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For an associate and subsidiary company, will the profit?

This is a simple answer and like most simple answers there will be exceptions. But generally: The Parent company must prepare two sets of accounts. The first set is its own accounts that excludes all income from subsidiaries and associates unless dividend or some other legally enforceable income is received from them (such as interest on a loan from the Parent to the subsidiary or associate). This set is known as the Financial Statements of [name of Parent] Company. The second set is based on the first set and adjusted for the subsidiary and associate. This set is known as the Consolidated Financial Statements of the Group. For accounting purposes we do not use the terms subsidiary or associate in determining treatment but the word control. If you control an entity (even if you own less than 50% of the shares) the accounting treatment is to consolidate that entitys accounts. If we assume that we control the subsidiary then we will consolidate the accounts of the subsidiary. To do so, we add the revenues of the subsidiaries to the revenue of the parent, the cost of sales, the expenses etc all the way down the P&L and adjust out any double counting. If we do not control the entity then for accounting purposes we need to ask if we own the shares for strategic reasons for merely as an investment for resale. Let us assume we do not control the associate and it is a strategic holding. In which case we equity account for it and simple take our portion of profit and add it in as income from associates. However, if we intend to sell it, the associate will be held as an investment in the balance sheet and no income except for dividends or other legally enforceable income is recognized. As I noted there are exceptions including whether the associate is actually a joint venture and JV accounting treatment needs to be applied etc.

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