Help On Technical Question
This is a question on 'net income attributable to equity interest'. So given a 20%-50% ownership of a company, you would not consolidate the financial statements but you would add a line item of 'net income attributable to equity interest'. I'm having a hard time conceptually understanding where this net income is generated from in the process of ownership, if you don't apply/consolidate their financial statements at all.
Is it just income generated through dividends? If so how is it recorded on the cashflow statement and balance sheet.
Del
So what you're referring to is generally known as income from associates. The idea is that you hold a significant minority equity stake in a company and as such are entitled to a share of profits from that company.
The profits are generally booked under the equity accounting method, where the P&L recognises an income item of the proportion of net income due to the company. If the company owns 30% of the business, then the income is 30% of the associate's net income. The asset item on the balance sheet also recognises an increment of the same amount. The opposite is true for losses as well.
However, the company isn't really receiving that 30% in cash, so there will be a reversal on the cash flow statement in the operating activities section to reflect that.
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