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Non-Controlling Interests — Measurement and Presentation from Day 1 Onward

Non-controlling interest (NCI) represents the equity in a subsidiary not attributable to the parent.
At the acquisition date, NCI is measured and reported within consolidated equity, and from that point forward, it reflects the non-parent shareholders’ proportionate claim on the subsidiary’s net assets, income, and other comprehensive income.

1. What is a non-controlling interest?

A non-controlling interest arises when the parent company acquires less than 100% of a subsidiary. The remaining ownership held by external parties constitutes the NCI.

It is presented within equity, separately from the parent’s equity, in the consolidated balance sheet.


2. Initial measurement at acquisition

At the acquisition date, NCI is measured in one of two ways:

Measurement Option

Goodwill Resulting

Where Used

Fair value (full goodwill method)

Includes goodwill for NCI share

US GAAP and IFRS

Proportionate share of net assets

Goodwill only for parent’s share

IFRS only

The choice affects the total goodwill recognized and subsequent impairment tests.


Example:

Fair value of net assets = $100 millionParent acquires 80% for $96 millionNCI (at FV) = $24 millionGoodwill = $96M + $24M – $100M = $20M


If NCI is measured at proportionate share:NCI = 20% × $100M = $20 millionGoodwill = $96M + $20M – $100M = $16M


3. Presentation in the consolidated financial statements

Balance Sheet:

  • Present NCI within equity as a separate line, e.g., “Non-controlling interest.”


Income Statement:

  • Present net income split between:

    • “Net income attributable to shareholders of the parent”

    • “Net income attributable to non-controlling interests”


Statement of Changes in Equity:

  • Show NCI’s opening balance, share of profit/loss, share of OCI, dividends paid, and ending balance.


4. Ongoing accounting for NCI share of net assets

NCI is updated each period to reflect:

  • Share of net income or loss

  • Share of other comprehensive income

  • Share of dividends declared by the subsidiary

Component

Effect on NCI

Share of subsidiary net income

Increases NCI

Share of subsidiary OCI

Increases or decreases NCI

Dividends to NCI shareholders

Decreases NCI

These amounts are recorded without affecting the parent’s share of consolidated profit.


5. Example — Tracking NCI post-acquisition

Scenario:

NCI at acquisition: $20 million

Year 1: Subsidiary net income = $5 million (NCI owns 20%)Dividends paid to NCI = $0.8 million


Calculation:

Share of net income = 20% × $5M = $1MNew NCI balance = $20M + $1M – $0.8M = $20.2M


6. Journal entries involving NCI

To recognize NCI share of subsidiary profit:

  • debit Consolidated Net Income

  • credit NCI Equity


To record dividends paid to NCI shareholders:

  • debit NCI Equity

  • credit Cash (or Payables)

No effect on the parent’s retained earnings unless the parent also receives dividends.


7. Disclosures and financial reporting requirements

Companies must disclose:

  • The percentage of ownership not held by the parent

  • The name and principal place of business of significant NCI subsidiaries

  • The proportion of voting rights held

  • Summarized financial information of the subsidiary before intercompany eliminations

  • The composition of NCI and movements during the period


Example disclosure note:

“The Group holds an 85% interest in ABC Subsidiary Ltd. The remaining 15% is owned by external shareholders. As of year-end, the NCI balance was $12.6 million. The subsidiary reported $4.8 million in net income, of which $0.72 million was attributable to NCI.”

8. IFRS vs. US GAAP presentation

Aspect

US GAAP

IFRS

NCI equity classification

Equity, separate line

Equity, separate line

NCI in income statement

Separate attribution below net income

Separate attribution below net income

Partial goodwill option

Not allowed

Allowed

Changes in ownership without loss of control

Equity transaction only

Equity transaction only


Key take-aways

  • NCI reflects the equity interest of third parties in partially owned subsidiaries and is presented within consolidated equity.

  • Entities must choose between full and partial goodwill methods when measuring NCI at acquisition, which affects future impairment testing.

  • NCI must be updated each period to reflect its share of income, OCI, and dividends, with all changes presented transparently in equity and the income statement.

  • Full disclosures help users understand the significance and impact of NCI on group performance.

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