How Minority Interest Is Reported on the Balance Sheet

Graziano Stefanelli
Oct 1
2 min read

Minority interest, also called non-controlling interest (NCI), represents the share of equity in a subsidiary not owned by the parent company but still included in consolidated financial statements. It arises when a parent holds control with less than 100 percent ownership, requiring financial statements to capture both the parent’s stake and the residual rights of outside shareholders. Minority interest is always reported in the equity section of the consolidated balance sheet, providing transparency about ownership distribution.

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How minority interest arises in consolidated groups

When a parent company owns more than 50 percent but less than 100 percent of a subsidiary, consolidation rules require recognition of all assets, liabilities, revenues, and expenses of the subsidiary. The share not owned by the parent is reported as minority interest. For example, if the parent owns 80 percent of a subsidiary with equity of 500,000, then 100,000 belongs to outside shareholders and is recorded as NCI.

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Presentation on the balance sheet

Minority interest is shown as a distinct line in equity, separate from the parent’s equity. This prevents misclassification as either debt or liability and reflects that non-controlling shareholders own a residual interest. For example:

Share Capital (Parent): 1,000,000
Retained Earnings (Parent): 500,000
Other Reserves: 100,000
Non-Controlling Interest: 100,000
Total Equity: 1,700,000

This format clarifies how the consolidated equity is shared between controlling and non-controlling shareholders.

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Journal entries to recognize minority interest

At acquisition, non-controlling interest is recognized as part of consolidated equity:

Debit: Subsidiary Assets 800,000
Credit: Subsidiary Liabilities 300,000
Credit: Non-Controlling Interest 100,000
Credit: Parent Equity (Investment) 400,000

When profit is allocated, the portion attributable to non-controlling interest is transferred to NCI rather than the parent’s retained earnings.

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Measurement under IFRS and US GAAP

IFRS 10 allows NCI to be measured at fair value (full goodwill method) or at the proportionate share of net assets (partial goodwill method).
ASC 810 under US GAAP requires NCI to be measured at fair value on acquisition.

Both frameworks classify NCI within equity, ensuring that outside shareholders’ stakes are treated as ownership, not liabilities.

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Impact on performance and disclosures

Minority interest reduces the portion of consolidated net income attributable to the parent. For example, if consolidated profit is 120,000 and 20 percent belongs to NCI, then 24,000 is attributed to NCI and 96,000 to the parent. Both IFRS and US GAAP require disclosure of profit attributable to NCI, dividends paid to non-controlling shareholders, and any restrictions on subsidiary cash transfers.

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Operational considerations

When analyzing financial statements, investors should adjust ratios such as return on equity by excluding NCI from both numerator and denominator. Clear separation of parent equity and minority interest ensures that financial reports fairly represent ownership, obligations, and performance distribution in group structures.

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DATA STUDIOS

.....[datastudios.org]