Non-controlling interest a part of shareholder's equity or total equity?

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Jones473

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On page 161 in the Financial reporting book the question is:
At 31 December 2010, Cinnamon’s shareholders’ equity on its balance sheet would most likely be:
  1. highest if Cinnamon is deemed to have control of Cambridge.
  2. independent of the accounting method used for the investment in Cambridge.
  3. highest if Cinnamon is deemed to have significant influence over Cambridge
The answer is A, however I thought it was B becaue it asks for shareholder’s equity and not total equity. I am aware that total equity is higher with non-controlling interest. However, I thought shareholder’s equity does not include non-controlling interest? I thought it was like this (just a random example below..):
Par value 1
Retained earnings 10
Shareholders equity 11
Non-controlling interest 2
Total equity 13
 
Shareholders equity is equity as a whole. There is no such term as total equity only total capital which include capital from all sources (equity, debt and preferred if exists). Minority interest is deductable item of consolidated shareholders equity for % of subsidiiary which is not under control of parent.
 
1. Par value (I don’t know if contributed capital is good translation to EN) - the amount which founder pay by estabishing firm all + later emissions through recapitalization - stock repurchases (deductable item)
2. Retained earnings = cummulated amount of earnings earnt through regular business - less dividends
3. Additional equity items - Paid in capital, capital/revaluation surplus (by applying of GAAPs, various accounting policies or local law of certain country)
= Shareholders equity
 
Flashback: So I thought, but e.g. on page 150 you will see that non-controlling interest is not a part of shareholders equity. They use this alignment:
Equity
Share capital: 1,387
Share premium account: 1,673
Retained earnings: 3,370
Other reserves: 1,602
Shareholders’ equity = 8,032
+ Non-controlling interests: 795
Total equity = 8,827
 
Normally the whole of Equity belongs to the shareholders. If you think about it, given the above, the equity belongs to company shareholders 8032 and other shareholders 795. Together they have a claim to the company’s net assets. So I guess it is a wording issue, i.e. both are shareholders but some are natives and the others are immigrants :)
Even if you try to hide your inner discrimination, they are always treated differently. In finance, where money is all that matters, they are bound to be separated.
 
I agree, refer to my first post: At 31 December 2010, Cinnamon’s shareholders’ equity on its balance sheet would most likely be:
  1. highest if Cinnamon is deemed to have control of Cambridge.
  2. independent of the accounting method used for the investment in Cambridge.
  3. highest if Cinnamon is deemed to have significant influence over Cambridge
If you say that shareholder’s equity is ALL EQUITY, then A is correct. However, on page 150 (as I showed above) they have a different split on this, and non-controlling interest is below shareholder’s equity. Hence shareholder’s equity should not be affected.
 
Control
Thus, acquisition method applies. Parent equity is a result of merging its BS and P/L positions with target so
the merger equity under this method would be the highest.
You also might be asked if partial goodwill or full goodwill will result in highest equity on meger BS and IMO, the correct answer would be full goodwill upon acquisition method will result in the highest equity item in parent BS.
 
Flashback wrote:
Control
Thus, acquisition method applies. Parent equity is a result of merging its BS and P/L positions with target so
the merger equity under this method would be the highest.
You also might be asked if partial goodwill or full goodwill will result in highest equity on meger BS and IMO, the correct answer would be full goodwill upon acquisition method will result in the highest equity item in parent BS.
Click to expand...
It seems to me you still did not catch my point. The exercise asks for ‘shareholder’s equity” and that does not include non-controlling interest according to page 150 in the book:
Flashback: So I thought, but e.g. on page 150 you will see that non-controlling interest is not a part of shareholders equity. They use this alignment:
Equity
Share capital: 1,387
Share premium account: 1,673
Retained earnings: 3,370
Other reserves: 1,602
Shareholders’ equity = 8,032
+ Non-controlling interests: 795
Total equity = 8,827
 
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