Accounting for Noncontrolling Interest (NCI)
- Graziano Stefanelli
- Jul 10
- 2 min read
Noncontrolling interest (NCI), sometimes called minority interest, represents the equity in a subsidiary not attributable—directly or indirectly—to the parent company. Accurate measurement and presentation of NCI are fundamental to group financial statements under both US GAAP and IFRS. NCI impacts consolidated net income, equity, and the allocation of comprehensive income, affecting the interpretation of group results and financial position.
Recognition and Measurement of NCI
NCI arises when a parent company owns less than 100% of a subsidiary but exercises control and therefore consolidates the entity. NCI is measured and reported as a separate component of equity in the consolidated balance sheet, reflecting the claim of non-parent shareholders on the subsidiary’s net assets.
Measurement at Acquisition Date
At the date of a business combination, NCI is measured at either:
Fair value (full goodwill method): NCI is measured at its fair value, resulting in recognition of total goodwill (including for the NCI).
Proportionate share of net identifiable assets (partial goodwill method, allowed under IFRS): NCI is measured as its proportionate share of the fair value of the subsidiary’s identifiable net assets, resulting in less recognized goodwill.
US GAAP requires the full goodwill method; IFRS permits either method.
Subsequent Measurement: Share of Net Assets and Earnings
After acquisition, NCI is adjusted each period for:
Its proportionate share of the subsidiary’s net income or loss
Its share of other comprehensive income (OCI) and other equity movements
Dividends declared and paid by the subsidiary to NCI holders
Example:
Parent owns 80% of Sub Co; NCI is 20%. Sub Co’s net income for the year is $100,000.
NCI’s share of net income: $100,000 × 20% = $20,000
The consolidated income statement reports total net income, then allocates $20,000 to NCI and $80,000 to the parent.
Presentation in the Financial Statements
Balance Sheet: NCI is presented in the equity section, separate from parent shareholders’ equity.
Income Statement: Net income is split between the amount attributable to parent shareholders and the amount attributable to NCI.
Statement of Changes in Equity: NCI’s opening balance, share of profit, OCI, and dividends are shown.
Sample Disclosure (Condensed):
Transactions with Noncontrolling Shareholders
Transactions that change the parent’s ownership interest in a subsidiary (but do not result in loss of control) are accounted for as equity transactions. No gain or loss is recognized in consolidated profit or loss. Any difference between consideration paid/received and the adjustment to NCI is recognized directly in equity.
Loss of Control and Deconsolidation
If the parent loses control of a subsidiary, the entire carrying amount of NCI (and the parent’s investment) is derecognized. Any resulting gain or loss is recognized in profit or loss, and any retained interest is remeasured to fair value.
Relevant Accounting Standards
US GAAP: ASC 810 – Consolidation
IFRS: IFRS 10 – Consolidated Financial Statements
Both require comprehensive disclosure of NCI, its movement, and its impact on group results.
Summary Table: Key NCI Accounting Concepts
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