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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Sundaram Textiles Ltd. has a key management personnel (KMP), Mr. Rajan, whose brother's wife owns a firm that supplied goods to Sundaram Textiles during the year. Mr. Rajan has no control or significant influence over that firm. Under AS 18, how should the position be treated?

The firm is not a related party. AS 18 covers enterprises over which KMP or their specified relatives have control or significant influence. A brother's wife is not a listed relative, Mr. Rajan has no influence, and being a supplier does not create a related-party relationship.

  1. AThe firm is a related party because a relative of KMP owns it, regardless of influence
  2. BThe firm is not a related party merely because of the family link; AS 18 'relative' covers only specified close relations and, in any case, an enterprise is related only where KMP or relative has control or significant influenceCorrect
  3. CThe firm is a related party only if transactions exceed 10% of turnover
  4. DThe firm is a related party because it is a supplier

Explanation

AS 18 treats an enterprise as related where KMP or a relative of KMP controls or has significant influence over it. Here, the owner is the brother's wife, who is not within the AS 18 definition of relative, and Mr. Rajan has no influence. Supplier status alone never makes a party related, and no 10% turnover test exists.

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