1 Non-controlling interests accounting under Ind AS Introduction The International Accounting Standards Board (IASB) changed the term ‘minority interest’ to ‘Non-Controlling Interest’ (NCI) in 2008 in the International Financial Reporting Standards (IFRS). The change in terminology reflects the fact that an owner of a minority interest in an entity might control that entity and, conversely, that the owners of a majority interest in an entity might not control the entity. Therefore, NCI is This article aims to a more accurate description than minority interest of the interest of those – Provide an overview of the accounting of owners who do not have a controlling interest in an entity. non-controlling interests under Ind AS. Indian Accounting Standards (Ind AS) are converged with IFRS and therefore, Ind AS 110, Consolidated Financial Statements defines NCI as equity in a subsidiary not attributable, directly or indirectly, to a parent. Ind AS 110 requires a parent to present NCI in the Consolidated Financial Statements (CFS) within equity, separately from the equity of the owners of the parent. For example, if a parent owns 80 percent of a subsidiary directly and the remaining 20 percent is owned by a third party, then in the parent’s CFS the 20 percent interest held by the third party is presented as NCI in that subsidiary (within equity). This is because existence of NCI in the net assets of a subsidiary does not give rise to a present obligation, the settlement of which is expected to result in an outflow of economic benefits from the group. It represents equity i.e. residual interest in the assets of the entity after deducting all its liabilities. On the other hand, Accounting Standards (AS) use the term minority interest and not NCI. AS 21, Consolidated Financial Statements, defines minority interest as that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent. AS 21 prescribes that while preparing CFS a parent is required to identify and present minority interest separately from liabilities and the equity of the parent’s shareholders. Thus, under AS minority interest is not presented as part of equity. NCI can be categorised as: • Present ownership interests that entitle their holders to a proportionate share of the entity’s net assets in liquidation (ordinary NCI) • All other NCI (other NCI) e.g. equity components of convertible bonds or options under share-based arrangements, etc. © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Measurement of NCI and further losses are adjusted For example, the parent buys against the parent’s share, except shares from, or sells shares to, Ind AS 103, Business Combination where the minority has a binding NCI or the subsidiary issues new requires that for each business obligation to make good such shares or reacquires its shares. combination, where an acquirer losses. does not acquire 100 per cent of a As per Ind AS 110, transactions subsidiary, then the acquirer can • Potential voting rights and the that result in changes in elect on a transaction-by-transaction NCI proportion ownership interests while basis to measure ordinary NCI on As per the requirements of retaining control are accounted initial recognition either at: Ind AS 110, the determination for as transactions with equity holders in their capacity as • Fair value at the date of of control of an entity takes equity holders. As a result, no acquisition, which means that into account potential voting gain or loss on such changes goodwill, or the gain on a bargain rights that are substantive. is recognised in profit or loss; purchase, includes a portion However, Ind AS clarifies that instead, it is recognised in attributable to ordinary NCI; or NCI is generally based on current ownership interests because this equity. Also, no change in the • The holders’ proportionate corresponds to the economic carrying amounts of assets interest in the recognised amount interests of the parties. (including goodwill) or liabilities of the identifiable net assets of is recognised as a result of such the acquiree, which means that This includes in substance current transactions. goodwill, or the gain on a bargain ownership interest i.e. as a result The interests of the parent and purchase, relates only to the of a transaction that gives it NCI in the subsidiary are adjusted controlling interest acquired. access to the returns associated with an ownership interest. to reflect the relative change in This accounting policy choice relates In this case, the proportion their interests in the subsidiary’s only to the initial measurement of allocated to the parent and NCI is equity. As per Ind AS 110, any ordinary NCI. After initial recognition, determined by taking into account difference between the amount the option of measuring ordinary NCI the eventual exercise of those by which NCI are adjusted and at fair value is not available. potential voting rights and other the fair value of the consideration paid or received is recognised Measurement of other NCI derivatives that currently give the entity access to the returns directly in equity and attributed to The accounting policy choice associated with an ownership the owners of the parent. These available to ordinary NCI (as interest. principles also apply when a explained above) does not apply subsidiary issues new shares and to ‘other NCI’. Such instruments • Calculation of Earnings Per the ownership interests change are measured as prescribed by the Share (EPS) as a result. relevant Ind AS. For the purpose of calculating EPS • Non-reciprocal capital based on CFS, the entity would contribution: Practical application areas consider profit or loss attributable Sometimes an entity receives While preparing CFS, a parent may to the ordinary equity holders of amounts from shareholders in have to consider some practical the parent entity and if presented, the form of capital contributions, application areas while accounting profit or loss from continuing being either cash or other non- and presenting NCI. Some of the operations attributable to those monetary assets, which are significant areas are as follows: equity holders. non-reciprocal - i.e. no financial • Attribution of profit and losses The Ind AS Transition Facilitation or non-financial obligation exists. Group (ITFG) of the Institute As per Ind AS 110, an entity is This may happen, for example, of Chartered Accountants of required to attribute the profit or when an entity requires additional India (ICAI) in its recent bulletin, loss and each component of other financing or is in financial difficulty. Bulletin 111 also reiterated that comprehensive income to the Amounts might be received while calculating EPS, profit or owners of the parent and to the from all shareholders or only loss attributable to the parent NCI. Additionally, Ind AS requires certain shareholders. The non- entity refers to profit or loss of the an entity to allocate the losses reciprocal capital contributions consolidated entity after adjusting incurred by subsidiary between made by a parent to a non-wholly profit attributable to NCI. the parent and NCI even if it owned subsidiary should be allocated proportionately to NCI, results in a negative balance of • Sale/purchase of equity the NCI. Whereas under AS 21, if interest to/from NCI: After a i.e. they should be accounted the losses attributable to minority parent has obtained control of a for as transactions between interest in a subsidiary exceed the subsidiary, there may be a change shareholders, which have a direct minority interest in the equity of in its ownership interest in that impact on equity. the subsidiary, then such excess subsidiary without losing control. 1. Ind AS Transition Facilitation Group (ITFG) of ICAI issues Clarifications Bulletin 11 dated 1 August 2017 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 For example: Company X makes attributable to NCI would not be and the NCI. If an impairment loss non-reciprocal capital contribution recognised in the parent’s CFS. attributable to a NCI relates to of 100 to its subsidiary, Y, in However, in this case, goodwill goodwill that is not recognised in which it holds a 75 per cent attributable to NCI is included in the parent’s CFS, that impairment interest. The NCI in Y makes no the recoverable amount of the is not recognised as a goodwill capital contribution. As per NCI related CGU or group of CGUs. impairment loss. In such cases, accounting an amount of INR25 only the impairment loss relating Hence, while conducting is allocated to NCI and INR75 is to the goodwill that is allocated impairment testing of goodwill, in allocated to parent equity directly to the parent is recognised as a this case, the carrying amount of in equity in the CFS of X. goodwill impairment loss. goodwill allocated to such a CGU • Impairment testing of cash- or group of CGUs is grossed up to Presentation in the financial generating units with goodwill include the unrecognised goodwill statements and NCI attributable to the NCI. This In the parent’s CFS, as mentioned Ind AS 36, Impairment of adjusted carrying amount is then above, NCI are presented within Assets requires an entity to compared with the recoverable equity, separately from the equity of test goodwill acquired in a amount of the unit to determine the owners of the parent. Therefore, business combination each year whether the CGU is impaired.