What is a non-controlling interest?

A non-controlling interest represents the portion of equity in a subsidiary that is not owned by the parent company. In the context of consolidated financial statements, when a parent company owns less than 100% of a subsidiary, the remaining ownership stake that is held by other shareholders is referred to as non-controlling interest. This interest is important because it reflects the claims of minority shareholders on the assets and income of the subsidiary, even though these shareholders do not have a controlling stake in the decision-making processes of the subsidiary.

Recognizing non-controlling interest is essential for accurate financial reporting, as it impacts how the consolidated balance sheet is presented and how net income is attributed among the shareholders. In financial statements, non-controlling interest appears in the equity section, separate from the equity attributable to the parent company's shareholders, allowing users of financial statements to see the full picture of ownership and corresponding rights to profits.

The other options do not accurately define non-controlling interest. The parent company’s portion of a subsidiary refers to the controlling interest, while a controlling shareholder's stake pertains to ownership that provides significant influence or control, typically associated with more than 50% ownership. Lastly, the total equity of the parent company encompasses all of its ownership interests and does not specifically