When a corporation buys a controlling interest in another company, it becomes known as the parent company and the acquired firm becomes a subsidiary. Sometimes the parent company does not buy 100 percent of the subsidiary, thereby creating a minority interest. The Federal Accounting Standards Board requires parent companies to publish consolidated financial statements. These financial statements must clearly state the net income and equity share for the minority interest in compliance with FASB standards.
1. Locate the book value of the subsidiary as stated on the balance sheet. Multiply the book value of the subsidiary by the percentage minority interest share. For example, if the equity for the subsidiary is stated as $4 million and the minority interest percentage is 30 percent, the dollar value of the minority interest share equals $1.2 million.
2. List the minority interest share as a separate item on the balance sheet. This information must be placed at the bottom of the shareholders’ equity section in accordance with FASB rules.
3. Locate the net income attributable to the subsidiary on the income statement. Multiply the subsidiary’s net income by the minority interest percentage to determine how much of the net income the minority interest owners are entitled to. List this amount as a separate item on the income statement in the net income section.
- Beginning in 2008, the FASB changed the standard format requirements for reporting minority interest. Prior to that time, the minority interest share now listed in the shareholders’ equity section of the balance sheet was placed in the liabilities section.
- Digital Vision./Digital Vision/Getty Images