What entry is made if there is non-controlling interest (NCI) in a subsidiary acquisition?

When a parent company acquires a subsidiary and there is a non-controlling interest (NCI), the appropriate accounting treatment requires that the non-controlling interest be recognized in the financial statements.

Setting up the NCI involves recording its fair value at the acquisition date, as it represents the portion of the subsidiary that is not owned by the parent company. This ensures that the financial statements accurately reflect the interests of all equity holders in the subsidiary, including both the controlling and non-controlling shareholders.

Recording the NCI is crucial for providing a clear picture of the economic interests in the subsidiary and is particularly important in compliance with accounting standards such as IFRS and GAAP, which require that the financial statements present all stakeholders' interests. This entry allows users of the financial statements to understand the level of ownership and the corresponding rights and responsibilities associated with different stakeholders in the subsidiary.