In this article we will discuss about the treatment of minority interest in the consolidated balance sheet, explained with the help of a suitable illustration.
The Subsidiary Company is a wholly owned Subsidiary of Holding Company. It may be possible that Holding Company may not hold 100% shares of the subsidiary Company. A part of the share capital of the Subsidiary Company may be held by outsiders. In such case the outsiders will also be entitled to the net assets of the subsidiary Company. When the Holding Company shows all the assets be entitled to the net assets of the subsidiary Company.
When the Holding Company shows all the assets and liabilities of the Subsidiary Company in the consolidated Balance Sheet, the share of outsiders in the net assets of the company must be shown as a liability. This is done on the liability side under the heading “Minority Interest”. The minority interest represents the outside shareholders’ proportion of the net assets or proprietary Fund of the subsidiary.
Suppose, a Holding Company purchases only 75% of the shares in Subsidiary Company and remaining 25% shares are with the outsiders. When the Subsidiary Company is partly owned, the method of consolidation is to include in the consolidated Balance Sheet, the whole of assets and liabilities of the Holding and Subsidiary companies and show the interest of the outsiders in the Subsidiary Company as a separate liability under the heading – Minority Interest. This is because, the whole of assets and liabilities of the Subsidiary Company cannot be brought into consolidated Balance Sheet without any further adjustment.
Illustration (Minority Interest):
Balance Sheets as on 31st March 2004: