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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Meera Textiles Ltd's Managing Director, Mr. Arvind Shah, owns 60% of the equity of Shah Logistics Pvt Ltd, which transports Meera's goods during the year. Under AS 18, how should Shah Logistics be treated by Meera Textiles?

Shah Logistics is a related party of Meera Textiles. AS 18 includes enterprises over which key management personnel can exercise control or significant influence. The MD holds 60% of its equity, which gives control, so transactions with it must be disclosed as related party transactions.

  1. AA related party, because an enterprise controlled by a key management personnel is a related partyCorrect
  2. BNot a related party, because the MD only has a commercial dealing
  3. CA related party only if the MD holds more than 80% of its shares
  4. DNot a related party, because AS 18 covers only holding and subsidiary companies

Explanation

AS 18 treats enterprises over which a key management personnel or a relative of such person is able to exercise significant influence or control as related parties. Holding 60% gives control, so Shah Logistics is a related party of Meera Textiles. The 80% threshold is invented and is wrong.

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