IAS 24 Related Party Disclosure Questions and Answers help companies to properly show RPT transaction that are materials specifically. If one party has direct or indirect control over other entity or if entities are under common control or if one party has significant influence over the operating as well as financial policies of the other party, this clearly is an indication of related party transaction RPT. Illustrative examples below will make things clear to you.
Fazal Limited is engaged in the manufacturing of specialized spare parts for automobile assemblers. During the year 2007, the company has undertaken the following transactions with its related parties: Sales of Rs.500 million were made to its only subsidiary M/s. Sami Motors Limited (SML). Being the subsidiary, a special discount of Rs.25 million was allowed to SML. SML returned spare parts worth Rs.5.5 million. Raw materials of Rs.5 million were purchased from Jalal Enterprises, which is owned by the wife of the CFO of Fazal Limited. Equipment worth Rs.3 million was purchased from Khan Limited (KL). The wife of the Production Director of the company is a director in KL. The company awarded a contract for supply of two machines amounting to Rs.7 million per machine to an associated company.
In 2005, an advance of Rs.2 million was given to the Chief Executive of the company. During the year 2007, he repaid Rs.O.3 million. The balance outstanding as on December 31, 2007 was Rs.1,100,000.
Required: In accordance with the requirement of IAS-24 ‘Related Party Disclosures“, prepare a note to the financial statements, for inclusion in the company’s financial statements.
| Related party | Relationship | Transaction | Rs. in million | Terms |
| Sami Motors Sami Motors | Subsidiary Subsidiary | Sale of goods Sale returns | 500.00 5.50 | Special discount Rs. 25 million |
| Jalal Enterprises | Wife of CFO | Purchase of raw materials | 5.00 | Fair value |
| Khan Limited | Wife of production director | Purchase of equipment | 3.00 | Fair value |
| – – | Associated Co. | Supply of equipment | 14.00 | Fair value |
| – | CEO | Advance | 2.00 | Amount outstanding Rs. 1.1 million |