Back to Basics: Non-controlling interests
We go back to basics on non-controlling interests (‘NCI’) from the FR consolidation modules.
Students often ask: What are non-controlling interests and is there a way to remember if I am crediting or debiting it in a consolidation question? Ally Millar, FR subject controller explains.
What is it?
'NCI' stands for 'non-controlling interests' and represents the share in a subsidiary that is not owned by the group (i.e., the number of shares which are not owned by the parent company).
This can be expressed as either a share (%) of net assets of the subsidiary, or can be expressed as a fair value (effectively, a share of net assets plus a consideration for goodwill).
When does it credit, and when does it debit?
If you look at your IAS 1 format statement of financial position (Part B of your red books), you can see that NCI is a credit balance, recorded separately within the Equity section. This shows the users of financial information the share of the subsidiary that does not belong to the group. Every year we add in a further share of profits to (or deduct losses from) this balance.
If you look at the statement of profit or loss and other comprehensive income, you can see that NCI reduces group profits, that is, a debit transaction. This shows the user the share of profits of the subsidiary that does not belong to the group.
Application in financial reporting
Based on the IAS 1 accounts, we can see that if we want to give the NCI a share of profits or gains we would debit (decrease) NCI on the statement of profit or loss and we would credit (increase) NCI on the statement of financial position:
Dr P/L – NCI
Cr F/P – NCI
Conversely, if we want to give the NCI a share of losses or expenses we would credit (increase) NCI on the statement of profit or loss and we would debit (decrease) NCI on the statement of financial position:
Dr F/P – NCI
Cr P/L – NCI
You should always show either 'P/L' or 'F/P' when addressing NCI in your journals to make it clear to examiners that you understand which NCI is affected.