Updated on: Jun 15th, 2024
|
2 min read
This standard establishes requirements for the disclosure of:
a) Related party relationships
b) Transactions between a reporting enterprise and its related parties.
The requirements of this Standard apply to the financial statements of each reporting enterprise as also to consolidated financial statements presented by a holding company.
As per AS 18, Related party means “at any time during the year, one party has an ability to:
*Control means
The reporting enterprise should disclose the following:
The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise:
Case Study 1: For ABC Ltd.
Transactions | Amount (in Rs.) |
Sales to XYZ Ltd., a subsidiary | 2,00,000 |
Sales to PQR Ltd., a subsidiary | 3,00,000 |
Purchase from DEF Ltd., a subsidiary | 6,00,000 |
Purchase from LMN Ltd., a joint venture | 1,00,000 |
Solution: Disclosure required as per AS 18
Transactions | Amount (in Rs.) |
Sales to subsidiaries | 5,00,000 |
Purchase from Subsidiaries | 6,00,000 |
Purchase from joint venture companies | 1,00,000 |
Case Study 2: A Ltd holds 75% of voting power of B Ltd and B Ltd owns 50% voting interest in C Ltd. Further, A Ltd also holds 25% of the voting interest in C Ltd. Would A Ltd deem to have control over C Ltd or would it only be considered as exercising significant influence?
Solution: A Ltd would be considered to control C Ltd. As per AS 18, control includes ownership, directly or indirectly, of more than 50% of the voting power of another enterprise. As A Ltd is a majority shareholder B Ltd, therefore, it has control over it.
Further, as A Ltd and B Ltd together are majority shareholders (i.e. 50% + 25%) in C Ltd. A Ltd has indirect control over it. Accordingly, A Ltd has the ability to control C Ltd, indirectly via the share ownership in B Ltd apart from its individual shareholding in C Ltd.
Particulars | AS 18 | Ind AS 24 |
Definition of Related party relationship | It uses the term “relatives of an individual” | It uses the term “a close member of that person’s family” |
Definition of State controlled enterprises | It is an enterprise which is under the control of the Central Government and/or any State Government(s) | There is an extended coverage of Government Enterprises, as it defines a government-related entity as an entity that is controlled, jointly controlled or significantly influenced by a government |
Coverage of Key Management Personnel in Related party relationships | Existing AS 18 covers key management personnel of the entity only | Ind AS 24 covers key management person of the parent as well |
Coverage of entities that are post employment benefit plans as Related parties | Existing AS 18 does not specifically covered entities that are post employment benefit plans, as related parties | Ind AS 24 specifically includes post employment benefit plans for the benefit of employees of an entity or its related entity as related parties |
Disclosure of information by Government related entities | Existing AS 18 presently exempts the disclosure of such information | Ind AS 24 requires disclosures of certain information by the government related entities |
Disclosure of Volume of the transactions | Existing AS 18 gives an option to disclose the “Volume of the transactions either as an amount or as an appropriate proportion” | Ind AS 24 requires “the amount of the transactions” need to be disclosed |
AS 18 establishes requirements for disclosure of related party relationships and transactions, defining related parties, coverage, need for disclosures, and what needs to be disclosed. It includes examples of related party transactions, cases, and a comparison between AS 18 and Ind AS 24.