Which statement best defines Non-controlling interest?

Which statement best defines Non-controlling interest?

• A. Leverage effect
• B. Equity owned by third parties in subsidiaries
• C. Additional paid in capital
• D. Shares with voting rights disparities

Answer: (B)

Non-controlling interest is the portion of a subsidiary's equity that is owned by investors other than the parent. When a parent prepares consolidated financial statements, it includes all of a subsidiary’s assets and liabilities, but only its own stake in the subsidiary’s equity belongs to the parent; the remaining ownership by third parties is shown as non-controlling (or minority) interest in the consolidated balance sheet. In the income statement, the subsidiary’s net income is shared between the parent and the non-controlling interests, reducing the amount of consolidated net income attributable to the parent. This concept differs from leverage effects (which relate to debt financing), additional paid-in capital (capital contributed by owners of the parent), or voting-right disparities (differences in control rights not tied to the subsidiary’s ownership).

Non-controlling interest is the portion of a subsidiary's equity that is owned by investors other than the parent. When a parent prepares consolidated financial statements, it includes all of a subsidiary’s assets and liabilities, but only its own stake in the subsidiary’s equity belongs to the parent; the remaining ownership by third parties is shown as non-controlling (or minority) interest in the consolidated balance sheet. In the income statement, the subsidiary’s net income is shared between the parent and the non-controlling interests, reducing the amount of consolidated net income attributable to the parent. This concept differs from leverage effects (which relate to debt financing), additional paid-in capital (capital contributed by owners of the parent), or voting-right disparities (differences in control rights not tied to the subsidiary’s ownership).