In accounting, 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, 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 Partnersh ...

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 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 Enterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value of a business (i.e. as distinct from market price). It is a sum of claims by all claimants: creditors (secured and unsecured) ...

of a company. The converse concept is an

associate company An associate company (or associate) in accounting and business valuation is a company in which another company owns a significant portion of voting shares, usually 20–50%. In this case, an owner does not consolidate the associate's financial sta ...

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 IFRS 5 refers to the International Financial Reporting Standards relating to Non-current assets held for sale and discontinued operations. Non-current assets held for sale If a non-current asset is 'held for sale', the economic benefit of that ass ...

and is shown at the very bottom of the Equity section on the consolidated

and subsequently on the statement of changes in equity. 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) and is the default accounting standard used by companies based in the Uni ...

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.

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

Accounting treatment

See also

References

External links