Page 295 - F1 Integrated Workbook STUDENT 2018

Accounting for Investments in Subsidiaries and Associates

Accounting for investments

Entities will often invest in the equity of other businesses. The extent of the equity
shareholding will determine how the investment should be accounted for. The
accounting treatment applied for investments is intended to reflect the importance of
the investment in the financial statements of the investing entity and how the future
performance and financial position might be affected by these investments. It follows
then that the greater the level of investment, the more detailed the financial
information will be. A significant investment in another entity may require additional
financial statements to be produced.

When an entity buys shares in another entity paying cash, the investing entity will
account for the investment as follows:

Dr Investment

Cr Cash

This investment can be seen in the non-current asset section of the parent's
statement of financial position.

The investment may not be for cash, it may be a share exchange. In this situation we
would credit the nominal value of the shares issued to the share capital account and
the excess of the proceeds to share premium, instead of crediting the cash account.

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