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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Meghna Textiles Ltd. sells goods to Ravi Traders, a firm in which the Finance Director of Meghna Textiles is a partner. Under AS 18, which of the following describes Ravi Traders correctly from the point of view of Meghna Textiles Ltd.?

Ravi Traders is a related party because AS 18 includes enterprises over which key management personnel can exercise significant influence. The relationship exists irrespective of transaction price or volume, so the sales to it must be disclosed under AS 18 with the required details.

  1. AA related party, because an enterprise over which a key management personnel is able to exercise significant influence is a related partyCorrect
  2. BNot a related party, because a partnership firm can never be a related party under AS 18
  3. CNot a related party, because the transaction is at arm's length price
  4. DA related party only if the sales exceed 10% of the turnover of Meghna Textiles Ltd.

Explanation

AS 18 treats enterprises over which a key management personnel (or a relative of such person) has control or significant influence as related parties. The existence of the relationship does not depend on pricing or on the size of transactions. Arm's length pricing does not remove the disclosure requirement.

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