For VIEs, a qualitative model is applied that focuses on the assessment of possession of controlling financial interest.According to the model, control is considered to exist if an entity has power to direct activities of a VIE that most significantly impact the VIEs economic performance (power criterion) and receives benefits or suffers losses from the VIE (losses/benefits criterion).In such a case, any other variable interest determines consolidation decisions.
For instance, if one party owns 30 percent of common stock and the remaining shares of the company are spread out among a large number of small investors, then that party would be considered to have an effective control over the company even though the party has less than 50 percent of voting shares.
Moreover, in practice investors may possess an equal number of shares (50-50 percent or near).
Consolidation takes place when a company includes financial information of the companys investee.
Typically, consolidation should take place when the company exercises control over the investee. All entities are classified into VIEs (variable interest entities) and non-VIEs.
Only dividends paid on the Saks shares would be shown as dividend income (which is, actually, added to total revenue or sales in most cases).
Unless you delved deep into the company's 10-K, you may not even realize that the Saks dividend income is included in total revenue as if it were generated from sales at Federated's own stores.
If Federated owned 65% of Saks, it would report the entire 0 million in profit, and then include an entry labeled minority interest that deducted the million (35%) of the profits it didn't own.
Equity method in accounting is the process of treating investments in associate companies.
In some cases, it's possible for millions of dollars in profit not to be reported on the income statement due to the rules! Drazen_/Getty Images To understand what Minority Interests on the Income Statement is, let's take a look at the following example.