What is a related party transaction? Provide examples of transactions that would be considered related-party transactions...

What is a related party transaction? Provide examples of transactions that would be considered related-party transactions and then locate an example of a related party transaction that has been questioned in a company and what were the end results?

Expert Solution

A related party transaction is the transfer of resources, obligations and services between related parties directly or indirectly irrespective of price has been charged or not.

Law of every country defines the list of transactions or nature of transactions that will be considered as relative party transaction. I am giving some examples based on IAS-24-"Related Party Disclosures":

1. A person or his family member will be considered as related party of reporting entity if he has

a. control over the reporting entity

b. Significant influence over the reporting entity

c. the place in Key Managerial Personnel of reporting entity or its parent entity

2. A company will be considered related party if it is

a. Associated or joint venture of reporting entity

b. the member of Group company i.e. Parent, Subsidiary and Fellow Subsidiary will always be considered as related party

c. Both entities are co-joint venture of Third entity etc.

Example that was located in a Company:

A Ltd. is the Subsidiary of B Ltd. and C Ltd. is the Subsidiary of A Ltd. C Ltd. had sold good worth $ 20000 to B Ltd. Now as the C Ltd. is fellow subsidiary of B Ltd. as per sub-clause b of Clause 2 above. B Ltd. should disclose this transaction in its Notes to Accounts of Financial Statements.

ekkarill92 answered 6 months ago

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