Non-Controlling Interest
A non-controlling interest is an equity interest in a subsidiary company that is not owned by the controlling company. Non-controlling interests give the non-controlling shareholders the ability to exert influence over the subsidiary company but not control over its operations.
Key points about non-controlling interests:
- Minority interest: Non-controlling interests are sometimes called minority interests because they are often held by minority shareholders in a company.
- Influence, not control: Non-controlling shareholders have the ability to exert influence over the subsidiary company through their voting rights, but they do not have the ability to control its operations.
- Separate financial statements: The subsidiary company is required to prepare separate financial statements for each non-controlling interest. These financial statements are consolidated with the controlling company’s financial statements.
- Disclosed separately: The controlling company is required to disclose information about non-controlling interests in its financial statements. This information includes the name of each non-controlling shareholder, their ownership percentage, and their voting rights.
- Accounting treatments: Non-controlling interests are accounted for differently depending on the type of control that the non-controlling shareholder has over the subsidiary company.
Here are some examples of non-controlling interests:
- A parent company owns 80% of the shares in a subsidiary company. The remaining 20% of the shares are owned by non-controlling shareholders.
- A company has a 20% ownership interest in another company. This ownership interest gives the company the ability to exert influence over the other company, but not control over its operations.
Non-controlling interests are an important part of consolidated financial statements. They can provide valuable information about the ownership and control of subsidiaries.
FAQs
What is NCI in accounting?
NCI, or Non-Controlling Interest, represents the ownership stake in a subsidiary that is not owned by the parent company, reflecting minority shareholders’ equity in the subsidiary.
How is NCI calculated?
NCI is typically calculated by multiplying the subsidiaryโs equity by the percentage of ownership held by non-controlling shareholders.
Where is NCI shown on the balance sheet?
NCI appears under the equity section of the consolidated balance sheet, representing the minority shareholders’ portion in the subsidiary.
What is non-controlling interest in simple terms?
Non-controlling interest is the portion of a subsidiaryโs equity owned by shareholders other than the parent company.
Does Enterprise Value (EV) include non-controlling interest?
Yes, EV includes non-controlling interest to reflect the total value of the entire subsidiary, not just the parent companyโs stake.
