I understand how to calculate the minority interest, but why is the minority interest subtracted in the income statement to get net income, but added in the balance sheet to get total equity?
To balance the balance sheet (i.e. if assets are increased then liabilities + equity must increase also).
On income statement, you deduct the income that does not belong to you.
On Bs, you include NCI to identify the part of the equity that does not belong to you.
thanks
Think of the minority interest on the balance sheet as if it were a liability. It really doesn’t belong in Shareholders’ Equity.
Minority interest is deducted from the income statement because this amount is not related to company which has that particular investment/subsidiary.
Like S2000magician mentioned that “think of the minority interest on the balance sheet as if it were a liability. It really doesn’t belong in Shareholders’ Equity”. If it is not belong to company then it will be represented in balance sheet as a liability.
Although minority is not expenses just to clarify you can think about expenses we are deducting them from income statement but if they are not paid we are representing them as a liability in balance sheet.
Hope this explanation will also help you.
When I was an accounting student, minority interest wasn’t included in Shareholders’ Equity, nor was it included in Liabilities. There was a section between Liabilities and Equity called The Mezzanine: that’s where minority interest was reported.
They’ve since dispensed with the mezzanine. I think that that was a mistake.