In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding shares, or the corporation would generally cease to be a subsidiary of the parent.[1]
It is, however, possible (such as through special voting rights) for a controlling interest requiring consolidation to be achieved without exceeding 50% ownership, depending on the accounting standards being employed. Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders.
The reporting of 'minority interest' is a consequence of the requirement by accounting standards to 'fully' consolidate partly owned subsidiaries. Full consolidation, as opposed to partial consolidation, results in financial statements that are constructed as if the parent corporation fully owns these partly owned subsidiaries; except for two line items that reflect partial ownership of subsidiaries: net income to common shareholders and common equity. The two minority interest line items are the net difference between what would have been the common equity and net income to common, if all subsidiaries were fully owned, and the actual ownership of the group. All the other line items in the financial statements assume a fictitious 100% ownership.
Some investors have expressed concern that the minority interest line items cause significant uncertainty for the assessment of value, leverage and liquidity.[2] A key concern of investors is that they cannot be sure what part of the reported cash position is owned by a 100% subsidiary and what part is owned by a 51% subsidiary.
Under the International Financial Reporting Standards, the non-controlling interest is reported in accordance with IFRS 5 and is shown at the very bottom of the Equity section on the consolidated balance sheet and subsequently on the statement of changes in equity. Under US GAAP minority interest can be reported either in the liabilities section, the equity section or, preceding changes to acceptable accounting standards, the mezzanine section of the balance sheet. The mezzanine section is located between liabilities and equity. FASB FAS 160 and FAS 141r significantly alter the way a parent company accounts for non-controlling interest (NCI) in a subsidiary. It is no longer acceptable to report minority interest in the mezzanine section of the balance sheet.
Minority Interests on the Income Statement—The Cost Method, Equity Method, and Consolidated Method
Minority Interests on the Balance Sheet
April 09, 2024
minority, interest, accounting, minority, interest, controlling, interest, portion, subsidiary, corporation, stock, that, owned, parent, corporation, magnitude, minority, interest, subsidiary, company, generally, less, than, outstanding, shares, corporation, w. In accounting minority interest or non controlling interest is the portion of a subsidiary corporation s stock that is not owned by the parent corporation The magnitude of the minority interest in the subsidiary company is generally less than 50 of outstanding shares or the corporation would generally cease to be a subsidiary of the parent 1 It is however possible such as through special voting rights for a controlling interest requiring consolidation to be achieved without exceeding 50 ownership depending on the accounting standards being employed Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other non controlling shareholders Also minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders The reporting of minority interest is a consequence of the requirement by accounting standards to fully consolidate partly owned subsidiaries Full consolidation as opposed to partial consolidation results in financial statements that are constructed as if the parent corporation fully owns these partly owned subsidiaries except for two line items that reflect partial ownership of subsidiaries net income to common shareholders and common equity The two minority interest line items are the net difference between what would have been the common equity and net income to common if all subsidiaries were fully owned and the actual ownership of the group All the other line items in the financial statements assume a fictitious 100 ownership Some investors have expressed concern that the minority interest line items cause significant uncertainty for the assessment of value leverage and liquidity 2 A key concern of investors is that they cannot be sure what part of the reported cash position is owned by a 100 subsidiary and what part is owned by a 51 subsidiary Minority interest is an integral part of the enterprise value of a company The converse concept is an associate company Contents 1 Accounting treatment 2 See also 3 References 4 External linksAccounting treatment editUnder the International Financial Reporting Standards the non controlling interest is reported in accordance with IFRS 5 and is shown at the very bottom of the Equity section on the consolidated balance sheet and subsequently on the statement of changes in equity Under US GAAP minority interest can be reported either in the liabilities section the equity section or preceding changes to acceptable accounting standards the mezzanine section of the balance sheet The mezzanine section is located between liabilities and equity FASB FAS 160 and FAS 141r significantly alter the way a parent company accounts for non controlling interest NCI in a subsidiary It is no longer acceptable to report minority interest in the mezzanine section of the balance sheet See also editAssociate company the converse concept Articles of incorporation Business valuation Consolidation business Drag along right Equity method Pre emption right Share capital Tag along right Voting interestReferences edit http www groco com readingroom bus dloc mid aspx The Minority Interest Discount http eumedion nl en public knowledgenetwork position papers position paper full consolidation of partly owned subsidiaries requires additional disclosure pdf Position paper by corporate governance forum Eumedion External links editMinority Interest Minority Interest at Investopedia com Minority Interests on the Income Statement The Cost Method Equity Method and Consolidated Method Minority Interests on the Balance Sheet Retrieved from https en wikipedia org w index php title Minority interest amp oldid 872020668, wikipedia, wiki, book, books, library,
