Consolidated financial statements are the combined financial statements of a company which has one or more subsidiaries.
Under U.S. GAAP, a company which has control over the subsidiary must fully combine the subsidiary’s financial statements with the parent company’s financial statements. Control is usually achieved when the parent company owns at least 50% of the outstanding common stock of the subsidiary.
When combining financial statements between the parent and the subsidiary, the parent company must eliminate any intercompany transactions.
When the parent company owns less than 100% of the outstanding common stock shares of the subsidiary, the parent company must recognize a line item on its financial statements for the portion of the subsidiary which the parent company does not control. The minority portion of the subsidiary not owned by the parent company is called non-controlling interest.
Non-controlling interest is shown on the balance sheet as a component in the shareholders’ equity section. Under U.S. GAAP, non-controlling interest must reflect the fair-value of the minority shares as of the acquisition date. The non-controlling interest line item adjusts the parent company’s shareholders’ equity for the claim placed on it by the subsidiary’s minority shareholders.
Non-controlling interest on the income statement is shown as a line item presented near the bottom of the income statement. The amount of non-controlling interest on the income statement represents an allocation of profit and loss attributed to the minority shares. The non-controlling interest line item adjusts the parent company’s income for the claim placed on it by the subsidiary’s minority shareholders.
