Can anyone here explain me about minority interest (a portion of equity on balance sheet)?
i will be really thankful !!
Suppose that you own 40% of another company. If you consolidate (fully) your balance sheet, you’re claiming (in effect) that you own 100% of the company. The minority interest is the (60%) adjustment you make to admit that you own only 40%: Here’s 100% of their assets and liabilities; we own 40% of it; someone else owns 60% of it.
A more likely set of numbers in which you would consolidate:
Suppose that you own 65% of another company. If you consolidate (fully) your balance sheet, you’re claiming (in effect) that you own 100% of the company. The minority interest is the (35%) adjustment you make to admit that you own only 65%: Here’s 100% of their assets and liabilities; we own 65% of it; someone else owns 35% of it.
Means u subtratct minority interest from equity part? :s
You include it in equity, so your share of the equity is smaller.
What would happen if you own more than 50%?
If i own 40% of the company then why wud i report 60% on my balance sheet?
Generally, if you own more than 50% you are considered to have control, so you have to consolidate your financial statements (income statement and balancesheet); you would show minority interest on the income statement and minority interest on the balance sheet.
Generally, if you own less than 50% (but more that 20%) you are not considered to have control, just influence, so you can use the equity method: one line on the income statement (Earnings from Affiliate) and one line on the balance sheet (Interest in Affiliate). I believe that you are allowed to consolidate if you want to.
If you consolidate (which you can do if you own 40%, especially if you are deemed to have control), then you show 100% of the subsidiary’s assets and liabilities on your (consolidated) balance sheet. But you don’t own 100% of them; you own only 40%, so you show that someone else owns the other 60%.
I should have given you 65% ownership in my example. I’ve edited it to include that scenario as well.
What is consolidating? (Not sure if this is a good quesn to ask at this time)
Acquisition method: you include all of the subsdiary’s accounts on your financial statements. Your income statement will have your revenue plus your sub’s revenue, your COGS plus your sub’s COGS, and so on. Your balance sheet will have your cash plus your sub’s cash, your PP&E plus your sub’s PP&E, your accounts payable plus your sub’s accounts payable, and so on.
Thanks!
You’re welcome.
I thought this is a Level 2 topic no?
assuming you are a graduate,how in the world dont u know what consolidation is? what did u graduate in??
Guys, if you are having problems understanding minority interest, goodwill or consolidation, we had a discussion on this on the Level 2 forum in the past:
http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91317380
I also did a comprehensive video tutorial on this topic many months ago:
It will give you more than enough of an intro to these topics to cope at Level 1.
hope it helps
Many people did not take accounting for finance in undergrad.
Awesome!
most people who have graduated in a any field that is even remotely connected to finance would have some sort of insight into accountancy…the only exception i see is engineers
And physicists. And mathematicians. And chemists. And . . . .
And psychologist, and biologist, and police officers, and social workers, and nurses, and athletes, and…
