What is the treatment of an associate's losses on the consolidated statements?

The treatment of an associate's losses in the consolidated statements involves recognizing these losses as a reduction in the carrying amount of the investment in the associate. Under the equity method of accounting, which is used for associates, the investor initially records the investment at cost. Subsequently, the carrying amount of the investment is adjusted to reflect the investor's share of the associate's profits or losses.

When the associate incurs losses, the investor reduces the carrying amount of the investment to reflect this decline in value. This accounting treatment acknowledges the investor's share of the associate's financial performance and helps present a more accurate picture of the value of the investment on the balance sheet. If the losses exceed the carrying amount of the investment, the investor would stop recognizing further losses unless it has obligations to fund the associate or has made commitments to support it.

This treatment ensures that the consolidated financial statements provide a faithful representation of the financial position and performance of the group, including the effects of the investor’s share of the associate's results. The other options either do not appropriately address the accounting treatment as prescribed by accounting standards or misrepresent the nature of losses in this context.