Investments in subsidiaries and associates are recognized at cost adjusted for any impairment.
Any positive difference, arising on acquisition, between the acquisition cost and the acquirer’s share of the shareholders’ equity of the investee company at current values is therefore included in the carrying value of the shareholding.
Investments in subsidiaries and associates are subjected to an impairment test every year, or if necessary even more frequently, to check for any losses in value. Where there is evidence that the investments have lost value, the impairment loss is recognized in the income statement as a write-down.
In the event of the company’s share of the losses of the investee company exceeding the carrying value of the investment, and when the company is obliged to or wishes to respond, then the value of the investment is reduced to zero and the company’s share of any further losses is recognized as a provision in the liabilities. Should the loss in value subsequently cease to exist or become reduced, the value is restored with the amount recognized to the income statement within the limit of its cost.