Page 8 - 24. COMPILER QB - IND AS 24

March'18) and Prepaid expenses of Rs. 9 Lac for licensing cost reimbursement relating to April'18 to
December'18. Prepaid expense is subsequently reversed and expense of Rs. 9 Lac is accounted for in FY 18-19.
What amount should be disclosed at Related party transactions?

SOLUTION
Ind AS 24 Related Party Disclosures defines Related Party Transactions as under:

“A related party transaction is a transfer of resources, services or obligations between a reporting entity and a
related party, regardless of whether a price is charged.”
Ind AS 24 states as under:
“A related party relationship could 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 benefits relating to Rs.
3 lac of software license cost which is recognised in profit or loss. The benefits relating to Rs.9 lac of
software license cost will be consumed in the next reporting period and therefore is recognised in the balance
sheet as prepaid expenses.
Ind AS 24 states as under:
“If an entity has 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 of the financial statements. At a minimum, disclosures shall include:
a. The amount of the transactions;

b. The amount of outstanding balances, including commitments, and;
(i) Their terms and conditions, including whether they are secured, and the nature of the consideration to be
provided in settlement; and
(ii) Details of any guarantees given or received;
c. Provisions for doubtful debts related to the amount of outstanding balances; and
d. The expense recognised during the period in respect of bad and doubtful debts due from related parties.”

Therefore, the company has to disclose:
1. The amount of transaction with the parent of Rs.12 lac towards 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 recognised as software license expense in profit or loss for the benefits consumed

during the period to make it understandable to users.
Ind AS 1 Presentation of Financial Statements states as under:
“An entity shall present notes in a systematic manner. An entity shall cross-reference each line item in the
balance sheet and in the statement of profit and loss, and in the statement of changes in equity and of cash
flows to any related information in the notes.”
Therefore, the company shall cross-reference the software license expense recognised in profit or loss and

prepaid expenses recognised in the balance sheet to the notes disclosing related party transactions.

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