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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Meru Textiles Ltd's managing director, Mr. Anil Shah, owns 60% of Shah Dyes Pvt Ltd. During the year, Meru Textiles bought dyes worth ₹40 lakh from Shah Dyes. Under AS 18, how should this transaction be treated in Meru Textiles' financial statements?

The transaction must be disclosed as a related party transaction. Shah Dyes is controlled by Mr. Shah, who is key management personnel of Meru Textiles, and AS 18 covers such enterprises. Disclosure does not depend on the pricing being unfair or on any percentage threshold.

  1. ANo disclosure, because Shah Dyes is not a subsidiary of Meru Textiles
  2. BDisclose it as a related party transaction, because an enterprise controlled by key management personnel is a related partyCorrect
  3. CDisclose it only if the purchases were made at above market price
  4. DDisclose it only if the amount exceeds 10% of total purchases

Explanation

AS 18 treats enterprises over which key management personnel (or their relatives) have control or significant influence as related parties. Mr. Shah owns 60% of Shah Dyes, so he controls it, and the purchase is a disclosable related party transaction. Disclosure does not depend on pricing or on a percentage threshold.

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