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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Himalaya Textiles Ltd. has a wholly owned subsidiary, Kanchan Spinners Ltd. During the year, Himalaya sold goods to Kanchan for Rs 40 lakh and made no other transactions. Himalaya is preparing its separate financial statements. Under AS 18, which statement is correct?

Himalaya must disclose the Rs 40 lakh sale to Kanchan in its separate financial statements. A parent and its subsidiary are related parties under AS 18, and disclosure applies regardless of pricing. Intra-group items are excluded from disclosure only in consolidated financial statements.

  1. AHimalaya must disclose the Rs 40 lakh transaction with Kanchan, since it is a related party under the parent-subsidiary relationshipCorrect
  2. BNo disclosure is needed in the separate financial statements because the parties are under common control
  3. CDisclosure is needed only if the transaction was at a price different from market price
  4. DDisclosure is needed only in the consolidated financial statements, not in separate statements

Explanation

A parent and its subsidiary are related parties under AS 18. In the separate financial statements of the parent, related party transactions with the subsidiary must be disclosed irrespective of whether prices are at arm's length. Only in consolidated statements are intra-group transactions eliminated and not separately disclosed.

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