- From the net income of the subsidiary, amount proportionate to minority interest is calculated and adjusted with the group income i.e. it is deducted from the profit & loss account balance and added to minority interest, so that the income of the group belonging to the parent is identified separately.
- Care should be taken to adjust for the cumulative preference dividend and profits belonging to the preference shares (if any) in the minority interest for the preference shares not held by the consolidated group. This adjustment should be made irrespective of whether or not dividends have been declared.
- Minority interests 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 interests in the net assets consist of:
- The amount of equity attributable to minorities at the date on which investment in a subsidiary is made and
- The minorities’ share of movements in equity since the date the parent-subsidiary relationship came in existence.
- If carrying amount and cost of investment are different, carrying amount is considered for the purpose.
- The losses applicable to the minority are deducted from the minority interest unless minority interest is nil. Any further loss is adjusted with the consolidated group interest except to the extent that the minority has a binding obligation to, and is able to, make the losses good. Subsequently, when the particular subsidiary makes profits, minority share in profits is added to majority share to the extent minority interest losses were absorbed by majority share.
For example, 25% minority interest has the share in net equity 40 lacs and company made cumulative losses since the date of investment 200 lacs. 25% of 200 lacs, 50 lacs are minority share in losses. Losses upto 40 lacs will be adjusted with the minority interest and further loss of 10 lacs will be adjusted with the majority interest. Hence in the Consolidated Balance Sheet for the relevant year, minority interest on the liabilities side will be NIL.
In the next year, if subsidiary company makes a profit, for example, 60 lacs. Minority interest comes to 15 lacs, out of these 15 lacs, first 10 lacs will be added to majority interest as recovery of losses absorbed in past and balance 5 lacs will appear in Consolidated Balance Sheet as part of the Minority Interest.