If a firm is a majority owner of a subsidiary, the accounting treatment is recorded through Minority Interest. However, for the cases where the ownership of another firm is less than 50% (minority owner) what would the entries and the naming convention be in the B/S and I/S? For example, if Firm A owns 10% of Firm B - how will Firm A consolidate its B/S and I/S accounts? Thanks.
Any accountants want to take a stab at this? Thanks.
This stuff is in the FSA section of Level II in detail… When ownership is less than 20% you classify the securities as held for trading or available for sale. Between 20 and 50% you use the equity method of accounting, which shows only the pro rata share of a sub’s net assets and net income on the parent’s financial statements. Greater than 50% calls for consolidation, in which the parent includes each financial statement element of the sub with its own, and then deducts the monority shareholders’ stake in net income and net assets through a minority interest item on the IS and the BS (under the equity section). Your statement “If a firm is a majority owner of a subsidiary, the accounting treatment is recorded through Minority Interest” is inaccurate. It should be: “If a firm is a majority owner of a subsidiary, the accounting treatment is recorded through the consolidation method” Theres also such a thing as proportionate consolidation, which I wont bother with for now. More on the Level II forum in the Spring 
This is what I was after, thanks. >>“If a firm is a majority owner of a subsidiary, the accounting treatment is recorded through the consolidation method” << In the case where firm ownership is greater than 50% - are there other ways to record the end result of a consolidation other than the Minority Interest entry?
Sujan, you still sound confused. Minority interest records the portion of the acquiree that the firm does’t own when it has a controlling interest. For example, wth 100% ownership there is no minority interest.
Sorry I was not explicit enough. I am fine with the definition - just wanted to confirm how they are recorded on the financials. When the ownership is less than 20% = held for trading/available for sale between 20 and 50% = pro rata share (although I am not sure if this is separated) greater than 50% = minority interest So, getting back to my counter question - wanted to confirm that if the accounting treatment is done through a ‘consolidation method’ (as suggested by beatthecfa above) then this method is a part of the process that will churn out the final numbers for Minority Interest AND that the method does not end up with a separate entry. Will repeat the question again - is ‘minority interest’ the only way to record in the cases where the firm’s ownerhsip is greater than 50% (understand that the financials contains portion of the acquiree that the firm does’t own)? Let me know if this is not clear. Cheers
Maybe you would get better help in other forum since this is out of scope for Level 1? For the exams, we just need to know that assets and liabilities of the subsidiary are to be recorded on the parent’s balance sheet and minority interest (the shares with which the parent doesn’t own) on the equity section.