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).
A detailed consolidation model of financial statements is a complex accounting topic and is out of scope in this article.
The company would not be able to report its share of Saks' earnings, except for the dividends it received from the Saks stock.
The asset value of the investment would be reported at the lower of cost or market value on the balance sheet. If Federated purchased 10 million shares of Saks stock at $5 per share for a total cost of $50 million, it would record any dividends received from Saks on its income statement, and add $50 million to the balance sheet under investments.
The relative size of ownership (generally, more than 50 percent of shares) is the key factor in assessing existence of control.
However, in certain circumstances, under effective control concept control may exist with less than 50 percent of ownership.
On the other hand, if the stock dropped to $2.50 per share, thus reducing the investments to $25 million, the balance sheet value would be written down to reflect the loss of a deferred tax asset established to reflect the deduction that would be available to the company if it were to take the loss by selling the shares.