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In
accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compare with other ob ...
, 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 Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. They are distinguished from treasury shares, which are shares held by the corporation itself, thus represent ...
, or the corporation would generally cease to be a subsidiary of the parent. 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 In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...

balance sheet
of the owning company to reflect the claim on
assets In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as ...
belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated
income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''statemen ...
as a share of profit belonging to minority shareholders. The reporting of 'minority interest' is a consequence of the requirement by
accounting standards Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms opera ...
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.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' 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 valueEnterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value Market may refer to: *Market (economics) A market is a composition of system A system is a group of Interaction, intera ...
of a company. The converse concept is an
associate company An associate company (or associate) in accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or ...
.


Accounting treatment

Under the
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
, the non-controlling interest is reported in accordance with
IFRS 5 IFRS 5 refers to the International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and ...
and is shown at the very bottom of the Equity section on the consolidated
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...

balance sheet
and subsequently on the
statement of changes in equity A statement of changes in equity and similarly the statement of changes in owner's equity for a , statement of changes in partners' equity for a , statement of changes in shareholders' equity for a or statement of changes in taxpayers' equity for ...
. Under
US GAAP Generally Accepted Accounting Principles (GAAP or U.S. GAAP, pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. 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

*
Associate company An associate company (or associate) in accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or ...
(the converse concept) *
Articles of incorporation Articles of incorporation, also referred to as the certificate of incorporation or the corporate charter, are a document or charter that establishes the existence of a corporation in the United States The United States of America (U.S.A. o ...
*
Business valuation Business valuation is a process and a set of procedures used to estimate the economic value In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), product ...

Business valuation
*
Consolidation (business) In business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a busin ...
*
Drag-along right Drag-along right (DAR) is a legal concept in corporate law. Under the concept, if the majority shareholder(s) of an entity sells their stake, the prospective owner(s) have the right to force the remaining minority shareholders to join the deal. H ...
*
Equity method Equity method in accounting is the process of treating investments in associate companies. Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company, and therefore has significant infl ...
*
Pre-emption rightA pre-emption right, right of pre-emption, or first option to buy is a contractual right to acquire certain property newly coming into existence before it can be offered to any other person or entity. It comes from the Latin verb ''emo, emere, emi, e ...
*
Share capital __NOTOC__ A corporation's share capitalGlossary on Trade Financing Terms - S
in the U ...
*
Tag-along right Tag along rights comprise a group of clauses in a contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder ...
*
Voting interest Voting interest (or voting power) in business and accounting means the total number, or percent, of votes entitled to be cast on the issue at the time the determination of voting power is made, excluding a vote which is contingent upon the happenin ...


References


External links


Minority InterestMinority Interest at Investopedia.com
* ttp://beginnersinvest.about.com/od/analyzingabalancesheet/a/minority-interest-on-the-balance-sheet.htm Minority Interests on the Balance Sheet {{DEFAULTSORT:Minority Interest Corporate law Corporate finance Financial capital Mergers and acquisitions Shareholders