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In Europe, investments into associate companies are called fixed financial assets. Associate value in the enterprise value equation is the reciprocate of minority interest. Under the UK Companies Act 2006, two companies are "associated" if one company is a subsidiary of the other or both are subsidiaries of the same body corporate. [1]
Equity method in accounting is the process of treating investments in associate companies.Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company, and therefore has significant influence on the latter's management.
In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation.The magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding shares, or the corporation would generally cease to be a subsidiary of the parent.
Value of associate companies is subtracted because it reflects the claim on assets consolidated into other firms. EV should also include such special components as unfunded pension liabilities, employee stock options, environmental provisions, abandonment provisions, and so on since they also reflect claims on the company.
A consolidated financial statement (CFS) is the "financial statement of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity", according to the definitions stated in International Accounting Standard 27, "Consolidated and separate financial statements", and International ...
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The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account. Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date ...
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