If an associate incurs losses the investor is required to:

Question

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When an associate incurs losses, the investor is required to recognise losses to the point where the carrying amount of the investment is zero. This means that the investor will need to adjust the carrying value of the investment downward until it reaches zero, reflecting the total loss of the associate. It is worth noting that this approach may result in the investor having a negative equity balance in the associate, which is not uncommon in practice. Therefore, recognizing losses to the point where the carrying amount is equal to the initial investment (Option B) is incorrect. Option A is also incorrect because ignoring the losses is not in line with the equity accounting method. Option D is not relevant as reclassifying the investment as a current asset would not resolve the issue of incurring losses.

If an Associate Incurs Losses the Investor Is Required To