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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Bhima Steels Ltd had these dealings with its associate, Cauvery Alloys Ltd, during the year: sold goods ₹80 lakh; purchased goods ₹30 lakh; received ₹5 lakh rent from the associate; and at the year end owed ₹12 lakh to it and was owed ₹20 lakh by it. A note aggregating items of a similar nature is permitted by AS 18. What should Bhima's disclosure show?

Bhima should disclose each type of transaction separately (sales ₹80 lakh, purchases ₹30 lakh, rent ₹5 lakh) and show outstanding balances separately as ₹20 lakh receivable and ₹12 lakh payable. AS 18 permits aggregation only of similar items, so netting to ₹8 lakh is wrong.

  1. AVolume of transactions only: ₹115 lakh in total, with no balances
  2. BSales ₹80 lakh, purchases ₹30 lakh, rent received ₹5 lakh, and amounts outstanding of ₹8 lakh net receivable
  3. CSales ₹80 lakh, purchases ₹30 lakh, rent received ₹5 lakh, with outstanding amounts ₹20 lakh receivable and ₹12 lakh payable shown separately by natureCorrect
  4. DOnly the net outstanding balance of ₹8 lakh, since transactions are already in the profit and loss account

Explanation

AS 18 requires the amount of transactions by type of transaction and the amounts outstanding, and items of a similar nature may be aggregated, but unlike items such as sales and purchases should not be merged. Receivables and payables are different in nature, so netting them to ₹8 lakh (option 2) is wrong. The correct disclosure shows each transaction type and the ₹20 lakh and ₹12 lakh balances separately.

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