1- losses in one group company might be masked by profits by others ? I don't understand the concept behind this can anyone please explain.

2- using of acquistion method why is that groups' equity will be less than the sum of individual companies' equaity ? someone again plz explain.


Thanks

In my understanding: group company comprises of many companies and sometimes in many different industries as well (diversification, M&A...). It is investors' (users of the accounts) interests to invest into one or many within the group but not all the group. Therefore if there is no properly disclosure and presentation in the retained earnings the users might be misled that the group is profitable while the subsidiaries are making losses.



Same as the above: group's equity comprises of all companies' equities, other reserves and retained earnings. However, if there are some subsidiaries making losses then total of the group's will be less than sum of individual companies's equities

Hope this help