What is meant by "investment in subsidiary"?

The term "investment in subsidiary" specifically refers to the ownership of the voting stock of a controlled company. This scenario arises when a parent company holds enough shares in another company (the subsidiary) to exert control over its operations and decision-making processes, usually defined as owning more than 50% of the voting shares. This ownership grants the parent company the ability to consolidate the financial results of the subsidiary with its own, thereby reflecting the subsidiary's assets, liabilities, revenues, and expenses within the parent company's financial statements.

This relationship is pivotal in accounting as it allows for the consolidation of financial statements, providing a clearer picture of the overall financial health and performance of the parent company when combined with its subsidiaries. This distinction sets it apart from other types of investments, such as holding shares in publicly-traded companies without control, government bonds, or positions in financial derivatives, which do not confer the same level of influence or integration in financial reporting.