Reporting non-controlling interest

CFA Level I FRA
#1

Hey guys. The paragraph below is frm Schweser. I read it like a dozen times and tried to find an explanation on the internet, but have no idea what it’s talking about. Can someone please explain it a bit more clearly? Thank you!

“If a firm has a controlling interest in a subsidiary, the pro rata share of the subsidiary’s income not owned by the parent is reported in parent’s income statement as the noncontrolling interest (also known as minority interest or minority owners’ interest). The noncontrolling interest is subtracted in arriving at net income because the parent is reporting all of the subsidiary’s revenue and expense.”

#2

Company A owns 80% of Company B. For simplicity, let’s say we know Company B had net income of $100 for the year. Company A’s income statement will have all of Company B’s revenues and expenses accounted for (even the noncontrolling 20% Company A does not own).

In order to reflect the net income Company A has the rights to, Company A will subtract $20 (20% of $100 - the pro-rata share) above the line as noncontrolling interest. Therefore, Company B contributed $80 of net income to Company A’s income statement.

#3

That’s awesome. Thanks for the simple explanation.