Page 6 - 24. COMPILER QB - IND AS 24

MTPs QUESTIONS

Q6 (March 18)

An Indian company has a parent company outside India parent company negotiates software licenses with
end vendor and based on number of licenses, parent company gets its reimbursement from Indian company.
Say, license cost of Rs. 12 lac is charged for calendar year of 2018. Parent company generates it’s invoice in
February 2018. Indian company account full invoice in February 18 and then for Indian financial year accounts
reimbursement expense of Rs. 3.00 lac during FY17-18 (for to licensing cost relating to. January 18 to March

18) and prepaid expenses of Rs. 9 lacs for licensing cost reimbursement relating to April 18 to December 18.
Prepaid expense is subsequently burst and expense of Rs. 9 Lac is accounted for in financial year 18-19.
What amount should be disclosed at related party transaction?
SOLUTION

Paragraph 9 of Ind as 24 related party disclosure defines related party transactions as under :
“A Related party transaction is a transfer of resources, service or obligations between a reporting entity and
the related party, regardless of whether a price is charged.”

Paragraph 6 of ind as 24 stated as under:
“A related parties relationships would have an effect on the profit or loss and financial position of an entity”
In the given case, there is a transfer of resources to the extent of Rs. 12 Lac from the company to the parent
towards software license. Of this transfer of resources the company has consumed the benefit relating to Rs.
3 lacs of software license cost which is recognise in profit or loss. The benefit relating to Rs. 9 lacs of

software license cost will be consumed in the next reporting period and therefore is recognized in the balance
sheet as prepaid expenses.

Paragraph 18 of Ind as 24 started as under:
“If an entity has had related party transaction during the period 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 of the financial statements. At a minimum, disclosures shall be include
a. The amount of the transactions;
b. Tournament of outstanding balances including commitments, and:

i. Terms and conditions, including whether they are secured, and the nature of the consideration to be
provided in statement, and;
ii. Details of any guarantees given or received;
c. Provision for doubtful debts related to the amount of outstanding balances, and
d. The expense recognized during the period in respect of bad and doubtful deaths due from related parties”

Therefore the company has to disclose:
1. The amount of transaction with the parent of Rs. 12 lac toward software license;
2. Outstanding balance of Rs. 9 lac presented as prepaid expense along with the terms and conditions and
state that the same will be settled in the next reporting period by receipt of software licensing services
3. The amount of Rs. 3 lac recognized as software license expense in profit or loss for the benefit consumed

during the period to make it understandable to users.
24. 5