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TMI BlogRelated Party DisclosuresX X X X Extracts X X X X X X X X Extracts X X X X ..... lationships described in (a) to (e) below: (a) enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries); (b) associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture; (c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual; (d) key management personnel and relatives of such personnel; and (e) enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise. 4. In the context of this Standard, the following are deemed not to be related parties: (a) two companies simply because they have a directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t influence over the other party in making financial and/or operating decisions. 10.2 Related party transaction - a transfer of resources or obligations between related parties, regardless of whether or not a price is charged. 10.3 Control (a) ownership, directly or indirectly, of more than one half of the voting power of an enterprise, or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise, or (c) a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise. 10.4 Significant influence - participation in the financial and/or operating policy decisions of an enterprise, but not control of those policies. 10.5 An Associate - an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a joint venture of that party. 10.6 A Joint venture - a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control. 10.7 Joint control - the contractually agreed sharing of po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing conditions is satisfied: (a) a person cannot be appointed as member of the governing body without the exercise in his favour by that other enterprise of such a power as aforesaid; or (b) a person s appointment as member of the governing body follows necessarily from his appointment to a position held by him in that other enterprise; or (c) the member of the governing body is nominated by that other enterprise. 12. An enterprise is considered to have a substantial interest in another enterprise if that enterprise owns, directly or indirectly, 20 per cent or more interest in the voting power of the other enterprise. Similarly, an individual is considered to have a substantial interest in an enterprise, if that individual owns, directly or indirectly, 20 per cent or more interest in the voting power of the enterprise. 13. Significant influence may be exercised in several ways, for example, by representation on the board of directors, participation in the policy making process, material inter-company transactions, interchange of managerial personnel, or dependence on technical information. Significant influence may be gained by share ownership, statute or agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions reflected in financial statements are consummated on an arm slength basis between independent parties. However, that presumption may not be valid when related party relationships exist because related parties may enter into transactions which unrelated parties would not enter into. Also, transactions between related parties may not be effected at the same terms and conditions as between unrelated parties. Sometimes, no price is charged in related party transactions, for example, free provision of management services and the extension of free credit on a debt. In view of the aforesaid, the resulting accounting measures may not represent what they usually would be expected to represent. Thus, a related party relationship could have an effect on the financial position and operating results of the reporting enterprise. 17. The operating results and financial position of an enterprise may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the reporting enterprise with other parties. For example, a subsidiary may terminate relations with a trading part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a related party relationship, the reporting enterprise should disclose the following: (i) the name of the transacting related party; (ii) a description of the relationship between the parties; (iii) a description of the nature of transactions; (iv) volume of the transactions either as an amount or as an appropriate proportion; (v) any other elements of the related party transactions necessary for an understanding of the financial statements; (vi) the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date; and (vii) amounts written off or written back in the period in respect of debts due from or to related parties. 24. The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise: (a) purchases or sales of goods (finished or unfinished); (b) purchases or sales of fixed assets; (c) rendering or receiving of services; (d) agency arrangements; (e) leasing or hire purchase arrangements; (f) transfer of research and development; (g) licence agreements; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case. (b) The manner of disclosure required by paragraph 23, read with paragraph 26, is illustrated in the Illustration attached to the Standard. Illustration Note.-This illustration does not form part of the Accounting Standard. Its purpose is to assist in clarifying the meaning of the Accounting Standard. The manner of disclosures required by paragraphs 23 and 26 of AS 18 is illustrated as below. It may be noted that the format given below is merely illustrative in nature and is not exhaustive. Holding Company Subsidiaries Fellow Subsidiaries Associates Key Management Personnel Relatives of Key Management Personnel Total Purchases of goods Sale of goods Purchase of fixed assets Sale of fixed assets Rendering of services Receiving of services Agency arrangements Leasing or hire purchase arrangements Transfer of research and development Licence agreements Finance (including loans and equity contributions in cash or in kind) Guarantees and collaterals Management contracts including for deputation of employees Note: Names of related parties and description of relationship: 1. Holding Company A Ltd. 2. Subsidiaries B Ltd. and C (P) Ltd. 3. Fellow Subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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