Subsidiaries and noncontrolling interest question

3 part question.

  1. What percentage of ownership of a company contitutes a parent-subsidiary relationship? Did a google search and it looks like 51% to contitute the consolidation of financial statements. Can someone confirm that?

  2. Why do you report all of the subsidiary’s income on the income statement and then subtract out the “noncontrolling interest” instead of only reporting controlling interest? Not meaning to make this a why ask why question, just wondering if there’s a bigger picture item here im not realizing.

  3. Does anyone have a good example of this in practice? Maybe a company that you own or follow that displays this treatment on their income statement that I can take a look at? I don’t want to get off-track looking up companies trying to find a good example, nor do I want anyone else to waste their time if they don’t know one off the top of their head. I’d just really like to be able to apply this to the real world, rather than academic theory.

Thanks a bunch.

regarding # 2, I just realized that if I was looking to invest in a company that had a controlling interest in another company I’d probably want to see the full picture of that company, meaning their entire financial picture, as it would significantly impact the company im looking at. I’m guessing I just answered my own question on that one…?

I did a couple of valuations for some companies with controlling interest in other companies…a few years ago, and I think that the reasoning behind it is that US GAAP requires the balance sheet (and therefore income statement) to show all the assets you control. So I guess that as an investor you need to see the big picture of all the assets you are controlling.

But as I said…I am not 100% sure since I never really paid too much attention to it; someone working in accounting/auditing might give you a more accurate answer.

for testing purpuses just keep in mind that your are consolidating all the assets and income and then you are taking out the portion you don’t really own.

Which LOS or question from the Level 1 CFAI textbook is this?

LOS 25a Describe the components of the income statement and alternative presentation formats of that statement.

it fell under here in the discussion of items that are included on the income statement.

Parent company excercises management control over a company when it hold above 50% of equity capital. Certain important operational and financial decisions of a company need to be voted by a majority (>50%) of shareholders. In certain countries a super-majority (75%) is required for certain types of company actions. But that’s a rareity. Accounting Standards require companies to consolidate their subsidiaries fully. Line by Line 100% addition. The minority interest or non-controlling interest is what the parent owe’s the minority shareholders. The term minority is no longer used.