The two entities will be sharing equipment therefore as costs cannot be easily differentiated any attempt to disagregate the entities would seem to me to only be for tax purposes which would cause issue.

As the owner see's them as seperate entities then I would prepare management accounts / KPI's on that basis but for financial accounting the safest option is to treat them as a single entity.

Others may argue that they could be treated as seperate entities and they would theoretically be right where the income streams can be shown to be totally seperate... But, to me that sounds as though it is simply asking for trouble further down the line. So the more risk averse accountant in me would decline a clients request for separation in this instance.

The final decision is of course down to the client based on the advice that you give. If they decide to treat separately then ensure that you are covered, in writing, that you advised against this action and have that signed by the client. That you request such may be enough of a warning for the client to back away from the idea.

It should also be noted that film production is a favourite for money laundering so whatever the businesses do they will be watched through a microscope. Legal cover and investigation insurance for the client would certainly be a good investment for them which fingers crossed they will never need but considering the type of entity and that they are asking you questions such as this I feel that it is more likely than not.

On the issue of it being a relative... Ill advised as it makes filing a suspicious activity report even more difficult.... I am assuming that you are registered for AML?