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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Kaveri Textiles Ltd holds 30% of the equity shares of Lotus Dyes Ltd, which is therefore an associate. During the year Kaveri sold goods worth Rs 40 lakh to Lotus Dyes. Under AS 18, how should this transaction be treated in Kaveri's financial statements?

The transaction must be disclosed because an associate is a related party under AS 18. The sale to Lotus Dyes is a transfer of resources between related parties, so the relationship and transaction details are disclosed regardless of whether the price equals market price.

  1. ANo disclosure is needed because an associate is not a related party
  2. BDisclose the transaction and the nature of the relationship, as an associate is a related partyCorrect
  3. CDisclose only if the sale was at a price different from market price
  4. DDisclose only the outstanding balance, not the transaction

Explanation

AS 18 treats enterprises over which significant influence exists (associates) as related parties of the investing enterprise. A sale of goods to an associate is a related party transaction, so the transaction volume, nature of relationship and related details must be disclosed whether or not priced at arm's length.

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