Mock PM #34

The non-controlling interest confuses the hell out of me.

Why do we include the non-controling interest in the shareholder equity??

For me it always helped me to think that represents the portion of total equity that doesn’t belong to the shareholders… So, for example: Warren Buffet owns 15% of American Express, but he has no control over the AE. Therefore, 15% of income etc. belong’s to Warren but must be reported by AE… therefore, as time passes by the non-controlling interest accumulates.

If I am wrong someone please correct me…

For me it always helped me to think that represents the portion of total equity that doesn’t belong to the shareholders… So, for example: Warren Buffet owns 15% of American Express, but he has no control over the AE. Therefore, 15% of income etc. belong’s to Warren but must be reported by AE… therefore, as time passes by the non-controlling interest accumulates.

If I am wrong someone please correct me…

Same thing as minority interest. You add into s/h equity: the $$ value of (1-%) of FV of Net Identifiable Assets you purchased when you acquired the subsidiary. You also take a charge on the IS showing the % of net earnings you don’t get as well.

Think about consolidation… you’re getting all the A and L of the sub on your balance sheet (and income statement too). Most companies A>L, especially if we’re acquiring them. And your own company, A = L+E. When you add the new A and the new L, you’d be adding in more A with not enough claims on it from just L. The minority interest is the part of the A=L+ E that you don’t own. That’s how I view it. Hope it helps.