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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:
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|