guidance from the early nineties; convergence with international standards such as IFRS began only with Ind AS adoption. Under Ind AS, investment accounting shifted to a classification-driven fair value model.

Statutory auditors, company CFOs, CA students preparing for exams, and finance teams in non-Ind-AS companies use this standard most frequently.

Objective of AS 13

• Prescribe accounting for investments in financial statements and related disclosure requirements.
• Distinguish current investments from long-term investments based on intent and nature.
• Specify measurement bases - lower of cost and fair value for current investments; cost less other than temporary diminution for long-term investments.

These objectives ensure that Indian companies present a true and fair view of their investment holdings as required by Section 129 of the Companies Act, 2013. Reliable classification and valuation help users assess liquidity risk and capital strength while maintaining consistency across reporting periods.

Who Must Apply AS 13?

Entities covered, applicability table

AS 13 applies to all enterprises preparing financial statements under the Companies (Accounting Standards) Rules notified by MCA. This includes Level I/II/III entities as defined by ICAI:

Companies following Ind AS do not apply AS 13; instead they follow Ind AS 109 (Financial Instruments) and Ind AS 27 (Separate Financial Statements).

Scope exclusions

The following items are outside the scope of AS 13:

• Operating or finance leases (covered by AS 19).
• Investments held by mutual funds or venture capital funds governed by SEBI regulations.
• Investments held by banks and financial institutions governed by RBI regulations.

When the standard does not apply

Operating or finance leases are accounted under AS 19. Mutual funds/VCFs must comply with SEBI’s investment valuation rules instead of AS 13. Banks and NBFCs follow RBI’s specific investment classification norms rather than this standard.

Key Definitions under AS 13

Recognition and Measurement under AS 13

When to recognise

An entity recognises an investment when it obtains legal title or beneficial ownership, typically when it becomes party to contractual terms governing that asset. This could be on purchase date or transfer date depending on instrument type.

For example: Shares are recognised when transferred into the company’s demat account or physical register; debentures upon allotment letter receipt; mutual fund units when statement confirms allotment.

Initial measurement

At initial recognition, all investments are measured at cost. Cost includes purchase price plus directly attributable expenses such as brokerage fees, stamp duty, registration charges or transfer fees incurred during acquisition.

If an investment is acquired through exchange, say land swapped against equity shares, the recorded value will be either:

Cost = Fair value of asset given up

Or

Cost = Fair value of asset acquired

Whichever amount is more clearly evident should be used as per Para 9.

Subsequent measurement

Current Investments:

These are measured at each reporting date at lower of cost or fair value as per Para 14. The entity may determine this either individually per security or category-wise but must apply policy consistently each year.

If fair value falls below cost:

Carrying Amount = Lower(Cost, Fair Value)

Any reduction below cost is recognised immediately in profit & loss account as a loss on investment. If fair value rises above written-down amount but remains below original cost in subsequent periods, write-up is permitted only up to original cost but never above it.

Long-Term Investments:

Long-term holdings remain carried at historical cost unless there is evidence that decline in market value is “other than temporary” per Para 17:

Carrying Amount = Cost, Provision (if any)

Provision must be created through P&L if indicators suggest permanent impairment, such as prolonged losses by investee company or significant negative net worth where recovery appears remote.

If circumstances reverse later, a reversal up to original cost can be made but never exceeding it.

Reclassification:

When intent changes:

• From current → long-term: carry at lower of cost/fair value on reclassification date.
• From long-term → current: carry at lower of carrying amount/cost on reclassification date.

(Para 23)

Disposal:

On sale/disposal:

Gain/Loss = Sale Proceeds, Carrying Amount

Recognise gain/loss directly in P&L account.

Three-Way Classification - Current, Long-term, Investment Properties

AS 13’s hallmark lies in its three-way classification system:

• Current investments: Short-term holdings measured conservatively using lower-of-cost-or-fair-value principle.
• Long-term investments: Measured at historical cost unless there is “other than temporary” diminution, a judgemental test based on duration/magnitude/nature of decline.
• Investment properties: Land/buildings not used operationally are treated like long-term investments with similar impairment assessment.

This system contrasts sharply with Ind AS 109’s business-model driven approach which uses multiple fair-value categories even for long-held assets. While operationally simpler under Indian GAAP, it may delay recognition of unrealised losses compared to international practice.

Worked Examples on AS 13

Example 1: Current investment - LCM measurement

Narrative:

Sundaram Holdings purchased mutual fund units on February 1st 2026 for Rs 50 lakh intending short-term cash management. At March 31st 2026 market NAV was Rs 48 lakh; by April 30th NAV rose back up to Rs 51 lakh, but after year-end.

Computation Table

Journal Entry

31 March:

Dr Loss on Investment Rs 2 lakh / Cr Investment, Mutual Fund Rs 2 lakh

Next year if NAV recovers above Rs 48 lakh:

Dr Investment, Mutual Fund Rs 2 lakh / Cr Gain on Investment Rs 2 lakh

(but carrying amount cannot exceed original Rs 50 lakh)

Example 2: Long-term investment - other than temporary diminution

Narrative:

Maharashtra Industries holds unlisted equity shares in associate Krishna Plastics acquired at Rs 100 crore since FY20. By March 31st 2026 Krishna Plastics has suffered four years’ consecutive losses; net worth now negative; recovery prospects remote.

Computation Table

Provision likely needed up to full carrying amount i.e., Rs 100 crore if deemed permanently impaired.

Journal Entry

Dr Provision for Diminution in Investments (P&L) Rs 100 crore / Cr Investment in Krishna Plastics Rs 100 crore

If recovery occurs later:

Dr Investment in Krishna Plastics / Cr Provision, reversal limited up to original cost only

Disclosure Requirements under AS 13

Disclosures under AS 13 ensure transparency and comparability in line with Schedule III to the Companies Act, 2013. Entities must present clear information on investment classification, valuation methods, market values, and income. Proper disclosure enables users and auditors to assess the quality and risk of investment portfolios.

Statutory auditors must verify these disclosures for completeness and accuracy as part of their opinion under SA 700.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Misclassifying long-term investments as current (or vice versa) without consistent application of intent test
• Failing to provide for 'other than temporary' diminution in long-term investments
• Recognising unrealised gains on current investments (lower of cost and fair value precludes this)
• Treating temporary market fluctuations as 'other than temporary' for long-term investments
• Inadequate disclosure of quoted vs unquoted aggregates and market values
• Failing to reclassify when investment intent or nature changes

Industry application notes

For mid-market companies using the AS framework, common holdings include fixed deposits, mutual fund liquid schemes, and corporate bonds. AS 13’s lower-of-cost-or-fair-value treatment for current investments results in a conservative balance sheet presentation.

Holding companies often have significant balances in subsidiaries or associates measured at cost in standalone financial statements. During economic downturns, provision for diminution is frequently required.

Trusts and family offices applying AS standards benefit from operational simplicity in portfolio reporting. However, annual impairment assessment relies heavily on management judgement regarding “other than temporary” diminution.

AS 13 vs Ind AS 109 vs IFRS: Key Differences

The following table summarises how AS 13 compares with Ind AS 109 (Financial Instruments) and IFRS (IFRS 9 + IAS 27):

India’s carve-outs mean that non-Ind-AS companies use a simpler historical cost model with limited fair value measurement. Ind AS aligns more closely with IFRS but retains certain differences, such as the mandatory cost model for investment property under Ind AS 40, reflecting Indian regulatory preferences.

Latest Amendments to AS 13 (FY 2026-27)

No amendments have been notified to AS 13 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 109](/ind-as-109-financial-instruments/), Equivalent financial instruments standard for Ind AS-applicable companies; comprehensive classification model.
• [Ind AS 27](/ind-as-27-separate-financial-statements/), Investments in subsidiaries/JV/associates in standalone FS for Ind AS companies.
• [AS 21](/as-21-consolidated-financial-statements/), Consolidated financial statements - subsidiary investments in CFS.
• [AS 23](/as-23-accounting-for-investments-in-associates/), Investments in associates - equity method in CFS.
• [AS 27](/as-27-financial-reporting-of-interests-in-joint-ventures/), Joint ventures - proportionate consolidation in CFS.

Need Help with AS 13 Compliance?

Patron Accounting LLP supports companies across India with all aspects of investment accounting under AS 13. Our team ensures accurate classification, measurement, and disclosure per Schedule III requirements, reducing audit risks.

Our services include:

• Statutory Audit
• Financial Reporting & Schedule III compliance
• Disclosure Review
• Ind AS Advisory

Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.

About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation