1 Groups and consolidation: an overview

consolidated accounts 
of P Co, equity accounting principles will be used to account for the 
investment in A Co.
Instead of showing the dividend received, the consolidated statement of profit or loss will include the 
group's share of A Co's net profit for the year (25% 

$24,000 = $6,000), which is shown before group 
profit before tax.
The consolidated statement of financial position will include the asset 'Investment in associate', 
calculated as follows.
$
Cost of investment in associate 
60,000 
Share of A's profit for the year 
6,000 
Less dividend received 
(1,500) 
Investment in associate 
64,500 
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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
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In the following year, the share of A's profit is $6,500 and no dividend is received. The figure for
'Investment in associate' in the consolidated financial statements will be calculated as follows.
$
Investment in associate b/f 
64,500 
Share of A's profit for the year 
6,500 
Investment in associate c/f 
71,000 
3.2.5 No consolidated accounts 
Equity accounting is available for consolidated accounts and individual accounts. A company only has to 
prepare consolidated accounts if it has one or more subsidiaries. If a company has no subsidiaries, then 
it is not required to prepare consolidated accounts and so any investments in associates can be 
accounted for as an investment at cost or by using the equity method, in the parent company's individual 
accounts. 
3.3 Trade investments 
A 
trade investment
is a simple investment in the shares of another entity that is not an associate or a 
subsidiary.
A trade investment is a simple investment in the shares of another entity, that is held for the accretion of 
wealth, and is not an associate or a subsidiary.
Trade investments are simply shown as