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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Orchid Foods Ltd has four parties: (i) Orchid Retail Ltd, its subsidiary; (ii) Sunrise Bank, which gave it a term loan and has only a normal lender-borrower relationship; (iii) Mr. Anil, who is its sole customer accounting for 70% of sales, with no other link; and (iv) Orchid Employees Gratuity Trust, a post-employment benefit plan for its employees. Which pair are related parties of Orchid Foods under AS 18?

The related parties are Orchid Retail Ltd and the Orchid Employees Gratuity Trust. A subsidiary is related by control, and a post-employment benefit plan is a related party under AS 18. A lender or a dominant customer is not related merely because of normal business dealings or economic dependence.

  1. AOrchid Retail Ltd and Sunrise Bank
  2. BOrchid Retail Ltd and Orchid Employees Gratuity TrustCorrect
  3. COrchid Retail Ltd and Mr. Anil
  4. DMr. Anil and Sunrise Bank

Explanation

A subsidiary is a related party by control. AS 18 does not treat a lender, a customer, or a supplier as related merely because of normal dealings or economic dependence. A post-employment benefit plan for employees is treated as a related party in the AS 18 framework. So the subsidiary and the gratuity trust are related parties, while the bank and the major customer are not.

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