CASE STUDY

On AS 18

Case study 1Transaction with key

management personal

• X Ltd. sold to Y Ltd. goods having a sales value of Rs. 25 lakhs on credit basis during the F. Y. 2016-17. Mr. A the Managing Director and Chief Executive of X Ltd. owns nearly 100% of the Capital of Y Ltd. The sales were made to Y Ltd. at nominal selling price of X Ltd.

• Here in this case, Mr. A holds nearly 100% shares of Y ltd. Which means that Mr. A is owner of Y Ltd.

• Now we can say that X Ltd. is entering into transaction with Mr. A through its intermediary Y Ltd.

• The above transaction is indirect transection with Mr. A i.e. Key management personnel (Managing Director and Chief Executive of Ltd. through intermediary).

• Hence, these transactions should be distinctly disclosed as per AS – 18.

Applicability Analysis

The following Disclosures will be made

• Relationship - Mr. A is Key management personnel of X Ltd.

• Sale of goods to y Ltd. on credit basis• Sales of Rs. 25 Lac• Mr. A (Managing Director and Chief Executive) is owner of

Y Ltd. • Outstanding amounts with Y Ltd. 25 Lac

Case study 2Transaction with owner

• P Ltd. purchases fixed assets from R Ltd. on Financial year 2016-2017 on credit worth Rs. 5 cr. P Ltd. owns 70% of the voting power of Q Ltd. Q Ltd. in turn owns 50% of the voting interest in R Ltd. Further, P Ltd. also directly owns 15% of the voting interest in R Ltd.

• P Ltd. would be considered to control R Ltd. • The definition of control of AS-18, includes ownership directly

or indirectly, of more than half of the voting power of another enterprise.

• As P Ltd. is a majority shareholder in Q Ltd., it has control over it. Further, as P Ltd. and Q Ltd. together are majority shareholders(i.e. 15% + 50%) in R Ltd. P Ltd. has indirect control over it. Accordingly, P Ltd. has the ability to control R Ltd., indirectly, via the share ownership in Q Ltd. apart from its individual shareholding in R Ltd.

• Hence, these transactions should be distinctly disclosed as per AS – 18.

• Even if there is no transaction with R Ltd. still disclosures will be made as P Ltd. is owner of R Ltd.

Applicability Analysis

Disclosures• Relationship - P Ltd. is indirect owner of R Ltd. • Purchase of fixed assets.• Sales of Rs. 5 crore.• P Ltd. is owner of Q Ltd. and Q Ltd. holds 50% holding power

in R ltd.

Case study 3Mass disclosure

Purchase of goods worth Rs. 9 Lac from B Ltd. (A Ltd. holds 60% shares of B Ltd.).

Purchase of fixed asset to C Ltd. worth Rs. 12 Lac.( B Ltd. holds 90% voting power of C Ltd. ).

Render service to Mr. M worth Rs. 65000 (Mr. pravin is Managing Director of A Ltd.).

Purchase of land from Mr. Deepak worth Rs. 80Lac (Mr. Deepak is son of Mr. Pravin).

M Ltd. Holdes 85% shares of A Ltd.

Following information related to A Ltd. is given

In case we have so many related parties and multiple transections we can show mass disclosure

Discloser will me made as fallows

Holding co. M Ltd.

Subsidiary co. B Ltd.

Fellow Subsidiary co. C Ltd.

Key management personnel Mr. Pravin

Relative of Key management personnel

Mr. Deepak

Name of related parties and relationship

Particulars. Subsidiary co

Fellow Subsidiary

KPM Relative of KPM

Total

Purchase of goods

9 Lac 9 Lac

Sale of fixed 12 Lac 12 Lac

Render service 65000 65000

Purchase of land 80 Lac 80 Lac

Aggregate information on transaction with related parties

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