Investment accounting

Hi Friends

the post is relating to Investment accounting.  Since the current investment/stock in trade is valued at lower of cost or market value, which ever is less. 

Question:  Cost Rs.100  ,  Market price Rs.95

In the above case market price is lower than the cost,  kindly advise me which accounting entry was correct at the time of valuation of investment as on 31st March.

1.   Profit & Loss account a/c    Dr       5                       

        To   Investment account                 5                              

 2.  Profit & Loss account a/c   Dr        5

To      Provision for reduction in investment a/c     5

IF NO.1 is correct, then opening balance of investment is Rs.95 or Rs.100

If No.2 is correct, then MTM loss of Rs.5 (provision for reduction in investment) is allowed in income tax

Thanks

 

M.MAHESH

 

 

 

Replies (1)

The As -13 say about two type of investment accounting

1.if investment is long term in nature and there is only tempory downfall in price then it show only on cost price even mkt value is down .but when down is due to permant reason like companies than it show in mkt price.

2.short term investment is always show in cost or net realises value which ever is less.

So in ur question  u should depend upon on nature of investment.

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