The Finnish Journal of Business Economics 1/1978, 8-28.
Kwartaalschrift Accountancy en Bedrijfskunde, nr. 4, 1978, 56-80.
A parent company (i.e. a controlling or majority interest) and
minority interest percentages are needed in preparing consolidated
financial statements for a business entity consisting of a parent
company and its legally separate subsidiaries. This paper explores
the determination of the parent company's, and the minority
shareholders', reported share in the net income of the aggregate
business entity through direct and indirect ownership of
subsidiaries' outstanding voting stock. A general solution giving
majority and minority interest percentages is presented for any
number of affiliates with complex corporate affiliations, allowing
also for the possibility of reciprocal shareholding. An analogy with
finite Markov chains is utilized to derive the solution. A
comparison is made with an earlier "input-output-model-analogy
solution" for determining external and internal interest fractions
for earnings allocation and company holding relationships. Examples
are considered of accounting for majority and minority interests in
a business entity's net income and net assets in the consolidated
income statement and consolidated balance sheet.
Keywords: financial accounting, consolidated financial statements,
preparing financial statements, Markov chains
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