ACCT6010 · Financial Reporting For Business Groups
Non-Controlling Interests
When a subsidiary is only partly owned, the group still consolidates 100% of it, then shows the slice of equity and profit belonging to outside shareholders as non-controlling interest (NCI) — part of group equity, not a liability. This chapter covers the entity-concept presentation, the choice between full and partial goodwill (NCI measured at fair value vs at its share of FVINA), and the workhorse calculation: the 3-step NCI memorandum. The three steps allocate to the NCI its share of (1) the subsidiary's equity at acquisition, (2) the post-acquisition movement to the start of the current year, and (3) the current-year profit, all after consolidation adjustments. The exam's signature subtlety is the upstream-only rule: NCI shares in the elimination of unrealised profit only when the subsidiary is the seller (upstream), because only then is the deferred profit in the subsidiary's own result; downstream profit is the parent's, so NCI is untouched.
What this chapter covers
- 011 The entity concept and NCI presentation
- 022 Full vs partial goodwill (AASB 3.19)
- 03The 3-step NCI memorandum
- 04The upstream-only rule for unrealised profit
- 05Worked 3-step NCI calculation
- 06Putting the three steps together — total NCI
Worked example: the upstream-only rule
- +1Identify the direction: the subsidiary is the seller, so this is an upstream transaction — the unrealised profit sits in the subsidiary's own result.
- +1Apply the upstream rule: because the deferred profit reduces the subsidiary's profit, the NCI does share in the elimination.
- +1Find the after-tax unrealised profit: 30 × (1 − 0.30) = 21.
- +1Allocate the NCI share: NCI share of the reduction = 21 × 20% = 4.2 — the NCI is debited (its share of profit falls) and the NCI memorandum reduced accordingly.
- +1Contrast downstream: had the parent been the seller (downstream), the profit would be the parent's, so NCI would be untouched — the whole elimination would fall on the parent's interest.
Key terms
- Non-controlling interest (NCI)
- The portion of a subsidiary's equity not attributable to the parent. The group consolidates 100% of the subsidiary and presents the NCI's share of equity and profit separately, within group equity.
- Entity concept
- The view underlying AASB 10 that the NCI is an owner of the group, not an outside creditor — so NCI is part of consolidated equity and is allocated its share of profit and other comprehensive income.
- 3-step NCI memorandum
- The standard calculation of the NCI balance: NCI% of (1) the subsidiary's equity at acquisition, (2) the post-acquisition change in equity to the start of the current year, and (3) the current-year profit, each after consolidation adjustments.
- Upstream transaction
- An intragroup sale where the subsidiary is the seller, so any unrealised profit reduces the subsidiary's result; the NCI therefore shares in the elimination of that profit.
- Downstream transaction
- An intragroup sale where the parent is the seller, so the unrealised profit is the parent's; the NCI is not affected by its elimination.
Non-Controlling Interests FAQ
Is NCI a liability?
No. Under the entity concept that underlies AASB 10, the NCI represents owners of the group's economic entity, so it is presented within consolidated equity, separately from the parent's interest — not as a liability. The group consolidates 100% of the subsidiary and then splits equity and profit between the parent's interest and the NCI.
What are the three steps of the NCI memorandum?
Allocate to the NCI its percentage of: (1) the subsidiary's equity at acquisition date (after fair-value adjustments); (2) the post-acquisition change in the subsidiary's equity from acquisition to the start of the current year; and (3) the subsidiary's current-year profit. Each step is taken after the consolidation adjustments that affect the subsidiary's result, and the three sum to the NCI balance.
When does the NCI share in an unrealised-profit elimination?
Only on upstream transactions, where the subsidiary is the seller and the deferred profit therefore sits in the subsidiary's result. Because the NCI shares the subsidiary's profit, it shares the elimination. On downstream transactions the parent is the seller, so the profit is the parent's and the NCI is untouched.
Does the choice of full or partial goodwill affect the NCI?
Yes. Full goodwill measures NCI at fair value, so the NCI balance includes its share of goodwill; partial goodwill measures NCI at its share of FVINA, so it does not. The choice, made per business combination, also changes how a later goodwill impairment is allocated between the parent and the NCI.
Exam move
Make the 3-step memorandum a fixed template — acquisition equity, post-acquisition movement to the start of the year, current-year profit — and always take each step after the consolidation adjustments that touch the subsidiary's result. Train the upstream/downstream reflex: who sold? Subsidiary (upstream) means NCI shares the unrealised-profit elimination; parent (downstream) means NCI is untouched. Be clear that NCI is equity, not a liability, and that the full-vs-partial goodwill choice changes the NCI balance and the sharing of any later impairment. Practise a full question that combines a partial holding, an upstream sale and a fair-value-adjustment depreciation so all three feed the NCI cleanly.
