IAS 24
Question 4
QUESTION 4 – IAS 24 Related Party Disclosures (ICAP C6 S10)
The following related party transactions were carried out by Golden Limited (GL) during the first
year of its operation i.e. year ended December 31, 2009.
(i)
Inventory costing Rs. 15 million was sold for Rs. 18 million to Platinum Limited (PL) which
owns 60% shares in GL. It is GL’s policy to add 30% margin on cost. Outstanding liability at
year end, in respect of these purchases was Rs. 6.5 million.
(ii)
PL provided administrative services to GL. The cost of these services, if billed in the open
market, would have amounted to Rs. 350,000. No entries were made to record these
transactions, as it was agreed that the services would be provided free of charge.
(iii)
A property was sold to Silver Limited (SL), an associated company, at its fair market value
of Rs. 10 million. 50% of the amount was settled prior to year end. GL reimbursed Rs.
500,000 to SL on account of transfer and other incidental charges related to this property.
(iv)
An interest free loan of Rs. 2 million was granted to an executive director of the company
under the terms of employment. During the year, Rs. 200,000 were repaid by the executive
director.
(v)
On July 1, 2009 GL obtained a short term loan of Rs. 25 million from one of its major
shareholder, at the prevailing annual interest rate of 12%. The principal as well as the
accrued mark-up were outstanding at the close of the year.
Required:
Prepare a note on related party transactions for inclusion in GL’s financial statements for the year
ended December 31, 2009 showing disclosures as required under IAS - 24 (Related Party
Disclosures).
(15)
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IAS 24
Question 4
ANSWER 4 – IAS 24 Related Party Disclosures (ICAP C6 S10)
Golden Limited Notes to the Financial Statements
For the year ended December 31, 2009
Note: Related party Relationships
Platinum Limited is the parent company which holds majority shares of the company.
Note: Related party transactions
The transaction with related parties are carried out in the ordinary course of business at
commercial rates except stated otherwise.
Key
Major
Parent
Associates management shareCompany
personnel
holders
Rs. 000
Transactions:
Sales
Sales discount
Sale of property
Reimbursement of expenses - property sale
Interest free loans granted
Short term borrowings acquired
Interest on short term borrowings
Balances
Trade receivables
Loans to staff
Loans payable
Interest payable on loan 12%




18,000
1,500
10,000
500
2,000
25,000
1,500
6,500
5,000
1,800
25,000
1,500
Sales to related parties have been made at 20% mark up as against GL's policy to sell at a
markup of 30%.
Administrative services are provided by the parent company free of cost as per the
agreement. Market value of these services is Rs. 350,000.
In respect of sale of property, a buyer is required to bear all costs incurred on transfer. But
in this case the company has reimbursed the costs to SL
The interest free loan has been granted to the executive director as per the terms of
employment.
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