CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures
Vikram Textiles Ltd's managing director, Mr. Vikram Shah, holds 30% of the voting power in Shah Logistics Pvt Ltd. He does not control it, and he is not its director. Vikram Textiles Ltd buys transport services worth ₹12 lakh from Shah Logistics during the year. Under AS 18, which of the following is the correct treatment?
Shah Logistics is a related party. AS 18 covers enterprises over which key management personnel have significant influence, and holding 20% or more of voting power gives significant influence. Mr. Shah holds 30%, so the ₹12 lakh transaction must be disclosed regardless of whether control exists or the price was fair.
- AShah Logistics is a related party only if the transaction was not at arm's length
- BShah Logistics is a related party because a key management personnel of the reporting enterprise has significant influence over it, so the transaction must be disclosedCorrect
- CShah Logistics is not a related party because Mr. Shah does not control it
- DShah Logistics is a related party only if Mr. Shah's holding is above 50%
Explanation
AS 18 treats an enterprise over which a key management personnel (or a relative) has significant influence as a related party. Holding 20% or more of the voting power is presumed to give significant influence. At 30%, Shah Logistics qualifies, so the transaction is disclosed whatever the pricing. Control is not required, so the option that demands control is wrong.
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