HOME

TheInfoList



OR:

In
accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
, 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. 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, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
of the owning company to reflect the claim on
assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
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'', ''stateme ...
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 rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
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 value of a company. The converse concept is an associate company.


Accounting treatment

Under the
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's f ...
, 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 In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
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 sole trader, statement of changes in partners' equity for a partnership, statement of changes in shareholders' equity for a company or statement of cha ...
. 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

* Associate company (the converse concept) *
Articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
* Business valuation *
Consolidation (business) In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into a few much larger ones. In the context of financial accounting, ''consolidation'' refers to the aggregation of financial statements of a ...
* Drag-along right *
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 inf ...
*
Pre-emption right A 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, ...
*
Share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capital ...
* Tag-along right *
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