Meaning and definition of minority interest
Also referred as Non-controlling interest in business, minority interest is an accounting concept that deals with the part of a subsidiary corporation’s stock which is not owned by the parent corporation. Moreover, the enormity of the minority interest in the subsidiary company is usually less than 50% of outstanding shares, or the corporation would normally stop being a subsidiary of the parent corporation.
To define in a more elaborate manner, minority interest can be explained as a significant but non-controlling ownership of less than 50% of the voting shares of a company by an investor or another company. Also, it can be referred as a non-current obligation which can be found on the balance sheet of the parent company which represents the amount of subsidiaries owned by minority shareholders.
As explained by Investopedia, in accounting terms, if minority interest is owned by a company in another but is not able to exert influence, i.e. holds a minority passive position, then all the info recorded from this investment includes dividends obtained from the minority interest. Moreover, if the company is capable of exerting influence, i.e. holds a minority active position, then the dividends as well as a percent of income are recorded on the books of the company.
Example of minority interest
Let us presume that XYZ Corp. owns 90% of ABC Inc., which is a $100 million company. The XYZ Corp., on its balance sheet would have $10 million liability in minority interest account thus representing the 10% of ABC Inc. which is not owned by the XYZ Corp.
Calculating the minority interest on an Income statement
The value of minority interest is calculated using the percentage of minority interest and the value. The main steps included are:
- Note down the total value of the subsidiary company same as it is shown on the balance sheet of the company.
- Multiply the subsidiary value by the percentage owned by other parties. For instance, if the subsidiary value is $5,000,000 and 10% of this is owned by other, the value of the minority interest then would be $500,000.
- Note down the value of minority interest under the section “shareholder’s equity” in the balance sheet.
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