Page 7 - 24. COMPILER QB - IND AS 24

Paragraph 113 off Ind as 1 presentation of financial statements stated as under:
“An entity shall present notes in a systematic manner. An entity shall cross-reference each line items in

the balance sheet and in the statement of profit and loss, and in the statement of changes in equity and of
cash flow to any related information in the notes.”
Therefore, the company shall cross-reference the software licensing expenses recognized in profit or loss and
prepared expenses recognized in the balance sheet to the notes disclosing related party transactions.

Q7 (August 18 – 4 Marks)
Mr. X has a 100% investment in A Ltd. He is also a member of the key management personnel (KMP) of B

Ltd. B Ltd has a 100% investment in C Ltd.
Examine related party relationships of A Ltd., as per Ind AS 24, in the financial statements of C Ltd.
SOLUTION

Ind AS 24 defines the term “key management personnel” as persons having authority and responsibility for
planning, directing and controlling the activities of the entity directly or indirectly, including any director
(whether executive or not). Further, significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control of those policies.

Therefore, a key management personnel (KMP) has significant influence over the entity. Accordingly, Mr. X
has significant influence over B Ltd. since he is a key management personnel of B Ltd.
Now, the standard states that an entity is related to a reporting entity if the person identified (here KMP ie.
Mr. X) has significant influence over the entity or is a member of the key management personnel of the
entity (or of a parent of the entity)”
Therefore, if C Ltd. is a reporting entity, A Ltd. is related to C Ltd. because a key management personnel of

parent B Limited has control over A Limited. Therefore, the relationship of C Ltd. and A Ltd. will be “Entities
controlled by key management personnel of the Parent Entity”.

Q8 (March 19 – 4 Marks)
An Indian company has a parent company outside India. Parent company negotiates software licenses with end

vendor and based on number of licences, parent company get its reimbursement from Indian company. Say,
license cost of Rs. 12 Lac is charged for calendar year of 2018. Parent company generates is invoice in
February 18. Indian company accounts full invoice on February 18 and then for Indian financial year, accounts
Reimbursement expense of Rs. 3. 00 Lac during FY 1718 (for licensing cost relating to period January 18 to

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