Page 4 - 24. COMPILER QB - IND AS 24

SOLUTION

Ongoing through the queries raised by the Managing Director Mr. Y, the financial controller Mr. X explained
the notes and reasons for their disclosures as follows:
Related parties are generally characterised by the presence of control or influence between the two parties. Ind
AS 24 ‘Related Party Disclosures’ identifies related parties as, inter alia, key management personnel and

companies controlled by key management personnel. On this basis, PQR Ltd. is a related party of ABC Ltd.
The transaction is required to be disclosed in the financial statements of ABC Ltd. since Mr. Y is Key
Management personnel of ABC Ltd. Also at the same time, it owns 100% shares of PQR Ltd. i.e. he controls
PQR Ltd. This implies that PQR Ltd. is a related party of ABC Ltd.
Where transactions occur with related parties, Ind AS 24 requires that details of the transactions are disclosed

in a note to the financial statements. This is required even if the transactions are carried out on an arm’s
length basis.
Transactions with related parties are material by their nature, so the fact that the transaction may be
numerically insignificant to ABC Ltd. does not affect the need for disclosure.

Q4 (Nov 19)
Uttar Pradesh State Government holds 60% shares in PQR Limited and 55% shares in ABC Limited. PQR

Limited has two subsidiaries namely P Limited and Q Limited. ABC Limited has two subsidiaries namely A
Limited and B Limited. Mr. KM is one of the Key management personnel in PQR Limited·
(a) Determine the entity to whom exemption from disclosure of related party transactions is to be given. Also
examine the transactions and with whom such exemption applies.
(b) What are the disclosure requirements for the entity which has availed the exemption?

SOLUTION
(a) As per Ind AS 24, ‘Related Party Disclosures’, if an entity had related party transactions during the
periods covered by the financial statements, it shall disclose the nature of the related party relationship

as well as information about those transactions and outstanding balances, including commitments,
necessary for users to understand the potential effect of the relationship on the financial statements.
However, as per the standard a reporting entity is exempt from the disclosure requirements in relation to
related party transactions and outstanding balances, including commitments, with:
(i) a government that has control or joint control of, or significant influence over, the reporting entity;

and
(ii) another entity that is a related party because the same government has control or joint control of, or
significant influence over, both the reporting entity and the other entity.

According to the above paras, for Entity P’s financial statements, the exemption in paragraph 25 applies to:

(i) transactions with Government Uttar Pradesh State Government; and
(ii) transactions with Entities PQR and ABC and Entities Q, A and B.
Similar exemptions are available to Entities PQR, ABC, Q, A and B, with the transactions with the UP
State Government and other entities controlled directly or indirectly by the UP State Government.
However, that exemption does not apply to transactions with Mr. KM. Hence, the transactions with Mr.
KM need to be disclosed under related party transactions.

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