When the parent is obligated to invest additional funds in a subsidiary that is reporting losses, the parent stops applying the equity method when the subsidiary's equity becomes negative.

Question

Quizplus · Accepted Answer

The parent continues to apply the equity method even if the subsidiary's equity becomes negative, recognizing losses to the extent of the parent's interest in the subsidiary, including any long-term interests that, in substance, form part of the net investment in the subsidiary.

When the Parent Is Obligated to Invest Additional Funds in a Subsidiary