An associate company (or associate) in
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
and
business valuation Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing t ...
is a company in which another company owns a significant portion of voting
shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
, usually 20–50%. In this case, an owner does not consolidate the associate's financial statements. Ownership of over 50% creates a
subsidiary
A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...
, with its financial statements being consolidated into the parent's books. Associate value is reported in the
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
as an asset, the investor's proportional share of the associate's income is reported in the income statement and
dividend
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...
s from the ownership decrease the value on the balance sheet. In Europe, investments into associate companies are called fixed financial assets.
Associate value in the
enterprise value Enterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value of a business (i.e. as distinct from market price). It is a sum of claims by all claimants: creditors (secured and unsecured) ...
equation is the reciprocate of
minority interest
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 5 ...
.
Under the UK
Companies Act 2006
The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law.
The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...
, two companies are "associated" if one company is a subsidiary of the other or both are subsidiaries of the same body corporate.
Companies Act 2006
section 256
References
External links
Basis of Consolidation
Corporate law
Mergers and acquisitions
Financial accounting
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