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What is Non-Controlling Interest (NCI)?
Non-Controlling Interest (NCI) represents the portion of equity ownership in a subsidiary that is not owned by the parent company. It reflects the minority shareholders’ stake and appears in consolidated financial statements.
Definition
Non-Controlling Interest (NCI) is the share of a subsidiary’s net assets and net income attributable to shareholders other than the parent company.
Key takeaways
- Minority ownership: Represents shareholders who do not control the subsidiary.
- Shown in consolidated statements: Appears in equity on the balance sheet.
- Share of profit: NCI receives a portion of the subsidiary’s income.
- Required under IFRS & GAAP: Ensures transparent reporting.
- Valued at fair value or proportionate share: Depending on acquisition method.
How NCI works
- Parent acquires less than 100% ownership of a subsidiary.
- Consolidated financial statements include 100% of subsidiary results.
- NCI portion of net assets and profit is attributed to minority shareholders.
- NCI is reported separately in equity.
Example
Parent company owns 80% of Subsidiary A. 20% belongs to other investors. That 20% is recorded as NCI.
Where NCI appears
- Balance Sheet: Under equity
- Income Statement: Share of profit attributable to NCI
Importance of NCI
- Shows true ownership structure
- Helps investors assess control and risk
- Required for transparency in group reporting
Valuation methods
- Fair value method: Values NCI at acquisition-date fair value.
- Proportionate share method: Based on NCI’s percentage of net assets.
Related concepts
- Consolidation
- Group financial statements
- Majority ownership
- Equity method
- IFRS 10
Sources
- IFRS 10 – Consolidated Financial Statements
- Investopedia – Non-Controlling Interest
- OECD – Corporate Ownership Guidelines
Frequently Asked Questions (FAQ)
Is NCI a liability?
No. It is part of equity.
Does NCI receive dividends?
Yes, based on their ownership percentage.
Is NCI included in net income?
Yes, but shown as a separate allocation.
Can NCI change over time?
Yes, due to acquisitions, disposals, or changes in ownership.
Why is NCI important in consolidation?
To present the full financial position of the group while recognizing minority owners.
