FINANCIAL ACCOUNTING 2.....GDB NO 1 (START DATE : 6 MAY 2016.......END DATE : 12 MAY 2016).......MARKS 10

[zahid usman]

               Graded Discussion Board 01

                  Financial Accounting II (MGT401)

 

Learning Objective: Students will be able to apply the principles of International Accounting Standards (IAS) 24.

 

Scenario:                                                     

Creative ltd. is a maker of spare parts for automobiles. Company executes its business through a business model that has functioned for quite a long time and has made the organization a successful business, which is ranked among top 20 business enterprises of its field by the business community. Creative ltd. has confidence in working with trustworthy and responsible vendors/dealers furthermore; it offers its products only to the enterprises that it can either control or practice ‘significant influence’ over. The details regarding business dealings are as follows:

• Creative ltd. buys the raw material from Decent ltd, that is a reliable supplier. Because of the facts that Decent ltd. has always provided the required material of higher standards since last 5 years, that’s why Creative ltd. has never purchased anything from any other supplier. So, it can be said that Decent ltd is economically dependent on Creative ltd.

• Creative ltd. sells 60% of its production to an enterprise that is owned by a director of Creative ltd and the remaining portion of the output to a company that is its "associate" as Creative ltd. possesses 25% of the share capital of that organization.

• Creative ltd. stores its stock in a storeroom that is taken on lease from the spouse of its director. The lease rentals are decided at an arm’s length price.

• Creative ltd. has granted a loan without interest to the company XYZ ltd. that is owned by the CEO of Creative ltd. the purpose of loan is to buy the delivery vans which the XYZ ltd. is utilizing for delivering the goods from the distribution center of the supplier to the warehouse utilized by Creative ltd. for storing its stock.                         

Requirement: As per IAS 24, which of the above mentioned transactions would be disclosed as related party transactions? Also justify your answer by giving valid reasons.  

 

 

Important Instructions:

1. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

2. Obnoxious or ignoble answer should be strictly avoided.

3. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

For Detailed Instructions please see the GDB Announcement

[salman zulfiqar]

plz help me friends upload complete solution plz .

[Asad Pervez]

Mgt401 gdb solution

2nd and 4th transactions would be treated as related party transactions because, According to IAS 24, • An entity is related to a reporting entity if the entity and the reporting entity are members of the same group (which means that each parent, subsidiary or fellow subsidiary is related to each other. • An entity has significant influence over the reporting entity. • The entity or any member of a group which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting company. So,

in 2nd transaction creative ltd. Sells 60% of its production to the enterprise that is owned by its director that means both parties are related to each other. Also in 4th transaction creative ltd. granted a loan without interest to the company XYZ ltd. That is owned by CEO of creative ltd. is also treated related party transaction because, CEO of the company is the person who provides key management personnel services to the reporting company.

[hassan habib]

GDB (1)

MGT401

The second and forth transactions would be disclosed as related party transactions

.
2)- Creative ltd. sells 60% of its production to an enterprise that is owned by a director of Creative ltd and the remaining portion of the output to a company that is its "associate" as Creative ltd. possesses 25% of the share capital of that organization


Reason: according to IAS 24,(b)(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).so this transaction would be treated as related party transaction.

 

3)-  Creative ltd. stores its stock in a store room that is taken on lease from the spouse of its director. The lease rentals are decided at an arm’s length price.

Reason: A related party is a person or entity that is related to the entity that is preparing its financial statements (in this
Standard referred to as the ‘reporting entity’).
(a) A person or a close member of that person’s family is related to a reporting entity if that person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting
entity.
Close members of the family of a person are those family members who may be expected to influence, or be
influenced by, that person in their dealings with the entity and include:
(a) that person’s children and spouse or domestic partner;
(b) children of that person’s spouse or domestic partner; and
(c) dependants of that person or that person’s spouse or domestic partner.

4) - Creative ltd. has granted a loan without interest to the company XYZ ltd. that is owned by the CEO of Creative ltd. the purpose of loan is to buy the delivery vans which the XYZ ltd. is utilizing for delivering the goods from the distribution center of the supplier to the warehouse utilized by Creative ltd. for storing its stock.


Reason: This transaction is also treated as related part transaction because according to IAS 24 (b)

(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity
In this transaction CEO of the company is the person who provides key management personnel services to the reporting company.

 

[Wajid Khan]

1st one is not related party transaction as Decent ltd is totally dependent on Creative ltd.

3rd bhi nahin lagta...

I think 2nd & 4th are related party transactions!

[+ Overseas - DXB]

bhi jee... 1st bhi ho sakta....... because... Creative ltd is one of the 20 business interprises of its field, and this company is taking its raw material only from Decent ltd.

and the economy of Decent ltd is depending only upon the Creative ltd.

[tahira yasmin]

related party:
Definition
A party (individual or group) who is related in some way to the initial party. A related party could include a family member or relative, stockholder, or a related corporation.

according to this defination I think so 3rd point bhe related party transaction hy bcz 3rd party main spouse of its directer ka zikr hy to ye family member hova na .AM i righ or wrong.

[+ Overseas - DXB]

yes its also looks right.... 

[+ Overseas - DXB]

koi exact answer bhi share kr dy ab.......... 

[+ Overseas - DXB]

Examples of the kinds of transactions that are disclosed if they are with a related party

• purchases or sales of goods
•  
• purchases or sales of property and other assets
•  
• rendering or receiving of services
•  
• leases
•  
• transfers of research and development
•  
• transfers under licence agreements
•  
• transfers under finance arrangements (including loans and equity contributions in cash or in kind)
•  
• provision of guarantees or collateral
•  
• commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised)
•  
• settlement of liabilities on behalf of the entity or by the entity on behalf of another party

[32ed60leclmcl]

har koi confuse hi kar raha hai yahan...

[sweety bba six semester]

tu ap ny confusen door kuyn hai ki angel

[Wajid Khan]

These are not related :

Two entities simply because they have a director or key manager in common
two venturers who share joint control over a joint venture
providers of finance, trade unions, public utilities, and de­part­ments and agencies of a gov­ern­ment that does not control, jointly control or sig­nif­i­cantly influence the reporting entity, simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or par­tic­i­pate in its de­ci­sion-mak­ing process)
a single customer, supplier, fran­chiser, dis­trib­u­tor, or general agent with whom an entity transacts a sig­nif­i­cant volume of business merely by virtue of the resulting economic de­pen­dence...