Lesson: Noncontrolling Interest in a Subsidiary

Instructor: Nick Palazzolo

In this lesson, delve into the complexities of accounting for a noncontrolling interest (NCI) in a subsidiary. Nick Palazzolo, CPA, breaks down the scenarios and computations involved when a parent company does not have full ownership of a subsidiary. Using clear examples, he illustrates how to determine the NCI value on the consolidated balance sheet, the effects of subsidiary's net income and dividends on NCI, and the nuances of attributing profits and losses. Additionally, Nick explains how NCI impacts the consolidated income statement, ensuring a comprehensive understanding of this pivotal topic within financial reporting.

Updated: Oct. 20, 2021 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Let's talk a little bit more about the MCI, right, the noncontrolling interest. So questions that have the parent company purchase 100%. And this is something we mentioned before, this is nothing new, but really drilling down on it because this is a concept and you might not be as familiar with, and I want to make sure you are. So if the company purchases 100% ownership of the subsidiary, that's going to be much more simple than a question. Where if the parent purchases, let's say 70% because?

Because the 30% not purchased by the parent is not controlled. And as such is the NCI. They're going to be using the equity method then if this is the 30% this portion of the subsidiary's equity net assets is attributed to non controlling shareholders and reported at fair value on the parent's consolidated balance sheet separate from parents equity. This may also include the NCI's interest in goodwill and the subsidiary. Again, it might sound weird that you're including the part of the company you don't own in your own balance sheet.

It might, that's fine, but that's what we do. This is my job also to point out, right, like things that don't inherently make sense. I'm not going to say it doesn't make sense, but it might be like, what the heck is going on, Nick? Why are we doing this? And that's just the rule, the reasons behind it, don't worry about it.

This is just something that we are going to include on our balance sheet and our equity section balance sheet. So NCI is reported in consolidated equity. The consolidated balance sheet includes all the subsidiaries assets and liabilities, however, not its equity. As we mentioned. You'll see a bunch of questions where, say, oh, what's the total

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Module: 8 Concepts, 74 Lessons

Accounting Changes and Error Corrections Overview and Objectives

1:31

Types of Accounting Changes

2:56

Changes in Accounting Principle

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Changes in Accounting Estimate