How should non-controlling interest be treated in a consolidated model?

• A. Record NCI as a liability.
• B. Ignore NCI in equity calculations.
• C. Present NCI as a deduction from revenue.
• D. Include NCI in equity and net income proportionally; adjust the consolidated balance sheet and present NCI in equity.

Answer: (D)

Non-controlling interest represents the portion of a subsidiary not owned by the parent. In consolidation you bring in 100% of the subsidiary’s assets and liabilities, but the portion owned by other shareholders must still be shown separately. That’s why the non-controlling interest is presented as a component of equity on the consolidated balance sheet, not as a liability.

When it comes to earnings, you allocate the subsidiary’s net income between the parent and the non-controlling interests in proportion to their ownership. The total consolidated net income includes all of the subsidiary’s earnings, but the share belonging to non-controlling interests is reported as a separate amount within equity and reduces the portion of net income attributed to owners of the parent. In short, you reflect NCI within equity and assign a proportional share of net income to it, with the balance sheet adjusted accordingly to show NCI as part of equity.