What happens to the carrying amount of an investment in an associate once it is reduced to zero?

When the carrying amount of an investment in an associate is reduced to zero, it indicates that all the initial investment has been expensed due to accumulated losses. According to accounting standards, particularly the International Financial Reporting Standards (IFRS), once the carrying amount reaches zero, the investor will not recognize any further losses from that associate. This is rooted in the principle that the investor should not report a negative asset position.

At this point, the investor's obligation is limited to its initial investment, and it cannot recognize additional losses that exceed the investment amount. This restriction applies until there is evidence that the associate has become profitable again or any further contributions are made, which might allow the recognition of previously unrecognized losses. Therefore, the carrying amount being reduced to zero serves as a cap on the investor's liability in terms of losses related to that investment.

The other options are not aligned with accounting standards regarding investments in associates. For example, the recognition of additional losses after the carrying amount is zero is not permissible, and there isn't a provision for indefinite carryforward of losses once the investment is fully accounted for. The investment does not require reevaluation just because it reaches zero; that happens under specific circumstances such as an impairment review or a significant change in the underlying