Equity shares shown under "Inventories"

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385 Points Joined June 2021

There are 2 companies (both are run by a single family ). The Pvt Ltd Co 's MOA/AOA permits investment / trading in securities. The other one-Unlisted Public Ltd Co has coffee gardens.

The Pvt Ltd co holds 20% shares in the Unlisted Public Ltd Co over 5 years- but  not being traded - as outsiders are not permitted to subscribe.

This Pvt Ltd co is showing this holding " equity shares in ...." under Inventories and not under Investment.

Is it correct? As Family will never allow outsiders, this shares will never be sold out to external persons.

Please guide vis a vis AS, etc

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On 20 September 2024 at 14:40 Report
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Master in Accounts & high court Advocate
9055 Points Joined December 2011

It appears that the Pvt Ltd Co is incorrectly classifying the shares of the Unlisted Public Ltd Co as "Inventories" instead of "Investments". Since the shares are held for more than 5 years and are not being traded, it's likely that they should be classified as long-term investments. As per Accounting Standards (AS) 13, "Accounting for Investments", investments should be classified as: - Current Investments (if intended to be sold within 12 months) - Long-term Investments (if not intended to be sold within 12 months) In this case, since the shares are held for more than 5 years, they should be classified as Long-term Investments. Additionally, as the Pvt Ltd Co has a significant stake (20%) in the Unlisted Public Ltd Co, it's likely that they have significant influence over the latter company. This may require consolidation of financial statements or disclosure of related-party transactions. It's essential to consult a chartered accountant or financial expert to ensure accurate classification and compliance with accounting standards and regulatory requirements. Also, since both companies are run by the same family, it's important to ensure that related-party transactions are properly disclosed and conducted at arm's length to avoid any potential conflicts of interest or tax implications.

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On 21 September 2024 at 16:12


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