The sale of shareholdings can give rise to differences between their purchase cost and their redemption value, which need to be analyzed from an accounting and tax perspective. Some shareholdings, in fact, can be evaluated through the equity method, rather than through the cost method. The equity value provides that the value of the shareholding is systematically modified to include the results of the subsidiary in the financial statements of the parent company.
Art. 2424 of the Italian Civil Code provides that the assets in the balance sheet include a distinct entry for “shareholdings, securities and derivative financial instruments”, depending on whether they are financial fixed assets for the company. With reference to both fixed assets and current assets, shareholdings must be further distinguished basing on how strong the participation is (subsidiary companies, associate companies, and other).
In compliance with art. 2426, evaluation methods of fixed financial assets are different from those of non-fixed financial assets. In fact, while the former must be entered at their purchase cost and adjusted downward in case of lasting impairment losses, totally or partially restoring the cost, should the reasons underlying the adjustment fail. Moreover, fixed assets in subsidiary and associate companies can be evaluated through the equity method, besides the cost method.
On the other hand, securities and shareholdings that do not represent fixed assets must be evaluated at the lower between the cost and the realization value inferable from the market trend. Even in this case, writedowns must be annulled if the reasons that originated them fail at a later time.