How can Non-Controlling Interest (NCI) be measured?

Non-Controlling Interest (NCI) can be measured in two primary ways, as per the International Financial Reporting Standards (IFRS). The correct answer indicates that it can be measured at fair value or as a proportionate share of the net assets of the subsidiary.

Measuring NCI at fair value allows for a more accurate representation of its worth at the time of acquisition. This approach helps provide clarity on what the NCI would be worth on the market, based on the total value attributed to the subsidiary. This is particularly relevant for stakeholders who may need to assess their investments or for financial reporting purposes when determining overall company valuations.

On the other hand, measuring NCI as a proportionate share of the net assets means that the NCI is valued based on its percentage ownership of the subsidiary’s identifiable net assets at fair value. This method reflects the underlying value of what the NCI holds within the business without factoring in market fluctuations.

The other methods mentioned are not appropriate for measuring NCI. Evaluating NCI only at book value, solely through consensus of voting rights, or based on future earnings projections would not provide a comprehensive or accurate financial picture. Thus, the ability to choose between these two methods enhances flexibility and accuracy in financial reporting,