What is minority interest shown in I/C statement?i am getting confused about it. Is it the ownership of parent company in the subsidieries? or is it the ownership of shareholders(other than parent company) of subsidieries?Not sure what is it. And if it is ownership of shareholders in subsidieries will it be always negative (so that the Net I/C truely belongs to Paretn company)
From Investopedia: 1. A significant but non-controlling ownership of less than 50% of a company’s voting shares by either an investor or another company. 2. A non-current liability that can be found on a parent company’s balance sheet that represents the proportion of its subsidiaries owned by minority shareholders. 1. In accounting terms, if a company owns a minority interest in another company but only has a minority passive position (i.e. it is unable to exert influence), then all that is recorded from this investment are the dividends received from the minority interest. If the company has a minority active position (i.e. it is able to exert influence), then both dividends and a percent of income are recorded on the company’s books. 2. If ABC Corp. owns 90% of XYZ inc, which is a $100 million company, on ABC Corp.'s balance sheet, there would be a $10 million liability in minority interest account to represent the 10% of XYZ Inc. that ABC Corp does not own.
CPK thanks for this But in that case in the income statement Minority interest should always be negative?Since it a liability that firm owes to minority shareholders in subsidieries?
CPK gave you two different kinds of minority interests and they are very different. One is the minority interest that represents someone else owning part of something that you control. For example, suppose that MSFT launches a bid for Yahoo and says that they will pay everyone $18/share. Everyone but Yang (who owns say 8% of the stock) sells. Yahoo would now belong to MSFT, but Yang would still have an 8% interest. That’s a balance sheet item. The other is that MSFT buys 30% of Yahoo and now it is MSFT who has a minority interest. Then you need to determine whether MSFT should book revenue actually received in dividends from Yahoo or a portion of Yahoo’s earnings. This is now income statement and balance sheet stuff.
A very simple example…Mr Warren Buffet bought business of furniture. to the previous owner he gave 10% stake. buffet’s berkshire hathway has 90%. that 10% owner is minority interest … m i right??
Yes, sort-of, but the issue is how should Mr. Buffett show that on his financial statements. Since Mr. Buffett’s company would have purchased it and Berkshire is not your average everyday company, I’m not sure this is as easy as you make it out.