Non-controlling (minority) interest

A parent company often owns most of a subsidiary, but not all of it. Say it owns 70%. Somebody else owns the other 30%.

When the parent prepares consolidated accounts, it adds in 100% of the subsidiary's assets, sales and profits. That is what consolidation means — it shows the group as one business.

But 30% of that subsidiary is not the parent's to keep. So a line is added to hand it back: the non-controlling interest, also called the minority interest.

It appears twice. Once on the balance sheet, for the outsiders' share of equity. Once in the profit and loss account, for their share of profit.

And it exists only in consolidated accounts. A stand-alone statement never shows it.

On the balance sheet. Section 8.3.1, in the equity block: "Minority interest or non-controlling interest: Represents the share of equity of shareholders other than the parent, in a subsidiary company. This line item is present only in consolidated financial statement."

That last sentence is the examinable one. A stand-alone financial statement reports the parent alone, so there is no outside shareholder to account for.

In the profit and loss account. Section 8.4.1: "Profit allocated to Non-controlling interest (minority interest): This refers to the amount of profits of a subsidiary company that belongs to shareholders of the subsidiary, other than the parent."

And in other comprehensive income. The workbook adds a third place, easily missed: "Part of the OCI of subsidiary operations that belong to its external shareholders should be allocated to non-controlling interest." So other comprehensive income gets split the same way profit does.

Why it matters to an analyst. Consolidated profit includes the whole subsidiary. Earnings per share does not — section 8.4.1 defines EPS on "the net profit attributable to equity shareholders." Strip the minority's share out before dividing, or the per-share figure belongs partly to somebody else.

On figures. The workbook gives no numeric example for non-controlling interest — no percentage, no rupee figure, and its Bharti Airtel exhibits do not break the line out. It is defined, located and left there, so the questions are definitional rather than computational.

Illustrative — the workbook supplies no figures for this line. A parent owns 70% of a subsidiary. The subsidiary earns Rs 400 crore of profit and holds Rs 1,500 crore of equity. The parent's own standalone profit is Rs 1,000 crore.

Consolidated profit and loss account:

Consolidated balance sheet: non-controlling interest = 30% × Rs 1,500 crore = Rs 450 crore, sitting inside the equity block.

Now the trap that costs marks. The parent has 100 crore shares. Which profit divides by them?

Wrong : 1,400 ÷ 100 = Rs 14.00 per share
Right : 1,280 ÷ 100 = Rs 12.80 per share

The Rs 1.20 difference — 8.6% of EPS — belongs to the minority shareholders of the subsidiary, not to the parent's shareholders. Value the parent on Rs 14 and you have paid for profit you will never receive.

And if the group also reports Rs 50 crore of other comprehensive income from that subsidiary, Rs 15 crore of it is allocated to the non-controlling interest too.

The line appears 3 times in chapter 8: in 8.3.1 among the balance sheet equity items, in 8.4.1 as profit allocated to non-controlling interest, and again in 8.4.1 in the treatment of other comprehensive income. Chapter 8 also contrasts consolidated with stand-alone statements directly.

The reliable question is where the line can appear: consolidated statements only. The second is what it represents — the outside shareholders of the subsidiary, not the minority shareholders of the parent. A computational version hands you a shareholding percentage and a subsidiary profit and asks for the allocation, or asks which profit figure EPS is calculated on.

• It appears only in consolidated financial statements. The workbook says so in one short sentence, and that sentence is the question.
• "Minority" means the other shareholders of the subsidiary, not the small shareholders of the parent company. The parent's own retail investors are not a non-controlling interest.
• Consolidation brings in 100% of the subsidiary and then gives part back. The minority line is a deduction after full consolidation, not a smaller share taken in at the start.
• EPS uses profit attributable to the parent's equity shareholders. Dividing total consolidated profit by the parent's share count overstates EPS.
• Other comprehensive income is split too. The workbook allocates the external shareholders' part of a subsidiary's OCI to the non-controlling interest, which candidates rarely expect.
• Non-controlling interest sits inside equity, not in liabilities. It is somebody else's ownership of group assets, not a debt of the group.