A non controlling interest is the part of a subsidiary’s equity that belongs to shareholders outside the group. The group accounts still include 100% of the subsidiary’s assets, liabilities, income and expenses, then show the outside shareholders’ share as a separate line within equity and a separate share of profit. Under FRS 102 it is measured at their share of the subsidiary’s net assets at fair value; IFRS 3 also allows a full fair value measurement that includes goodwill.

What is a non controlling interest?

The FRS 102 glossary, IFRS 10 and IFRS 3 all define it in the same words: the equity in a subsidiary not attributable, directly or indirectly, to a parent. Company law used to call it the minority interest, and FRS 102’s table of equivalent terminology still maps “minority interests” to “non controlling interest”. Schedule 6 paragraph 17 to SI 2008/410 now uses the heading “non controlling interests” and describes the amount as capital and reserves attributable to shares in consolidated subsidiaries held by or for anyone other than the parent and its subsidiaries.

The point to grasp is that consolidation follows control, not ownership. A parent with 75% of the shares controls 100% of the subsidiary’s assets, so it consolidates all of them. An ACCA article on simple consolidations calls it a fundamental mistake to pro rate a subsidiary’s balance sheet where ownership is below 100%. The non controlling interest line is how the accounts show that a quarter of those net assets belongs to someone else. See FRS 102 consolidated accounts for how control is decided.

How is it measured on acquisition under FRS 102?

FRS 102 gives no choice. Paragraph 19.14A says that at the acquisition date any non controlling interest is stated at its share of the net amount of the identifiable assets, liabilities and provisions for contingent liabilities recognised. Those are the fair values established under Section 19, so the non controlling interest picks up its share of every fair value adjustment. It does not include any goodwill, because under paragraph 19.22 goodwill is measured as cost less the acquirer’s interest in the net assets: only the parent’s goodwill is recognised.

What choice does IFRS 3 give?

IFRS 3 paragraph 19 lets the acquirer choose, for each business combination, to measure non controlling interests that are present ownership interests either:

  • at fair value (often called the full goodwill method); or
  • at their proportionate share of the recognised amounts of the identifiable net assets, which matches FRS 102.

Because IFRS 3 paragraph 32 adds the non controlling interest to the consideration before deducting net assets, the fair value option produces a higher goodwill figure that includes goodwill attributable to the outside shareholders. Paragraphs B44 and B45 explain that fair value may come from a quoted share price or another valuation technique, and that the per share value of the non controlling interest can be lower than the acquirer’s because of a discount for lack of control. The ACCA article on accounting for goodwill notes both methods are examinable. Groups moving between FRS 102 and IFRS should note which basis was chosen, because it changes goodwill, impairment and the non controlling interest balance. See IFRS 3 business combinations.

How does the balance move after acquisition?

FRS 102 paragraph 9.13(d) says the non controlling interest in net assets consists of its share of identifiable net assets at the date of the combination plus its share of changes in equity since then. In practice the balance each year is:

  • opening balance;
  • plus its share of the subsidiary’s profit for the year, after consolidation adjustments that affect the subsidiary, such as extra depreciation on fair value uplifts and, where the group’s policy charges it, unrealised profit on sales made by the subsidiary;
  • plus its share of other comprehensive income;
  • less dividends paid by the subsidiary to the outside shareholders.

Paragraph 9.14 says the split is based on existing ownership interests and ignores options or convertible instruments that have not been exercised. IFRS 10 paragraph B89 has the same rule, with an exception in B90 where a transaction already gives the parent access to the returns of an ownership interest. IFRS 10 paragraph B95 adds that if a subsidiary has cumulative preference shares held outside the group and classified as equity, the parent’s share of profit is computed after adjusting for those dividends, whether or not declared.

Paragraph 9.22 requires total comprehensive income to be attributed to the non controlling interest even if that gives it a deficit balance. A loss making subsidiary can therefore show a negative non controlling interest; there is no rule capping it at nil.

Where does it appear in the accounts?

  • Balance sheet. Paragraph 9.20 requires it to be presented within equity, separately from the equity of the parent’s owners. Schedule 6 paragraph 17(2) requires it as a separate item under the heading “non controlling interests”.
  • Profit and loss account. Paragraph 9.21 requires the non controlling interest in group profit or loss to be disclosed separately, and Schedule 6 paragraph 17(3) requires a separate item under the same heading. Paragraph 9.22 requires profit and each component of other comprehensive income to be attributed between the parent’s owners and the non controlling interest.
  • Acquisition note. Paragraph 19.25(cA) requires the amount of any non controlling interest recognised at the acquisition date to be disclosed for each business combination in the period.

What happens if the parent buys or sells shares but keeps control?

These are treated as transactions between equity holders. Under paragraph 9.20A the non controlling interest is adjusted to reflect the change in the parent’s share of net assets, and any difference from the price paid or received goes directly to equity attributable to the parent’s owners. No gain or loss is recognised, and the carrying amounts of assets, including goodwill, do not change. Paragraph 9.19C confirms that buying more shares in a subsidiary already controlled does not trigger a new fair value exercise or extra goodwill. IFRS 10 paragraphs 23 and B96 give the same result under IFRS.

Once control is lost the position is different: the subsidiary is deconsolidated, a gain or loss arises and the non controlling interest is derecognised.

How does it work in numbers?

Illustration only. Parent buys 75% of Sub for £900,000. At acquisition Sub’s identifiable net assets at fair value are £1,000,000. Over the following year Sub makes a profit of £120,000, of which £20,000 is extra depreciation on a fair value uplift that has to be charged on consolidation, and pays a dividend of £40,000.

Item FRS 102
Non controlling interest at acquisition (25% × £1,000,000) £250,000
Goodwill (£900,000 less 75% × £1,000,000) £150,000
Share of adjusted profit (25% × (£120,000 less £20,000)) £25,000
Dividend to outside shareholders (25% × £40,000) (£10,000)
Non controlling interest at year end £265,000

If the same acquisition were under IFRS and the outside shareholders’ 25% had a fair value of £280,000, the fair value option would give a non controlling interest of £280,000 and goodwill of £180,000 (£900,000 plus £280,000 less £1,000,000).

What mistakes come up?

  • Including only the parent’s percentage of the subsidiary’s assets and liabilities. The ACCA article on common consolidation errors describes this proportionate approach as a frequent error.
  • Calculating the non controlling interest’s share of profit from the subsidiary’s own accounts without deducting consolidation adjustments such as fair value depreciation.
  • Treating the subsidiary’s whole dividend as a group distribution. Only the part paid to outside shareholders reduces the non controlling interest; the rest is eliminated as an intra group item (see eliminating intra group transactions).
  • Recognising a gain or extra goodwill when buying out part of the minority.
  • Presenting the non controlling interest as a liability. Under FRS 102 and IFRS it is equity.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.