You are required to identify the related parties in the following cases as per AS 18:
M Ltd. holds 61% shares of S Ltd.
S Ltd. holds 51% shares of F Ltd.
C Ltd. holds 49% shares of F Ltd.
Give your answer - Reporting Entity wise for M Ltd., S Ltd., C Ltd. and F Ltd.
Answer (2)
AS 18 deals with the disclosure of related party relationships and transactions to ensure transparency in financial statements. In the context of the companies mentioned, we need to identify the related parties for each company based on ownership and influence.
Let's break down each reporting entity:
M Ltd.
Related Parties:
S Ltd.: M Ltd. directly holds 61% of the shares of S Ltd., making S Ltd. a subsidiary and a related party.
F Ltd.: Since S Ltd. is a subsidiary of M Ltd. and holds 51% of F Ltd., this makes F Ltd. an indirect subsidiary of M Ltd., resulting in F Ltd. being a related party.
S Ltd.
Related Parties:
M Ltd.: As M Ltd. is the parent company holding 61% shares in S Ltd., M Ltd. is a related party.
F Ltd.: S Ltd. holds 51% shares of F Ltd., making F Ltd. a subsidiary and a related party.
C Ltd.
Related Parties:
F Ltd.: C Ltd. holds 49% shares in F Ltd.; although not a subsidiary, the significant shareholding implies that it is a related party due to substantial influence.
S Ltd. and M Ltd.: Generally, without further agreements or influence, C Ltd. may not be considered directly related to S Ltd. and M Ltd. unless transactions or decisions indicate otherwise.
F Ltd.
Related Parties:
S Ltd.: Holding 51% shares, S Ltd. is a parent company making it a related party.
C Ltd.: With a 49% shareholding, C Ltd. is a significant shareholder, making it a related party.
M Ltd.: As M Ltd. has indirect control through S Ltd., it can be considered a related party due to control in the consolidation of financial statements.
By identifying these relationships, we can see how they must be disclosed in the financial statements according to AS 18 to provide a clear picture of business connections and control among these entities.
According to AS 18, the related parties for the companies identified are as follows: M Ltd. is related to S Ltd. and F Ltd.; S Ltd. is related to M Ltd. and F Ltd.; C Ltd. is related to F Ltd.; and F Ltd. is related to S Ltd., C Ltd., and M Ltd. These disclosures enhance transparency in financial reporting.
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