I know that if you have a subsidiary that has negative income (or losses) and you are using the equity method you don’t have to report a loss in the income statement… is it the same with consolidation and proportionate??? what happens with the investment account with a negative number??? does it stay the same or do we also have to reduce it…??? Thanks for the help…
JCM Wrote: ------------------------------------------------------- > I know that if you have a subsidiary that has > negative income (or losses) and you are using the > equity method you don’t have to report a loss in > the income statement… Not correct
can you help me then please?
With the equity method, losses flow through to the income statement until the balance sheet account reaches zero. Thereafter, you cease using the equity method (don’t ask me what happens next – I don’t think you need to know). When dealing with a consolidation (full or proportionate), there is no limitation in the amount of losses that flow through. Remember, this is a consolidation, and the subsidiary’s assets and liabilities no matter the amounts, are combined into the parent. JCM Wrote: ------------------------------------------------------- > I know that if you have a subsidiary that has > negative income (or losses) and you are using the > equity method you don’t have to report a loss in > the income statement… is it the same with > consolidation and proportionate??? > > what happens with the investment account with a > negative number??? does it stay the same or do we > also have to reduce it…??? > > Thanks for the help…
JCM Wrote: ------------------------------------------------------- > can you help me then please? You account for losses the same way you account for income: If the company reports a $100 loss and you own 20%, you report a negative $20. If your 20% was worth $500 in the company, and it continues to report loss year after year you will continue to report that loss until your $500 are reduced to zero. After that if they become profitable, (let’s say after reporting another $60 loss since your investment reduced to zero) you’ll wait until the gains offset those losses before beginning to report your share of those profits again. In consolidation you just combine I/S and B/S of the sub. Whether they have gains or losses.
ok got it so just to confirm you will recognize a loss in the income statement until the investment value gets to zero… after that you don’t do anything… with the other methods you just recognize the loss every year…??
ok got it now… thank you Iginla and Robert!!!