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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

During the year Arjun Pharma Ltd. made the following transactions: sold goods of Rs 40 lakh to its subsidiary Beta Ltd. and purchased goods of Rs 25 lakh from Beta Ltd. At the year-end Beta Ltd. owes Rs 12 lakh to Arjun Pharma. Arjun Pharma also paid Rs 6 lakh as remuneration to its Managing Director. Which disclosure is required in Arjun Pharma's financial statements as per AS 18?

Arjun Pharma must disclose sales of Rs 40 lakh, purchases of Rs 25 lakh and the Rs 12 lakh balance with Beta Ltd. separately, along with the Rs 6 lakh managing director remuneration. AS 18 requires disclosure by type of transaction and does not permit netting different types.

  1. ASales Rs 40 lakh, purchases Rs 25 lakh and outstanding Rs 12 lakh with Beta Ltd., disclosed separately by type of transaction; plus managing director remuneration Rs 6 lakh as key management personnel transactionCorrect
  2. BOnly net amount Rs 15 lakh (40 - 25) with Beta Ltd., since set-off is permitted
  3. COnly the outstanding Rs 12 lakh, since sales and purchases are routine
  4. DNo disclosure of the managing director remuneration as it is covered by the Companies Act

Explanation

AS 18 requires disclosure of the volume of transactions, either as an amount or as an appropriate proportion, and of outstanding balances, for each type of related party transaction. Items of a similar nature may be disclosed in aggregate but sales and purchases are different types and are not netted to Rs 15 lakh. Key management personnel remuneration is also a related party transaction to be disclosed.

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