Question

Please provide a complete summary for the question below with an example.

1. Describe the computation of non-controlling interest share for an 80% owned subsidiary with both preferred and common stock outstanding.

Answer 1

Let us assume A Ltd purchased 80% of common stock and 40% of preference stock of B Ltd for $ 280,000. The balances outstanding as on the date of acquisition were: Common Stock $ 200,000; Preference Stock $ 100,000; Retained Earnings $ 100,000.

So,

Computation of Non-controlling Interest ($)

Share in Preference Stock (ie, 100,000*(100-40)%)	60,000
Share in Common Stock (200,000*(100-80)%)	40,000
Share in retained Earnings (100,000*(100-80)%)	20,000
Total Non-controlling Interest	120,000

We can absence that even though non-controlling interests hold majority of preference stock (60%) they still are grouped as no controlling rights as preference shareholders do not have voting rights. Thus we consider only common stock for determining the ownership.