To understand what Minority interests are in the profit and loss account, let’s look at the following example. As Federated Department Stores, the owner of Lucy’s and Glooming Gwen, five percent of Hask bought Wireline Avenue, Inc., common sense tells us that Federated would be entitled to five percent of Hask’ profits. How would Federated report their share of Hask’ earnings on their income statement? It depends on the percentage of company shares with voting federated ownership. An explanation over at thequeens.net
The company would not be able to report its share of Hask’ earnings, except for the dividends it stocked from the Hask. The net asset value of the investment will be reported at the cost price or lower market value on the balance sheet. What does that mean?
If Federated purchased 10 million shares of Hask stock at $ 5 per share for a total amount of $ 50 million, it would include the Hask dividends in the income statement, and add $ 50 million to the investment balance sheet.
If Hask rose to $ 10 per share, the 10 million shares would be worth $ 100 million ($ 10 per share x 10 million shares = $ 100 million). The balance sheet will be adjusted in connection with $ 50 million in unrealized gains, minus a deferred tax deduction for the tax that would be payable if the shares were sold.
On the other hand, if the share dropped to $ 2.50 per share, bringing investments to $ 25 million, the balance sheet value would be written down to reflect the loss of an established deferred tax asset reducing the deduction that would be available for it reflect company as it was to take the loss through the sale of the shares.
The point is, the income statement would never show the five percent of Hask’ annual profit that belonged to Federated. Only the dividend paid on the Hask shares would be shown as dividend income (that is, in fact, added to total sales or sales in most cases). Unless you delve deep into the 10-K, you can’t even realize that the Hask dividend income is included in the total revenue from the sale at Federated’s own stores.
In most cases, Federated would report a single entry line on their income statement to take their share of Hask’ earnings. For example, if Hask earned $ 100 million and the Federal owned 30 percent, they would include a line in the income statement for $ 30 million in revenue (30% of $ 100 million), even if this income was never paid as a dividend (meaning she never actually saw $ 30 million).
With the consolidated method, Federated would be required to include all of Hask’ income, expenses, taxes, and profit in the income statement. It would then include a mention that the percentage of business is not deducted itself. If Federated owned 65% of Hask, it would report the entire $ 100 million profit and then have an entry called minority interest that it deducted $ 35 million (35%) of the profit that it did not itself.