Final answer:
Non-controlling interest is included in equity on the SOFP to reflect the ownership stake in a subsidiary company that the parent company does not fully control, provide an accurate representation of the parent company's total ownership interest, and ensure comparability between companies.
Step-by-step explanation:
Non-controlling interest is included as part of equity on the Statement of Financial Position (SOFP) for several reasons:
- It represents the ownership stake in a subsidiary company held by the parent company, where the parent company does not have full control. Including non-controlling interest in equity provides transparency in reporting the ownership structure of the parent and subsidiary.
- It ensures that the total equity of the parent company reflects its total ownership interest in both the parent and subsidiary, giving a more accurate picture of the company's financial position.
- It allows for comparability between companies, as the inclusion of non-controlling interest aligns with international accounting standards (e.g., IFRS) and facilitates the analysis and interpretation of financial statements.