Negative investment balance treatment in consolidation financial statement


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Dear All Accountants,

I just wanna ask about the best practice treatment of negative investment balance in consolidation financial statement.
it happens because accumulated loss which made retained earnings became debit balance and finally the equity position became debit balance. As we know when we absorb the loss that arise from subsidiary, it will reduce the investment balance.
Now, my investment balance became negative, so what's the best practice for this chase and what the accounting standards should i refer?

Thank you
 
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kirby

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When the investment account hits zero, you are to stop using equity method.
 
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When the investment account hits zero, you are to stop using equity method.
Thanks you so much Kirby for your information.
Even it's consolidated subsidiary? so i have to deconsolidation its subsidiary?
maybe can you share to me the rules for my reference, like IFRS, GAAP or another rules for negative investment threatment

Thanks,

Rizki
 

kirby

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Hi
You can see this laid out crystal clear in the old Accounting Principals Board statement 18 (APB 18) "The Equity Method Of Accounting for Investments in Common Stock". Where that is now in the revised and compacted standards I don't know. Anyway in APB 18 see Paragraph 19(L).

And you do NOT deconsolidate the sub. Just leave it there. If it starts to earn profit again you may get to where you can again apply equity method - but read APB 18 and look for its modern citation.
 
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Hi
You can see this laid out crystal clear in the old Accounting Principals Board statement 18 (APB 18) "The Equity Method Of Accounting for Investments in Common Stock". Where that is now in the revised and compacted standards I don't know. Anyway in APB 18 see Paragraph 19(L).

And you do NOT deconsolidate the sub. Just leave it there. If it starts to earn profit again you may get to where you can again apply equity method - but read APB 18 and look for its modern citation.
Ok, Kirby. from your explaination, i still have to consolidating aset, liability, and income statement account in my consolidation working paper, right? but i have to stop making entries of investment journal e.g (absorb net income) and elimination journal right? no entries required related to invesment until its profit again. just calculating and combining holding company trial balance and my subsidiary trial balance.

or maybe can you give me simple an illustration ?
 

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