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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Meru Textiles Ltd holds 30% of the equity shares of Kaveri Dyes Ltd, and the investment is treated as an associate. During the year Meru sold goods worth Rs 40 lakh to Kaveri. Under AS 18, how should this transaction be treated?

The sale is disclosed as a related party transaction. AS 18 includes associates and joint ventures of the reporting enterprise within related parties, so Kaveri Dyes is related to Meru Textiles. Disclosure does not depend on holding more than 50% or on whether the price differs from the market price.

  1. AIt is not disclosed because an associate is not a related party
  2. BIt is disclosed as a related party transaction because Kaveri is an associate of MeruCorrect
  3. CIt is disclosed only if Meru holds more than 50% of Kaveri
  4. DIt is disclosed only if the sale was made at a price different from market price

Explanation

AS 18 treats associates (and joint ventures) of the reporting enterprise as related parties. Hence the Rs 40 lakh sale is a related party transaction and must be disclosed whatever the pricing. The 50% test relates to subsidiary status and is not needed for associates.

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