Will the shareholders' equity exclude minority interest as well as intangibles in all the ratios wherever they are applied ?
I wouldn't say so (although to be honest, they will never ask anything in CT2 that is as detailed and complex as that!). The non-controlling interest, or minority interest, is seen as part of the share capital of the "group". We include all the group assets and all the group debt, so we should include all the group equity capital including the non-controlling interests.
But in Chapter - 10 (Interpretation of Accounts), page - 27; under the Net Asset Value per share it is given that 'Ordinary Shareholders' Equity' is excluding preference capital & minority interest. So can we assume that 'Shareholders' Equity' is inclusive of minority interest and 'Ordinary Shareholders' Equity' is exclusive of minority interest ?
Hi, I see the bit of ActEd text that you are referring to. One issue is that the reference to the pref shares seems a bit out of date (I will make a note to update it). Preference shares are generally included in "liabilities" nowadays, so there should be no prefs in the equity capital section. But thinking through the NAV definition again, if it was a set of consolidated accounts with non-controlling interest in the equity capital section, it DOES actually make sense to exclude these from the top line. If we are dividing by the number of shares in the company (excluding the non-controlling interest) then the top line should include only the equity capital that belongs to those shareholders. It is an issue that only affects NAV though (because we are dividing by the number of shares), and I doubt the examiners would try to catch you out by giving you a set of consolidated accounts in your accounting ratio analysis question. If you were calculating ROCE for example, you would include all of the profits on the top, and therefore all of the capital on the bottom (including non-controlling interests). Likewise gearing would use all debt and all equity (including non-controlling interests). I don't think its an issue with the definition of "ordinary shareholders equity" and "shareholders equity", which are basically the same. Its an issue with the particular definition of NAV per share for a set of consolidated accounts I think. Hope this help - I realise its complicated!
