Minority Interest in Annual Net Income 

Settings in the detail screen

Analogous to the posting of minority interest in investments and equity, the following selected items must be defined in the Minority interest detail screen for posting minority interest in annual net income:

This is only required when the appropriation of retained earnings is shown at the end of the income statement. The totals item is used to calculate the annual net income and is stored under the classification key GVW.

This is stored under the key MIG. Providing a corresponding FS item does not yet exist in the FS chart of accounts, it must be defined within FS Item Maintenance in the Implementation Guide, for example with the name "Annual net income allotted to external stockholders".

This is stored under the key MIS. It is used as an offsetting item when transferring minority interest in annual net income. If necessary, a corresponding FS item with suited name must be defined within FS Item Maintenance in the Implementation Guide.

The two FS items for minority interest must defined as income statement items. Note that these items are often not part of the "normal" income statement or statement of retained earnings, despite being marked as an income statement items. Instead they represent an "of which" clause.

This is stored under the key GVM. For further information, see also Management of Retained Earnings and Annual Net Income.

Settings for further selected items

In addition to this, the following selected items need to be created in the Implementation Guide step Consolidation ® Consolidation of Investments ® Maintain selected items

Store the item as a specifying item under the key BER. If a more detailed display of the investment income is required, you can create several items for investment income and then maintain these as specifying items under the same key.

All investment income, together with the corresponding adjustments (e.g. due to currency translation differences) are disclosed in the item(s).

Note that these items may only contain income from investment resulting from distribution of profits. The amounts must not result from a profit transfer which has reduced the annual net income.

Store this item as a specifying item under the key DAU. You have the option of specifying a certain transaction type. If you want to disclose the dividend distributions in more detail, you can create several items for dividend distributions and then maintain them as specifying items under key DAU.

Disclose all distributions in this item/these items.

Remember that these items may only contain distribution amounts.

Prerequisites for computing and posting minority interest in annual net income

  1. Correct maintenance of the selected and specifying items with classification keys BG, BER, DAU, ERG, GVM, GVW, MIG, MIS in the Implementation Guide.
  2. The selected items BG (retained earnings from balance sheet) and ERG (retained earnings from income statement) must have the same database value.
  3. If no database indicator is maintained for the retained earnings item in the Changes in Investee Equity table, the value entered there must correspond to the calculation base used to define the consolidation method. If, for example, the calculation base corporate valuation is chosen in the consolidation method, corporate valuation values must be set in the Changes in Investee Equity table.
  4. The distributions must be displayed separately and must not be shown in the balance of the profit/loss carried forward.
  5. The specifying items BER and DAU must only display investment income and distribution amounts

System procedure when stating appropriation of retained earnings at the end of the income statement

The system uses the following algorithm to calculate minority interest in annual net income:

 

Retained earnings based on Changes in Investee Equity table

(selected item BG)

-

Appropriation of retained earnings (totals item...

(selected item GVW)

 

eliminated distributions not taken into account)

(specifying item DAU)

-

Investment income from subgroup

(specifying item BER)

=

Adjusted annual net income

  

*

Rate of minority share

  

=

Minority share in annual net income

  

 

The calculated minority share in annual net income is posted to the item you have stored as a selected item under the key MIG. The offsetting entry is posted to the selected item MIS.

Correct calculation and posting depends on the following factors:

Example showing how the minority share is determined

Companies

A, B, C

  

Investment

A in B

80 %

Investment

B in C

75 %

Cash on hand

B

800

Revenue

B

500

Investment income

B from C

300

Annual net income

B

800

Retained earnings

B

800

Cash on hand

C

600

Revenue

C

1,000

Annual net income

C

1,000

Distribution

C

400 (300 of which to B)

Retained earnings

C

600

 

The following values result:

Minority interest (MI) in retained earnings

=

800 * 20% + 600 * 40 %

=

400

MI in annual net income

=

500 * 20% + 1,000 * 40 %

=

500

 

Income statement entries

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

Net sales

  

0 / 500 -

0 / 1,000 -

1,500 -

Investment income

BER

0 / 300 -

    
   

2 / 300

  

0

ANI total (totals item)

  

0 / 800 -

0 / 1,000 -

  
   

2 / 300

  

1,500 -

Distributions

DAU

  

0 / 400

  
     

2 / 300 -

100

Transfers to minorities

GVM

3 / 160

3 / 240

400

Retained earnings

ERG

0 / 800

0 / 600

  
   

3 / 160 -

3 / 240 -

1,000

         

 

Balance sheet entries

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

Cash

  

0 / 800

0 / 600

1,400

Retained earnings

BG

0 / 800 -

0 / 600 -

  
   

3 / 160

3 / 240

1,000 -

MI in ret. earnings

MIN

3 / 160 -

3 / 240 -

400 -

 

Posting minority interest in annual net income

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

         

MI in ANI

MIG

3 / 100 -

3 / 400 -

500 -

MI in ANI offset.item

MIS

3 / 100

3 / 400

500

 

Note:

System procedure when stating appropriation of retained earnings in the balance sheet

When stating retained earnings in the balance sheet, the annual net income and retained earnings are balance sheet items. This has the following ramifications:

The retained earnings effect must be posted at the distributing company, to ensure that the clearing of distributions and the retained earnings adjustment attain a zero balance after carrying forward the balances for the "Distributions" and "Annual net income" items.

Please note the following logic: a retained earnings adjustment is posted to the company initiating the posting when making entries with posting level 2.

The adjustment of the distributing company’s retained earnings is a prerequisite for the accurate calculation of ownership shares. The above posting logic is therefore mandatory.

The minority share of the total annual net income, including investment income from the other members of the group, is shown on the balance sheet for each company under the item "Minority interest in annual net income". This enables you to later on reconstruct the values of the balance sheet items "Annual net income" and "Minority interest in annual net income", even after the balances have been carried forward into new fiscal years. However, the following adjustment is necessary: In order to achieve the correct consolidated value when totaling the minority shares in annual net income for each of the subsidiaries, the difference between the direct minority share and the calculated (drilled-down) minority share of each subsidiary’s distribution must be deducted from the minority share in annual net income.

Users often like to disclose minority interest in annual net income on their reports without the investment income gained from the subsidiaries. Instead they want to state the minority shares the way they originally appeared for each company. The system achieves this by placing the adjusted minority shares onto the statistical items with classification keys MIG and MIS.

The following example illustrates the minority share calculations.

Example for determining minority shares

Companies

A, B, C

  

Investment

A in B

80 %

Investment

B in C

75 %

Sales

B

500-

Investment income

B from C

300-

Annual net income

B

800-

Retained earnings

B

800-

Sales

C

1,000-

Annual net income

C

1,000-

Distribution

C

400 (300 of which to B)

Retained earnings

C

600-

 

This results in the following values:

MI in RE

=

800- * 20 % + 600- * 40 %

=

400-

MI in ANI

=

500- * 20 % + 1000- * 40 %

=

500-

 

 

Income statement entries

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

Net sales

  

0 / 500 -

0 / 1,000 -

1,500 -

Investment income

BER

0 / 300 -

    
   

2 / 300

  

0

ANI total (totals item)

  

0 / 800 -

0 / 1,000 -

 
   

2 / 300

  

1,500 -

less MI in ANI

GVM

3 / 160

3 / 340

500

ANI (group)

ERG

0 / 800

0 / 1,000

  
     

2 / 300 -

  
   

3 / 160 -

3 / 340 -

1,000

         

 

Balance sheet entries

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

Cash

  

0 / 800

0 / 600

1,400

ANI (group)

BG

0 / 800 -

0 / 1,000 -

 
     

2 / 300

  
   

3 / 160

3 / 340

1,000 -

Distribution

DAU

  

0 / 400

  
     

2 / 300 -

 
     

3 / 100 -

0

Ret. earnings (tot. item)

  

0 / 800 -

0 / 600 -

 
   

3 / 160

3 / 240

1,000 -

MI in ANI

MIN

3 / 160 -

3 / 340 -

500 -

Min.share distribution

MIN

  

3 / 100

100

 

Statistical item entries

FS item

Key

Company B

Company C

Group

   

Level / Amount

Level / Amount

Level 0 to 3

MI in ANI

MIG

3 / 100 -

3 / 400 -

500 -

MI in ANI (offset.item)

MIS

3 / 100

3 / 400

500

 

Notes:

Accordingly, the minority disclosure is based on a minority share of 25 % in company C (direct share).