The minority share (interest) is the share of the subsidiary in the capital of the company, owned by minority shareholders , and does not provide the owners of this share with control over the activities of the subsidiary [1] . The minority share is that part of the net results of operations and net assets of the subsidiary, which is accounted for by the parent , which the parent company does not directly or indirectly through subsidiaries [2] .
A share in the authorized capital owned by minority shareholders can be determined in two ways:
- As a percentage of voting shares not owned by the majority shareholder in their total number. This option for determining the share can be applied only by joint-stock companies , provided that the par value of the issued shares is equal.
- As a percentage of the authorized capital, not owned by the majority shareholder, in its total value [1] .
Determination of non-controlling interest percentage
In a situation where the group consists of two companies and company A owns 75% of company B. The percentage of non-controlling shares will be 100-75% = 25% [3] .
In a situation where the group consists of three companies: company A owns 56% of company B (which controls 23% of company D) and 78% of company B (which controls 37% of company D). The percentage of formal control of company A over company D can be defined as follows: 56% * 23% + 78% * 37% = 41.74%. However, from an informal point of view, this situation looks different. Since company A owns companies B and C, which in turn own company D together (23% + 37% = 60%), company A can make decisions in company D [ 2] .
Consolidation
In the consolidated balance sheet , minority interests should be presented separately from liabilities and equity [4] . When carrying out consolidation, when there is a minority interest, it is necessary to take into account the following points:
- when eliminating investments in a subsidiary, not all of the authorized capital of the subsidiary is excluded, but only that part that belongs to the parent company;
- in the consolidated balance sheet in the capital section, you must enter the line “Minority interest”, which indicates the share in the assets, profits and losses of the subsidiary, which is not owned by the parent either directly or indirectly through other companies;
- In the consolidated income statement, you must enter the line “Minority interest”, which indicates the minority’s share in the profit or loss of the subsidiary [5] .
Notes
- ↑ 1 2 A.N. Chegodaev. Accounting financial statements. Training course (educational-methodical complex) . Date of treatment December 1, 2011. Archived on September 5, 2012.
- ↑ 1 2 Averchev, I.V. IFRS 1000 application examples .. - M .: Reed Group , 2011. - ISBN 978-5-4252-0230-7 .
- ↑ I.I. Agladze. Non-controlling interest: new requirements . The magazine "Corporate financial reporting. International standards" (April 18, 2011). Date of treatment December 1, 2011. Archived on September 5, 2012.
- ↑ N.N. Puzik. Features of the compilation of the consolidated balance sheet (May 16, 2006). Date of treatment December 1, 2011. Archived on September 5, 2012.
- ↑ Elena Yastrebkova. Consolidation: the elimination of dividends and the allocation of minority interests . “IFRS: Application Practices”, No. 6 (2007). Date of treatment December 1, 2011. Archived on September 5, 2012.