accounts demystified The new rules are considerably more complicated, as investments have to be put into one of several different categories, each of which is treated in a different way. The key difference from the old rules, however, is that many investments are included on the balance sheet at fair value. So if the value of the investment rises in a year, you show it on the balance sheet at that new value and recognise a profit? That is, Increase investments, Increase retained profit? Correct. I'll come on to how we actually show the profit shortly. Associates and subsidiaries Many companies carry on a large percentage of their business through investments in other companies. This may be because they have bought the companies (in total or just substantial stakes in them) or because they have started new businesses through separate companies. The way we account for investments means that you wouldn't get a very meaningful picture of such an investor company. We therefore define certain investments as either associated under- takings or subsidiary undertakings. They are usually just known as associates and subsidiaries and there are special rules by which we account for them. So how are associates and subsidiaries defined? The rules are actually quite complex, but very generally: A company is a subsidiary of yours if you own more than 50 per cent of the voting rights or you are able to exert a dominant influence over the running of that company. A company is usually an associate of yours if it is not a subsidiary, but you exert a significant influence over the company. If you own 20 per cent or more of the voting rights of a company, you would normally be consid- ered to exert significant influence over it but this threshold is determined on a case-by-case basis. Let's now look at how we account for each of these in turn. 106