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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Aarav Industries Ltd holds 60% of the voting rights of Bhavya Components Ltd and can appoint the majority of its board. In preparing consolidated financial statements, how should the 40% of Bhavya's net assets owned by other shareholders be presented?

Non-controlling interest is presented within group equity, separately from the parent's shareholders' equity. Full consolidation includes all of the subsidiary's assets and liabilities, so the outside holders' 40% claim on net assets is shown as a separate equity component, not as a liability or goodwill.

  1. ANon-controlling interest within equity, shown separately from the parent's shareholders' equityCorrect
  2. BDeducted from the parent's investment in subsidiary and not shown elsewhere
  3. CAs a current liability, because it is owed to outsiders
  4. DExcluded entirely, because only the parent's share is consolidated
  5. As goodwill arising on consolidation

Explanation

Under full (line-by-line) consolidation, 100% of the subsidiary's assets and liabilities are included. The outside shareholders' share is shown as non-controlling interest within equity, separate from the parent's equity. Treating it as a liability or omitting it misrepresents the group's equity.

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