Question ID: 2170
Regulation Reference: Guidelines on treatment of related undertakings, including participations
Topic: Own Funds (OF)
Article: N/A
Status: Final
Date of submission: 30 Jul 2020
Question
My question is related to the valuation under the equity method of an non financial participations which is dedicated to the development of computer applications for the parent company. Therefore, when I calculate the value of the invested company, eliminating the value of the intangibles, I obtain negative own funds, and lower than the book value of the invested company in the parent company. The question is relative to whether the parent company has to value the invested company in its economic balance sheet at 0 or has to consider a negative value of its invested company in the economic balance sheet.
EIOPA answer
Article 13 of the Commission Delegated Regulation (EU) 2015/35 states the valuation methods for related undertakings.
In the example, the valuation under the equity method is used and the calculated value of the participation is negative.
As a result, the parent undertakings shall not value the invested company at 0 but has to consider the negative value of its invested company as a liability.