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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Sunrise Textiles Ltd's Managing Director, Mr. Arvind Mehta, holds 40% of the voting power in Mehta Dyes Ltd. Sunrise Textiles buys dyes worth Rs 25 lakh from Mehta Dyes Ltd during the year. Mr. Mehta has no ownership interest in Sunrise Textiles. Under AS 18, how should the position be viewed?

Mehta Dyes Ltd is a related party of Sunrise Textiles, because a key management personnel, the Managing Director, holds 40% of its voting power, which gives significant influence. Hence the Rs 25 lakh purchases must be disclosed under AS 18, irrespective of pricing.

  1. AMehta Dyes Ltd is a related party because a key management personnel of Sunrise Textiles has significant influence over it, so the transaction is disclosedCorrect
  2. BMehta Dyes Ltd is not a related party because Mr. Mehta holds no shares in Sunrise Textiles
  3. CMehta Dyes Ltd is a related party only if its holding exceeds 50%
  4. DDisclosure is needed only if the purchases were made at a price different from market price

Explanation

AS 18 treats enterprises over which a key management personnel (or relative) has significant influence as related parties. Holding 20% or more of voting power indicates significant influence, and 40% exceeds that. Disclosure does not depend on price differences or on a 50% control level.

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