As we know, total ownership is not a requirement for consolidation. A parent need only gain control of another company to create a business combination. If less than 100% of a subsidiary\'s voting stock is obtained, how is the presence of the other owners reflected in consolidated financial statements? What accounting is appropriate for a noncontrolling interest? How are these figures computed and where are they reported on the consolidated statements?
Solution
When a parent acquires more than 50% but less than 100% of the voting stock of a subsidiary company, it is said to have controlling interest in that company. The remaining portion which is not acquired by the parent company is called non-controlling interest or minority interest. These are other owners whose interests are seperately reflected in the parent company\'s financial statements (balance sheet as non-controlling/minority interest).
Non-controlling interest is reported on the liabilities and stockholder\'s equity side of the balance sheet of the parent company under the head \"Equity\". It is important to note, that minority interest is recorded independently of the equity of the parent company.
Consolidated net income of the parent company and subsidiary company must be shown seperately for the parent company and minority interest in the consolidated income statement. In a similar way, the comprehensive income is also allocated between the controlling and non-controlling interest.
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As we know- total ownership is not a requirement for consolidation- A.docx
1. As we know, total ownership is not a requirement for consolidation. A parent need only gain
control of another company to create a business combination. If less than 100% of a subsidiary's
voting stock is obtained, how is the presence of the other owners reflected in consolidated
financial statements? What accounting is appropriate for a noncontrolling interest? How are
these figures computed and where are they reported on the consolidated statements?
Solution
When a parent acquires more than 50% but less than 100% of the voting stock of a subsidiary
company, it is said to have controlling interest in that company. The remaining portion which is
not acquired by the parent company is called non-controlling interest or minority interest. These
are other owners whose interests are seperately reflected in the parent company's financial
statements (balance sheet as non-controlling/minority interest).
Non-controlling interest is reported on the liabilities and stockholder's equity side of the balance
sheet of the parent company under the head "Equity". It is important to note, that minority
interest is recorded independently of the equity of the parent company.
Consolidated net income of the parent company and subsidiary company must be shown
seperately for the parent company and minority interest in the consolidated income statement. In
a similar way, the comprehensive income is also allocated between the controlling and non-
controlling interest.
