Minority interest

Dear Rushi,

clause 32 of the Listing Agreement requires all listed companies to prepare consolidated financial statements in accordance with AS 21 annually and include the same in the annual report..... where the consolidated financial statements are the statements which are required to include financial statements of all subsidiaries, domestic as well as foreign of the parent other than the ones specified...... and subsidiaries may have shareholder's other than the holding (parent) company which are minority interest for holding company, who is preparing consolidated financial statements and required to account for other shareholders of subsidiaries (i.e. Minority Interest).

As provided in AS 21, Minority Interest represents the claims of the outside shareholders of a subsidiary.... i.e. Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned, directly or indirectly by the holding (parent) company, through its subsidiaries.....

Accounting Treatment of Minority Treatment:

As per para 13(e) of AS 21, minority interest in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parent’s shareholders. Minority interest in the net assets consist of :

(i) the amount of equity attributable to minorities at the date on which investment in a subisidiary is made; and

(ii) the minorities share of movements in equity since the date the parent-subsidiary relationship and into existence.

For example :-

If H Ltd., a listed company owns 80% of S Ltd. whose net wealth (i.e. share capital and reserves) is 10 crore INR....... In H Ltd.'s consolidated balance sheet, there would be a liability of INR 2 crore as in name of minority interest account to represent the remaining 20% of S Ltd. that H Ltd. does not own i.e. Minority interest (which is Minor sharholders of subsidiary of H Ltd.).

Here H Ltd. represents Holding Company

and S Ltd. represents Subsidiary Company

Computation of Minority Interest (20% or 1/5th share of minority interest is used by me from above e.g. for ur better understanding) :-

Total Paid-up value of Shares held by outsiders ...........................xxx

[i.e. (Total Shares of S Ltd. – Shares of S Ltd. held by H Ltd.) => Number of Shares held by outsiders ×`Paid-up value of each share]

Add: 1/5th share of pre-acquisition profits and reserves .............xxx

Add: 1/5th share of profit on revaluation (if any) .............................xxx

Add: 1/5th share of post-acquisition reserves ...............................xxx

Add: 1/5th share of post-acquisition profit ......................................xxx

Minority interest will be shown in consolidated B/S of H Ltd. ..........xxx