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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Surya Ltd. is a state-controlled enterprise. During the year it purchased power worth Rs 90 lakh from the State Electricity Board, also state-controlled, and sold goods to Sigma Ltd., a company in which Surya's managing director's brother holds 35% voting power, for Rs 20 lakh. Sigma's transactions are on normal terms. As per AS 18, which treatment is correct for Surya Ltd.'s financial statements?

Surya Ltd. need not disclose the Rs 90 lakh purchase from the State Electricity Board because AS 18 exempts transactions between state-controlled enterprises. It must disclose the Rs 20 lakh sale to Sigma Ltd., which a relative of the managing director significantly influences, so the exemption does not apply.

  1. ADisclose neither transaction, because state-controlled enterprises are exempt from disclosing transactions with each other, and Sigma Ltd. is not related
  2. BDisclose both transactions, since state control makes the Board a related party and the Rs 20 lakh sale is exempt only if Surya is state-controlled
  3. CDisclose the Rs 20 lakh sale to Sigma Ltd. as a related party transaction; the Rs 90 lakh purchase from the Board need not be disclosed merely because both are state-controlledCorrect
  4. DDisclose only the Rs 90 lakh purchase because it is larger

Explanation

AS 18 exempts state-controlled enterprises from disclosing related party relationships and transactions with other state-controlled enterprises, so the Rs 90 lakh purchase need not be disclosed. Sigma Ltd. is an enterprise significantly influenced by a relative of key management personnel (35% voting power), so it is a related party. The exemption does not cover it, and the Rs 20 lakh sale must be disclosed even on normal terms.

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