Dear users,

I feel a little bad introducing heavy traffic to this website, this now being my second question in two days!

However, as always, any insight would be deeply apreciated.

The question is as follows:

Are the historical costs/fair value of associated companies (ownership of 20-50%) included in the balance sheet (i.e. in non-current financial assets?)

Their profits/losses are included in the income sheet and I am under the impression their purchase price above book value is included in the goodwill line section of the balance sheet.

I would have thought the historical cost of purchasing associated companies would be on the balance sheet? Is this so?


Many thanks for your help and time.

Kind regards,

Alex

Taking historical cost in balance sheet is very important. Had it been the case that we are allowed to take the Current price for the asset, there would have been ample scope of manipulation with the cost by the companies . Also when we take the historical cost, we justify it by charging the deprecition in the Profit and Loss account which ultimately indirectly reduce the profit to certain extent which we might have earned through an accountable investment i.e the difference between market price and Historical price of an asset.
I hope my answer would satisfy your query...

Thanks for the message.

Would you also be able to confirm whether associated companies are actually included in the balance sheet. I am under the impression that only subsidiaries (>50% interest) are included in the balance sheet (i.e. in a consolidated financial statement).

However, where would all the value put in associated companies be? It must also be included the non-current assets section?

Many thanks.

Alex

Hello,

With regards to the kind user who responded my initiall question I can say the following:

Equity securities with less than a 20% holding (and debt securities) are recorded at fair value and are included in the current or non current assets section of the balance sheet dependent on whether they are regarded as tradable or available for sale marketable securities (generally, the latter can also be in current assets if felt appropriate by management).

Regarding associated companies (generally 20-50% holding), they are as mentioned earlier recorded at historical cost using the equity accounting method. Hence at each period the investor treats his proportion of total earnings as his own, which is recorded on the income statement as an associated companies gain/loss. On the balance sheet there is aline entry that informs readers of investment in associates, more details are genrally provided in the footnotes.

Alas, now a happy bunny!

Thanks everybody