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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Meera Textiles Ltd's managing director, Mr. Ramesh Iyer, owns 100% of Iyer Logistics, a proprietorship, which transported goods for Meera Textiles during the year. Under AS 18, how should this relationship be classified for disclosure in Meera Textiles' financial statements?

Iyer Logistics is a related party of Meera Textiles, because AS 18 covers enterprises over which key management personnel, here the managing director, can exercise significant influence. Arm's length pricing and transaction size do not exempt disclosure, and a proprietorship counts as an enterprise under the standard.

  1. AIyer Logistics is an enterprise over which a key management personnel is able to exercise significant influence, so it is a related partyCorrect
  2. BIyer Logistics is not a related party because the transactions were at arm's length
  3. CIyer Logistics is a related party only if the transaction value exceeds 10% of turnover
  4. DIyer Logistics is not a related party because a proprietorship is not an enterprise

Explanation

AS 18 treats an enterprise over which a key management personnel (or a relative) has significant influence as a related party. Arm's length pricing does not remove the disclosure obligation, and AS 18 prescribes no materiality threshold in percentage terms. A proprietorship is an enterprise for this purpose.

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