Question

Non-controlling interest (NCI) is the ownership interest of those shareholders who hold shares in a

subsidiary that are not owned by the immediate parent or the other group members.

Discuss the implication of reporting NCI as a separate item of owner’s equity.

Answer 1

When a controlling interest in a subsidiary is achieved, the consolidated method of accounting for share purchase is used. This method requires that many line items in the financial statements of the parent incorporate financial results of the acquiree, i.e. reflect a fictitious 100 percent ownership of the subsidiary. The parent must, however, maintain separate accounts on the balance sheet and income statement that track the value of the minority interest in the subsidiary, as well as its profit belonging to the minority owners.

Basically, the financials will be aggregated in the consolidated accounts of the parent company/majority shareholder.But separate accounts will have to be maintained of the non-controlling interest by the parent company.