What is a Non-Controlling Interest (NCI)?
A non-controlling interest is the portion of a subsidiary's equity not owned by the parent. It arises whenever a parent owns less than 100% of a subsidiary and must be presented in the consolidated financial statements.
NCI is the equity in a subsidiary (and share of its profit) not attributable to the parent; it is presented within equity in the consolidated statement of financial position, separately from the parent's own equity.
- •NCI = NCI% × fair value of net identifiable assets
- •No goodwill attributed to NCI
- •Total goodwill reflects only the parent's share
- •NCI = fair value of NCI shares, or NCI% × (net assets + total goodwill)
- •Goodwill is attributed to both parent and NCI
- •Total goodwill is calculated for 100% of the entity
Try it: interactive calculator
Step-by-step worked examples
A subsidiary's net identifiable assets have a fair value of $1,000,000. The parent owns 75%, so NCI is 25%. What is NCI under the proportionate method?
NCI = FV(net assets) × NCI% NCI = 1,000,000 × 25% = $250,000
The parent owns 90% of a subsidiary whose net assets have a fair value of $2,400,000. What is NCI (10%)?
NCI = 2,400,000 × 10% = $240,000
A subsidiary reports profit of $300,000 for the year; NCI is 30%. What is NCI's share of the profit?
NCI's share of profit = Profit for the year × NCI% NCI's share = 300,000 × 30% = $90,000
Flashcards
Quick quiz
Q1.What is NCI?
Q2.A parent owns 80% of a subsidiary whose net assets have a fair value of $500,000. What is NCI under the proportionate method?
Q3.Where is NCI presented in the consolidated financial statements?
Q4.Under the full goodwill method, NCI includes:
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Common mistakes
Classifying NCI as a liability. — Correct: NCI is an equity item, not a liability.
Forgetting to allocate a share of the subsidiary's profit to NCI in the consolidated P&L. — Correct: NCI's proportionate share of the subsidiary's profit or loss must be shown separately each period.
Using book value instead of fair value of the subsidiary's net assets to compute NCI at acquisition. — Correct: NCI at acquisition is based on the fair value of the subsidiary's identifiable net assets (or including goodwill under the full method).
Treating NCI as limited to dividends receivable by minority shareholders. — Correct: NCI reflects the full equity interest in the subsidiary, not just dividends.
FAQ
What is non-controlling interest (NCI)?
NCI is the portion of a subsidiary's equity that belongs to shareholders other than the parent company.
What is the NCI formula?
Under the proportionate method: NCI = NCI ownership % × fair value of the subsidiary's net identifiable assets.
How do you calculate NCI with an example?
Multiply the subsidiary's net assets fair value by the NCI ownership percentage — see the worked examples above.
What is the difference between the full goodwill and proportionate NCI methods?
The proportionate method excludes goodwill from NCI; the full goodwill method includes NCI's share of goodwill.