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Minority Interest
Minority Interest
The
term can refer to either stock ownership or a partnership interest in a company. The
minority interest of a company is held by an investor or another organization other
than the parent company. Minority interests generally come with some rights for
the stakeholder such as the participation in sales and certain audit rights.
A minority interest shows up as a noncurrent liability on the balance sheet of
companies with a majority interest in a company. This represents the proportion of
its subsidiaries owned by minority shareholders.
INCOME STATEMENT – MINORITY INTEREST
Income statements list the profits and losses of a business. This information is used
to provide a global financial picture of how a company is doing for a specific
period. Minority interests must be included in this statement to give an accurate
financial report. The income statement usually lists the minority interest as a non-
operating line item. This means the profits or losses by the minority interest are not
a primary part of the business.
A minority interest's losses are always included in the income statement for the
parent company. Even if the losses place the minority's interest in the negative
numbers, it must still be included to give an accurate financial report of the
business. The minority interest losses must continue to remain on the books even if
they continue to accrue over time and cause the minority interest to have a deficit
in the company.
Minority Interest can be negative or zero. Say if the subsidiary company of a
parent company is going into loss, so when the consolidated Profit and Loss
account will be made, Minority Interest will take as negative. For the same reason
it can be zero and it is also be zero, if parent company acquired the all equity
shares of subsidiary company.
In the consolidated profit and loss, account minority interest is the proportion of
the results for the year that relate to the minority holdings. It is disclosed on the
face of the consolidated profit and loss account under “Profit on ordinary activities
after taxation.”
Consolidated Balance Sheet Reporting
Your consolidated balance sheet will already include all of the subsidiary's assets
and liabilities, so it isn't necessary, nor is it correct, to report your investment in the
subsidiary on the consolidated balance sheet. A consolidated balance sheet must
disclose the minority interest holders' total share of the subsidiary's net assets. To
illustrate, suppose the subsidiary has $100,000 in net assets -- which is reflected on
your consolidated balance sheet. Thirty percent, or $30,000, of those net assets
technically belongs to minority interest holders and must be disclosed on the
consolidated balance sheet. This is done by reporting $30,000 on a line, such as
“Minority interest in net assets,” before the equity section of the consolidated
balance sheet.