Can Non-Controlling Interest be negative under Ind AS? Analysis of Ind AS 110 and Schedule III

Summary: Non-Controlling Interest (NCI), previously referred to as minority interest, represents the equity in a subsidiary that is not attributable to the parent company. A significant accounting question arises when accumulated losses attributable to NCI exceed its opening carrying amount, resulting in a negative balance in consolidated financial statements. Paragraph B94 of Ind AS 110 expressly requires profit or loss and each component of other comprehensive income to be attributed between the owners of the parent and NCI, even where such allocation results in a deficit NCI balance. Accordingly, NCI cannot be mechanically restricted to zero merely because the subsidiary has incurred substantial losses. Paragraph 22 of Ind AS 110 requires NCI to be presented separately within equity, while Schedule III to the Companies Act, 2013, prescribes the relevant presentation and disclosure requirements. A negative NCI balance does not automatically create a legal or contractual obligation for minority shareholders to fund the subsidiary’s losses, particularly where their liability is limited to shares. However, ownership arrangements, preference share rights and contractual obligations must be examined independently. For example, an opening NCI of ₹20 lakh reduced by attributable losses of ₹45 lakh results in a closing deficit of ₹25 lakh, which should be appropriately reflected in the Statement of Changes in Equity. Auditors should verify ownership percentages, opening balances, allocation of losses and OCI, consolidation adjustments, changes in ownership interests and applicable disclosures. Where the deficit is material, suitable explanatory disclosures improve transparency. The fundamental principle is that Ind AS 110 requires continued attribution of comprehensive income to NCI even when its carrying amount becomes negative, ensuring faithful presentation of the economic interests of shareholders in consolidated financial statements.

Introduction

Non-Controlling Interest or NCI, earlier commonly referred to as minority interest, represents the portion of equity in a subsidiary that is not attributable, directly or indirectly, to the parent company.

In a consolidated financial statement, NCI is generally presented separately from the equity attributable to the owners of the parent.

However, a practical question frequently arises during consolidation:

Can the carrying amount of NCI become negative?

This question becomes particularly relevant where a subsidiary has accumulated substantial losses and the share of those losses attributable to NCI exceeds the amount of NCI that is originally recognised.

At first glance, a negative NCI may appear unusual because NCI represents an interest in the equity of a subsidiary. Further, questions may arise regarding the presentation under Schedule III to the Companies Act, 2013.

However, the answer under Ind AS is quite clear, it states that NCI can have a deficit balance under Ind AS 110. In fact, paragraph B94 of Ind AS 110 expressly contemplates such a situation.

Before we proceed further, you might be thinking what actually is the NCI?

NCI is defined in Ind AS 110 as “Equity in a subsidiary that is not attributable, directly or indirectly, to a parent.” For example, let’s assume the parent company holds 80% in Subsidiary while the other shareholders hold 20%. That 20% interest represents NCI.

At the time of consolidation as per IndAS 103, the subsidiary is consolidated line-by-line with the parent, and the portion of the subsidiary’s net assets attributable to the 20% outside shareholders is presented as NCI. With this logic we can say that, NCI is an equity interest, and not ordinarily a liability merely because the subsidiary has suffered losses.

Ind AS 110, Paragraph B94

The most important provision in this entire discussion is paragraph B94 of Ind AS 110. It provides that profit or loss and each component of OCI are attributed to the owners of the parent and to NCI.

This paragraph expressly states that this attribution is required with the words, “even if this results in the non-controlling interests having a deficit balance.” This is not an inference or interpretation.

Hence as the Standard expressly recognises the possibility of a deficit balance in NCI. Therefore, where the allocation of losses to NCI results in a negative carrying amount, the accounting treatment does not stop merely because NCI reaches zero, Indeed earlier Accounting standard stopped it to zero.

Reasons for Negative NCI

Negative NCI Due to Accumulated Losses

Suppose parent company holds 70% of Subsidiary Company, that means NCI equals 30%. Suppose the opening NCI is Rs. 10 lakh and During the year, the subsidiary incurs a loss of Rs. 100 lakh hence NCI’s share of loss will be Rs. 100 lakh × 30% = Rs. 30 lakh which will appear on the face of balance sheet.

Under Ind AS 110.B94, the Rs. 30 lakh loss is attributed to NCI notwithstanding the fact that the resulting NCI balance becomes negative. The balance therefore does not automatically get restricted to zero.

Reason Behind This Article

The apparent difficulty arises because NCI is described as an interest in the equity of a subsidiary.

If the subsidiary’s net assets become negative, it may appear that the outside shareholder’s equity interest should simply become zero.

However, consolidation accounting under Ind AS 110 is not based merely on the legal amount originally invested by the NCI shareholder.

The consolidated financial statements attribute the subsidiary’s comprehensive income between the owners of the parent; and NCI, if we take this logic than what about limited liability of owners as per companies act, 2013? It should have been treated as dead loss, but it isn’t. Hence, Ind AS 110.B94 specifically requires that attribution to continue even when it produces a deficit NCI, so NCI fully depends upon the subsidiary’s subsequent performance and other changes in equity.

Paragraph 22 of Ind AS 110

It states that

“A parent shall present non-controlling interests in the consolidated balance sheet within equity, separately from the equity of the owners of the parent.”

Thus, NCI remains an equity component.

The provision does not state that NCI must always have a positive balance. Therefore, paragraph 22 deals primarily with presentation, while paragraph B94 deals with attribution of profit/loss and OCI. These two provisions must be read together.

Schedule III of the Companies Act, 2013

As I have discussed earlier regarding limited liability feature of the company, this is where the practical controversy generally arises. Schedule III contains specific requirements for consolidated financial statements.

Part III of Schedule III requires, among other things, that profit or loss attributable to NCI and owners of the parent be presented as an allocation, total comprehensive income attributable to NCI and owners of the parent must be disclosed, NCI in the Balance Sheet and Statement of Changes in Equity be presented within equity and separately from equity attributable to owners of the parent.

It also requires additional information regarding net assets, profit/loss, OCI and total comprehensive income attributable to various entities in the group. Importantly, Schedule III does not contain a provision saying that NCI cannot have a negative balance. Rather, it requires NCI to be presented separately within equity and requires its share of the group’s financial results and net assets to be disclosed. Therefore, there is no direct conflict between Schedule III and Ind AS 110.B94.

Companies Act and Ind AS Have to Be Read Together

Section 129 of the Companies Act, 2013 requires financial statements to comply with the applicable accounting standards. Section 133 provides the statutory framework for accounting standards prescribed under the Companies Act. For companies required to prepare Ind AS financial statements, Ind AS 110 therefore governs the accounting treatment of NCI, while Schedule III governs the prescribed presentation and disclosure framework.

The Companies Act requires consolidated financial statements to be prepared in the prescribed manner, while the applicable Ind AS determines the recognition and measurement principles.

There is therefore no basis to override the explicit requirement of Ind AS 110.B94 merely because the resulting NCI is negative.

NCI Restricted to Zero

A common approach sometimes considered during consolidation is “NCI cannot be negative, therefore, once NCI reaches zero, the remaining losses should be allocated entirely to the parent.” Same concept was provided by old accounting standards. That approach is not consistent with Ind AS 110.B94 merely because NCI has reached zero. The Standard expressly requires attribution of total comprehensive income to NCI even where that attribution creates a deficit. Therefore, in the absence of some other specific fact requiring a different accounting treatment, the NCI should not simply be capped at zero.

Statement of Changes in Equity

The movement in NCI should also be appropriately reflected in the Statement of Changes in Equity.

For example:

This is important because the negative balance should not appear suddenly in the Balance Sheet without a corresponding reconciliation. Schedule III specifically requires relevant NCI attribution disclosures in the Statement of Changes in Equity, that would be shown as per the table above.

Liability of Non-Controlling Interest Holders to Fund Losses

As discussed, the main issue which I came across, that made me write this article was the mere existence of a negative NCI does not mean that the NCI shareholders automatically owe the group an amount equal to the deficit. The accounting for the deficit NCI and any separate legal or contractual obligation of NCI shareholders should be considered independently.

The mere mention of limited liability clause as per the Companies Act, 2013 does not mean that presentation needs to be compromised or any non disclosure is done in above case. Hence IndAS 110 specifically mentioned regarding the same unlike AS 23 as per the previous GAAP, it means that if the company is “Limited by shares” then the minority shareholders need not to pay for the losses of the company/subsidiary.

Cumulative Preference Shares

Paragraph B95 of Ind AS 110 contains a specific rule where a subsidiary has outstanding cumulative preference shares classified as equity and held by NCI, then in that case parent’s share of profit or loss attributable to NCI is computed after adjusting for dividends on such shares, irrespective of whether the dividends have been declared.

Therefore, where preference shares are involved, the calculation of NCI should not be performed merely by applying the ownership percentage mechanically. The terms of the instrument need to be examined.

What Should Be Disclosed in the Financial Statements?

A company does not necessarily need to create a separate lengthy note merely because NCI has become negative. However, where the amount is material, unusual or likely to raise a question from users of financial statements, a clear accounting-policy disclosure can improve transparency.

A suitable disclosure could be:

Non-Controlling Interests

“Non-controlling interests represent the equity in subsidiaries not attributable, directly or indirectly, to the Company. Non-controlling interests are presented separately within equity in the consolidated financial statements. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests, even if such attribution results in the non-controlling interests having a deficit balance, in accordance with Ind AS 110.”

Where the negative balance is material, an additional explanatory note may be considered:

Deficit in Non-Controlling Interests

“As at 31 March 2026, the carrying amount of non-controlling interests includes a deficit of Rs. So and so, primarily arising from accumulated losses attributable to non-controlling shareholders of certain subsidiaries. In accordance with paragraph B94 of Ind AS 110, the Group has attributed its share of profit or loss and other comprehensive income to non-controlling interests notwithstanding that such attribution has resulted in a deficit balance.”

The disclosure should, however, be tailored to the actual facts.

Audit Working Paper

From an audit perspective, the following documentation would be useful:

As an auditor first of all we need to verify the ownership by establishing the parent’s percentage holding and NCI percentage, then verify opening NCI, once we agree the opening NCI to the previous year’s audited consolidated financial statements, we should recalculate current-year allocation by “Subsidiary’s profit/loss × NCI percentage” after considering all relevant consolidation adjustments.

Once it is done, we must consider OCI by ensuring that OCI attributable to NCI has also been appropriately allocated, then check whether there have been any changes in the parent’s ownership interest without loss of control. Such transactions are treated as equity transactions under Ind AS 110, also side by side we must keep working papers assuring that NCI shareholders do not have any obligation to fund losses.

At the end we must prepare a complete NCI movement schedule from opening balance to closing balance and check Schedule III disclosures i.e. ensure that NCI is presented separately within equity, appropriately reflected in the Statement of Changes in Equity, appropriately attributed in profit/loss and OCI and included in the additional consolidated financial statement disclosures prescribed by Schedule III.

Audit Conclusion That I Suggested in AVP

An audit working paper could document the conclusion as follows:

Conclusion on Deficit Non-Controlling Interest

“The Group has recognised a deficit balance in Non-Controlling Interests amounting to Rs. say 100 as at 31 March 2026. The deficit has primarily arisen due to the attribution of accumulated losses of the subsidiary attributable to non-controlling shareholders. Paragraph B94 of Ind AS 110 requires profit or loss and each component of other comprehensive income to be attributed to the owners of the parent and non-controlling interests even where such attribution results in a deficit balance in non-controlling interests. Accordingly, the Group has not restricted the NCI balance to nil and has continued to attribute the NCI’s share of losses in accordance with Ind AS 110. The NCI has been presented separately within equity in accordance with paragraph 22 of Ind AS 110 and the applicable requirements of Schedule III to the Companies Act, 2013. Based on the examination of the NCI computation, ownership structure, movement in NCI and relevant contractual arrangements, the accounting treatment is considered appropriate.”

Ind AS Intent

As per my opinion, the purpose of consolidated financial statements is to present the parent and its subsidiaries as a single entity. If a subsidiary incurs losses, those losses belong economically to the equity holders of the subsidiary according to their respective interests. If the accounting were to stop allocating losses to NCI as soon as its balance reached zero, the consolidated financial statements could effectively transfer all subsequent losses to the parent merely because the NCI’s accumulated equity had been exhausted. That would be inconsistent with the explicit allocation principle in Ind AS 110.B94. Therefore, the Standard deliberately provides for the possibility of a deficit NCI.

Conclusion

The strongest authority is not merely an accounting practice or an interpretation of Schedule III. It is the express wording of Ind AS 110 paragraph B94, which requires attribution of total comprehensive income to NCI even if that results in a deficit balance. Schedule III does not prohibit such a deficit. Instead, it requires NCI to be presented separately within equity and prescribes additional consolidated financial statement disclosures regarding net assets and the allocation of profit/loss and OCI. Accordingly, where a subsidiary has incurred substantial losses and the NCI’s share of those losses results in a negative carrying amount, the appropriate approach is not to mechanically cap NCI at zero.

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Disclaimer: above are the author’s own views and shall not be taken as consultancy, AVP Capitals is authors own firm, hence author haven’t named any client or person to maintain confidentiality.

Author note: I was working with a big listed entity say Aman Ltd, which had a holding company say AVP Capital ltd, here AVP capital Ltd showed NCI balance as negative on the face of balance sheet, I knew that Ind AS allowed the same but is it right presentation? Ofcourse will not ask minority shareholders to pay for the loss as they are holding liability limited to shares only, so is it logically right presentation? Lets discuss.

Author can be contacted at [email protected]