Non-Controlling Interests — Accounting for Ownership Changes without Losing Control

Graziano Stefanelli
6 hours ago
3 min read

When a parent company changes its ownership percentage in a subsidiary but retains control, the transaction is treated as an equity transaction.

These changes do not affect consolidated net income or goodwill but adjust the parent’s and NCI’s relative shares in the subsidiary’s equity, with the difference flowing directly through consolidated equity.

1. What constitutes a change without losing control

Ownership changes without loss of control occur when:

The parent buys additional shares from non-controlling shareholders.
The parent sells some of its shares but keeps control (>50%).

Examples:

Increase from 70% to 85% ownership → control retained
Decrease from 80% to 60% → control retained

Control is considered lost only when the parent’s ownership or voting power drops below 50% and control is not maintained through other means.

2. Accounting treatment — equity transaction

Under both IFRS (IFRS 10) and US GAAP (ASC 810), these transactions are not business combinations. Instead:

No gain or loss is recognized in income.
No adjustment is made to goodwill.
The difference between consideration transferred and the change in NCI is recorded in equity.

Change Type	Impact on Consolidated Financials
Increase in parent ownership	Decrease NCI, increase parent equity
Decrease in parent ownership	Increase NCI, decrease parent equity

3. Example — Increasing ownership interest

Scenario:

Parent owns 75% of Subsidiary AParent acquires an additional 10% for $2 million

Subsidiary’s net assets: $10 million

Carrying value of 10% NCI: 10% × $10M = $1 million

Price paid by parent: $2 million

Adjustment to equity:

debit Retained Earnings (or Equity Reserves) .............. $1 million
debit Non-controlling Interest ...................................... $1 million
credit Cash ...................................................................... $2 million

The $1 million difference between carrying amount and consideration reduces the parent’s equity.

4. Example — Decreasing ownership interest

Scenario:

Parent owns 80% of Subsidiary BParent sells 15% to third party for $3 millionNet assets of Subsidiary B = $20 million

Carrying value of 15% sold: 15% × $20M = $3 million

Assuming sale price = carrying amount →

debit Cash ...................................................................... $3 million
credit Non-controlling Interest ...................................... $3 million

If sale proceeds differ from carrying value, the difference adjusts equity.

5. Statement of changes in equity presentation

These changes are shown in the equity section as movements in:

Parent equity reserves or retained earnings (depending on policy)
Non-controlling interest

There is no effect on profit or loss, even if the transaction price differs from the carrying amount.

Equity Movement	Reported In
Change in NCI ownership	Consolidated equity section
Consideration paid/received	Adjusts cash and equity
Difference (gain or loss)	Equity (not income)

6. Disclosure requirements

Entities must disclose:

The effects of ownership changes on the parent’s equity.
The difference between consideration transferred/received and the carrying value of NCI.
A reconciliation of NCI balances at the beginning and end of the period.

Example disclosure:

“During the year, the Group increased its ownership in Subsidiary C from 65% to 85%. The transaction was treated as an equity transaction, resulting in a $2.4 million decrease in retained earnings.”

7. IFRS vs. US GAAP alignment

Topic	US GAAP (ASC 810)	IFRS (IFRS 10)
Loss of control threshold	<50% voting power	Same
Changes without losing control	Equity transaction	Equity transaction
Gain/loss recognition	No impact on profit or goodwill	Same
Disclosure emphasis	Required	Required

Key take-aways

Changes in ownership interest without loss of control are treated as equity transactions under both IFRS and US GAAP.
There is no impact on profit, goodwill, or consolidated income—only equity is adjusted.
The difference between carrying amount and consideration is recognized directly in equity.
Full disclosure of these changes is necessary to maintain transparency for users of financial statements.