This famous adage of Shakespeare does not always hold. Minority Interest is one such exception. As the name suggest. In accounting world minority interest means the ownership in subsidiary company not owned by holding company which is also know as Parent Company.
In the Balance-sheet of Pine —Apple Inc. Whereas, shareholder A is the majority shareholder of Pine-Apple Inc. This concept arises only in case when the company prepares two sets of financial statement Viz. Separate set of financial statement and Consolidated Financial statement. It is reported separately only in the consolidated financial statement.
In the consolidated profit and loss account minority interest is that proportion of the results for the year that relate to the minority holdings.
The reason for separate line item with respect to such interest is to give clear picture to the users of financial statement about the various controlling interest in the company. It helps them in making an informed economic decisions and also helps them in making comparisons on the shareholding patterns of different companies.
It plays a huge role in analyzing various investments opportunities and calls for its consideration while computing various ratios and analyzing financial statement.
As mentioned earlier, it arises whenever a holding company owns a controlling interest Less than percent in a subsidiary company. The claim of shareholders on the net assets of a company are known Accounting treatment minority interest consolidating student loans minority interest.
These minority shareholders like any other shareholders have an equal but proportionate claim on the earnings and assets of the subsidiary.
The consolidated balance sheet comprises of all of the assets and liabilities of a subsidiary. Similarly, the consolidated income statement includes all of the revenues and expenses of a subsidiary.
The consolidated financial statement therefore recognizes the claim of the minority shareholders. Rather, it will appear in the consolidated financial statement of H Inc. In the exhibit 1 above, H Inc. While most of the financial figures has a direct relation with revenue and net profit, but forecasting the minority interest based on the revenue and net profit figures will lead to ambiguous data.
Hence, in order to address the above issue analyst have drawn out four common methods or approaches for correct computation.
The most important thing to remember in case of valuation of minority interest is that its valuation are affected by number of factors, internal and external, applicable to company and the industry in which it operates.
All these require careful considerations as its impact will be different for different Accounting treatment minority interest consolidating student loans. Also, one has to take into account the applicable laws, bye laws and regulatory regulations. Since the balance sheet is prepared on the historical cost basis or the book value basis.
Though the debate is ranging on the pros and cons of this approach. Yes, absolutely it is important in Ratio Analysis. Any ratio that takes into account capital structure has to take into account the implication of such interest.
To name a few important ratios: Debt equity ratio, Return on equity, Capital gearing ratio and return on capital employed are impacted. The above formula will calculate return generated by the parent shareholders.
Liability can be defined as obligation on the company arising out of past events that will result in outflow of resources. On the other hand, assets means the something of value to an enterprise on which it has control and will result in receipt of cash or its equivalents in future. Though such interest has value but the company has no control over it. interest represent the non-controlling interest of shareholders.
There is no mandatory payments, fixed life and etc. Since minority interest is not payable it cannot be termed as debt. Whereas minority interest does satisfy some preconditions to be construed as equity. Assets of the consolidated balance sheet have some contribution
Accounting treatment minority interest consolidating student loans from minority interest.
As per the generally accepted accounting principles, it is presented as part of shareholders equity in the consolidated balance sheet. Enterprise value is always greater than market capitalization since it also includes the debt. But one pertinent question which lingers on is whether it should be included for computation of enterprise value.
Since enterprise value represents total capitalization of a company hence minority interest is always a part of enterprise value. Minority interest does provides the user of financial statement with useful insights which helps them to analyze and make us informed decision.
Degree of influence of minority interest influences the decision making. In the past it has not received a great deal of attention in the accounting literature.
It was referred to as a liability, equity, or neither.
Even as of today, there is little guidance on treatment and presentation of minority interest. And there is no consensus on any position.
Very interesting things I got to know about Minority interest. Thanks and keep on posting. Thanks for the post. Does it mean that you only take the profit attributable to the equity holders of the parents WITHOUT profit attributable to the non-controlling interests? Or do you take the sum of the two?
ROE should be profit after you have deducted the minority interest. Your email address will not be published.