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AS 18 - Related Party transaction

RAJU (LEARNER) (1089 Points)

08 July 2010

Dear Members,

I would like to know that in case a company ceases to be a subidiary during the year, whether the Holding company is required to disclose the transactions with such subsidiary company till the date on which it ceased to be a subsidiary as per AS 18?

Also if two different companies have same management and same members, whether such entities are said to be related parties?

Thanks & Regards

Dharmaraju

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6 Replies

Amir (Learner) (4016 Points)
Replied 08 July 2010

Dear Dharmaraju,

Regarding ur first doubt -

Related party - parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions.

Disclosures -

Para 21 Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties.

Para 23 If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following:.............."

The combined reading of above things brings the answer to ur question as "Yes"

Regarding ur second doubt -

Para 4 of AS-18 says -

In the context of this Statement, the following are deemed not to be related parties:

(a) two companies simply because they have a director in common, notwithstanding paragraph 3(d) or (e) above (unless the director is able to affect the policies of both companies in their mutual dealings);

(c) the parties listed below, in the course of their normal dealings with an enterprise by virtue only of those dealings (although they may circumscribe the freedom of action of the enterprise or participate in its decision-making process):

(i) providers of finance;

Answer is No.....

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RAJU (LEARNER) (1089 Points)
Replied 09 July 2010

Thanks a ton Amir...

So diclosure of that part of the transaction which were made during the existance of the relationship is required...

Regarding my 2nd Query, though clause (a) provides an exception it also states that exception is applicable unless the director is able to affect the policies of both companies in their mutual dealings. So if the number of board members who can satisy the Quorum are common between the two companies, can this situation be covered in the exception to the exception clause which states as- unless the director is able to affect the policies of both companies in their mutual dealings. Here the directors are in a position to affect the policies of both the companies in their mutual dealings...