Question

The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized?

Answer 1

Answer:

The correct answer is In the owners' equity section.

Explanation:

There are two theories to support the methods of integrating financial statements, namely: the theory of the entity and the theory of property.

Entity Theory: This theory is based on the assumption that the consolidated financial statements make sense when it is determined that there is an expanded economic entity in which the shareholders that make up the non-controlling interest also own a portion of the net assets of the consolidated entity (Carvalho, 2006).

In the attempt to eliminate the capital with which the subsidiaries participate in the consolidation, an account of a creditor nature must arise that reflects that part of the assets and liabilities that are not under the control of the holder. In the financial reporting standards, this portion has been called as a Non-controlling Participation, in exchange for its classic Minority Interest name.

Property Theory: This theory assumes that the owners of the parent or controlling entity are interested in making decisions based on the consolidated financial statements referring only to the part of the subsidiaries over which control is had and therefore, it would be undesirable to include in the consolidated information corresponding to third parties. That is, minority interest does not arise in this situation since the third-party owners of the subordinate have no participation in the parent company (Carvalho, 2006). In international financial information standards, this theory is still valid for those cases related to joint control investments in which there are two shareholders and each one has 50% of the entity to be consolidated. (Martínez, 2010).