Hello, according to the current accounting standards for business enterprises, the accounting of subsidiaries by the parent company is carried out according to the cost method, which means that the losses of subsidiaries do not need to be reflected in the separate account books of the parent company. However, if the subsidiary suffers serious losses or even is insolvent, the parent company needs to consider drawing long-term investment impairment reserves on its single book.
When the losses of subsidiaries are too large, the parent company faces three choices when preparing consolidated financial statements:
1. Divide the excess losses of subsidiaries between the parent company and minority shareholders according to the shareholding ratio;
2. All excess losses of subsidiaries shall be borne by the parent company;
3. Do not confirm the excess losses of subsidiaries that the parent company should share according to the shareholding ratio.