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Graded Discussion Board 01
Financial Accounting II (MGT401)
Learning Objective: Students will be able to apply the principles of International Accounting Standards (IAS) 24.
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:
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.
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.
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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.
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
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.
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.
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.
yes its also looks right....
koi exact answer bhi share kr dy ab..........
Examples of the kinds of transactions that are disclosed if they are with a related party
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