Equity accounting method is mandatory for certain investments

An associated
enterprise is one over which the group exercises signifcant
infuence and which is neither a subsidiary nor a joint venture
(German Accounting Standard 8). This is deemed to be the case
when the reporting company holds more than 20% of the voting
rights in a company. Under the equity accounting method, the
interest in the associated enterprise is accounted for at book val-
ue in the records of the parent company at the primary appraisal.
The difference between the book value and the pro-rata equity
of the associated enterprise must be disclosed in the notes to
the consolidated financial statements.

The effects of updating
the disclosed differences and the proportional movements in the
associated company’s equity in the following years are either
debited or credited to the investment account in the books of the
parent company.