Non-controlling interest arises when less than 100% is bought but control is achieved So I'm buying a subsidiary but I only buy maybe 85% Well what I have to do first is I have to recognize control by adding 100% of all assets and liabilities of the acquirer and the target together But then I say "oops sorry, I didn't mean to add 100%, I meant to add 85%" 15% is actually owed away to someone else, what do I do? This is where we thus show the non-controlling interest in equity We show that some of this is due away to other shareholders So that's our starting point for the NCI's value What happens over time? Well maybe a year later your subsidiary company creates net income So as net income is generated by the investee (your subsidiary company) You again include 100% of the revenue and costs in the consolidated income statement And then again you go "oops, sorry I didn't mean to include 100%, I meant to include 85%" Some of this is due away to someone else, so thus we allocate the NCI percentage of net income (15% of the net income) at the bottom of the income statement, that's due away to someone else What if dividends are paid? Well as dividends are paid by the investee or the subsidiary then the NCI percentage of dividends paid has to be recorded, it goes out to someone else, it doesn't go to the parent company And that's shown as an outflow of cash in the financing cash flow and it's going to mean my NCI's value goes down So how do we bring all of those together? Well that's going to shown in your shareholders' equity again, bit like in step one What happens is, you take the beginning amount (that we saw at step one, the amount that you value the NCI at at the beginning) You then add on the NCI's percentage of net income that's due to them, so their 15% We owe that to them, that increases the value of NCI in my shareholders' equity But then we realise we actually paid them something, we paid them a dividend So the 15% of dividend paid (we saw that in step 3) that makes the NCI's value go down because we don't owe so much to them anymore And that then gets me to my ending amount of NCI that will be recorded in the consolidated balance sheet