Jayanta Bandyopadhyay 20 September 2024

Holding equity shares shown under "inventories"

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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1 Replies

T. Kalaiselvan, Advocate (Advocate) 20 September 2024

A company's investment in another company is recorded as an asset on the balance sheet, not as inventory. The equity method of accounting is used to record the investment on the balance sheet and income statement:

The investment is recorded at its historical cost, and then adjusted based on the investor's percentage of ownership.

The investor company records any profit or loss from the investment as profit or loss to the company itself

The equity method is used when a company has a significant investment in another company, usually 20% or more. This is because the investor has some degree of influence over the company's performance, profit, and decisions