Since 1977
FAR
FAR.2848 – Related Party Disclosures
DISCUSSION QUESTIONS
1. Which statement is incorrect regarding related party
relationships and transactions?
a. Related party relationships are a normal feature of
commerce and business.
b. Related parties may enter into transactions that
unrelated parties would not. 6.
c. Transactions between related parties may not be
made at the same amounts as between unrelated
parties.
d. The profit or loss and financial position of an entity
may be affected by a related party relationship
only if related party transactions occur.
2. Which of the following illustrates that mere existence
of related party relationship may be sufficient to affect
the transactions of the entity with other parties?
a. A subsidiary may terminate relations with a trading
partner on acquisition by the parent of a fellow
subsidiary engaged in the same activity as the
former trading partner. 7.
b. One party may refrain from acting because of the
significant influence of another—for example, a
subsidiary may be instructed by its parent not to
engage in research and development.
c. Both a and b.
d. Neither a nor b.
3. A related party is a person or entity that is related to
the entity that is preparing its financial statements
(referred to as the 'reporting entity'). A person or a
close member of that person's family is related to a
reporting entity if that person:
a. Has control or joint control over the reporting
entity. 8.
b. Has significant influence over the reporting entity.
c. Is a member of the key management personnel of
the reporting entity or of a parent of the reporting
entity.
d. Any of the above.
4. 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.
c. Dependants of that person or that person’s spouse
or domestic partner.
d. All of the above.
5. In which of the following is an entity not related to a
reporting entity?
a. The entity and the reporting entity are members of
the same group.
b. One entity is an associate or joint venture of the
other entity (or an associate or joint venture of a
member of a group of which the other entity is a
member).
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c. Both entities are joint ventures of the same third
party.
d. An entity with a director or key manager in
common with the reporting entity.
In which of the following is an entity not related to a
reporting entity?
a. The entity is a post-employment defined benefit
plan for the benefit of employees of either the
reporting entity or an entity related to the
reporting entity.
b. The entity is controlled or jointly controlled by a
person who has control, joint control or significant
influence over the reporting entity.
c. One entity is a joint venture of a third entity and
the other entity is an associate of the third entity.
d. Both entities are associates of the same third
party.
Which of the following are related parties?
a. Two venturers who share joint control over a joint
venture.
b. 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.
c. 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.
d. None of the above.
Parent entity has a controlling interest in Subsidiaries
A, B and C and has significant influence over
Associates 1 and 2. Subsidiary C has significant
influence over Associate 3. This situation is illustrated
as follows:
Which statement is incorrect?
a. For Parent’s separate financial statements,
Subsidiaries A, B and C and Associates 1, 2 and 3
are related parties.
b. For Subsidiary A’s financial statements, Parent,
Subsidiaries B and C and Associates 1, 2 and 3 are
related parties.
c. For the financial statements of Associates 1, 2 and
3, Parent and Subsidiaries A, B and C are related
parties.
d. Associates 1, 2 and 3 are related to each other.
FAR.2848
EXCEL PROFESSIONAL SERVICES, INC.
9. Given the following fact pattern:
In accordance with PIC Q&A 2017-04, which statement
is incorrect?
a. Entity B is a related party of A in the consolidated
financial statements of A.
b. Entity B is a related party of C in the separate
financial statements of C.
c. Entity D is not a related party of A in the separate
financial statements of A.
d. Entity D is a related party of A in the consolidated
financial statements of A.
10. What is a related party transaction?
a. A transfer of resources, services or obligations
between a reporting entity and a related party,
regardless of whether a price is charged.
b. A transaction in which the entity receives goods or
services as consideration for its own equity
instruments.
c. A transaction in which the entity receives goods or
services but has no obligation to settle the
transaction with the supplier.
d. All of these.
11. Entity X is a manufacturer of automobile spare parts.
It transacts business through a business model that
has worked for several years and has made the entity
a successful enterprise. Entity X believes in working
with reliable and dependable vendors and also sells
only to entities that it can either control or exercise
significant influence over. Which of the following is not
considered a related party transaction?
a. Entity X purchases everything it needs from Entity
Y, a well-known supplier. Due to the high quality of
the material that Entity Y has provided over the
last 10 years, Entity X has never purchased from
any other supplier. Thus it may be considered
economically dependent on Entity Z.
b. Entity X sells 70% of its output to a company
owned by a director and the balance to an entity
that is its “associate” by virtue of Entity X owning
35% of the share capital of that company.
c. Entity X stores inventory in a warehouse that is
leased from the wife of its director. The lease
rentals are at arm`s length.
d. Entity X has provided an interest-free loan to a
company owned by the chief executive officer
(CEO) of Entity X for the purposes of financing the
purchase of delivery vans which the company
owned by the CEO is using for transporting goods
from the warehouse of the supplier to the
warehouse used by Entity X for storing inventory.
12. During the current year, an entity paid the following to
its chief executive officer:
• Annual salary of P2 million
• Share options and other share-based payments
valued at P1 million
• Contributions to retirement benefit plan amounting
to P0.8 million
• Reimbursement of his travel expenses for business
trips totaling P1.2 million
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Which statement is incorrect?
a. Key management personnel are those persons
having authority and responsibility for planning,
directing and controlling the activities of the entity,
directly or indirectly, including any director
(whether executive or otherwise) of that entity.
b. Compensation includes all employee benefits (as
defined in PAS 19 Employee Benefits) including
employee benefits to which PFRS 2 Share-based
Payment applies.
c. The entity should disclose key management
personnel compensation of P3.8 million.
d. None of the above.
13. PAS 24 requires a reporting entity to disclose:
a. Transactions with its related parties.
b. Relationships between parents and subsidiaries
irrespective of whether there have been
transactions between those related parties.
c. Both a and b.
d. Neither a nor b.
14. To enable financial statement users to form a view
about the effects of the related-party transactions, PAS
24 requires certain disclosure to be made. PAS 24
requires a reporting entity to disclose:
a. Name of the entity’s parent and, if different, the
ultimate controlling party.
b. If neither the entity’s parent nor its ultimate
controlling entity produces financial statements
available for public use, then the name of the next
most senior parent that does so.
c. Both a and b.
d. Neither a nor b.
15. The principal concern with accounting for related party
transactions is:
a. Differences between economic substance and legal
form.
b. The size of the transactions.
c. The absence of legally binding contracts.
d. The lack of accurate data to record transactions.
16. Which disclosure is not necessary for a related party
transaction?
a. Description of the transaction
b. The amount of the outstanding related-party
balances and their terms-and conditions along with
details of guarantees given and received.
c. Provisions for doubtful debts related to the amount
of outstanding related-party balances and expense
recognized during the year in respect of bad or
doubtful debts due from related parties.
d. The amounts of similar transactions with unrelated
(third) parties to establish that comparable
related-party transactions have been entered at
arm’s length.
17. The minimum disclosures prescribed under PAS 24 are
to be made separately for certain categories of related
parties. Which of the following is not among the list of
categories specified under the Standard for the
purposes of separate disclosure?
a. Entities with joint control or significant influence
over the entity.
b. The parent company of the entity.
c. Joint ventures in which the entity is a venturer.
d. An entity that has a common director with the
entity.
- now do the DIY drill -
FAR.2848
EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. PAS 24 requires disclosure of 8. The Atrato Company carried out the following four
a. Related party relationships transactions during the current period.
b. Related party transactions and outstanding
Which of the four are related party transactions
balances
according to PAS24 Related Party Transactions?
c. Related party commitments
a. Transferred goods from inventory to a shareholder
d. All of the above
owning 10% of the company's ordinary shares
b. Sold a company car to the wife of the managing
2. Which of the following statements about PAS 24 is(are)
director
true?
c. Sold an asset to The Little Company, a sales agent
I. The main issue of PAS 24 is recognition and
d. Took out a P1 million bank loan
measurement of related party transactions.
II. Transactions between related parties are not
9. Which statement is correct regarding related party
conducted in an “arms-length” and therefore
disclosures?
financial information becomes unreliable unless
a. Related party relationships are unusual feature of
disclosure is made of such related party
commerce and business.
transaction.
b. Related parties may enter into transactions that
III. Control relationship should always be disclosed
unrelated parties would not.
whether or not there are related party
c. The profit or loss and financial position of an entity
transactions.
may not be affected by a related party relationship
a. I and II only c. I and III only
if related party transactions do not occur.
b. II and III only d. I, II and III
d. In considering each possible related party
relationship, attention is directed to the legal form
3. Related parties include
of the relationship.
a. Providers of finance
b. Major customers
10. The Sulafat Company has a 70% subsidiary Harbinger
c. Trade unions
and is a venturer in Thabit, a joint venture company.
d. Key management personnel and close family
During the current financial year, Sulafat sold goods to
members of such individuals
both companies. Consolidated financial statements are
prepared combining the financial statements of Sulafat
4. Which of the following is not a related party as
and Harbinger.
envisaged by PAS 24?
a. A director of the entity. Under PAS24 Related party disclosures, in the separate
b. The parent company of the entity. financial statements of Sulafat for the current year,
c. A shareholder of the entity that holds 1% stake in disclosure is required of transactions with
the entity. a. Thabit only
d. The son of the chief executive officer of the entity. b. Harbinger only
c. Both Harbinger and Thabit
5. According to PAS24 Related party disclosures, which d. Neither Harbinger nor Thabit
ONE of the following is not a related party of The
Parnaby Company? 11. PAS 24 requires disclosure of compensation of key
a. A shareholder of The Parnaby Company owning management personnel. Which of the following would
30% of the ordinary share capital not be considered “compensation” this purpose?
b. An entity providing banking facilities to The a. Short-term benefits.
Parnaby Company b. Share-based payments.
c. An associate of The Parnaby Company c. Termination benefits.
d. Key management personnel of The Parnaby d. Reimbursement of out-of-pocket expenses.
Company
12. If a business entity entered into certain related party
6. According to PAS24 Related party disclosures, which transactions, it would be required to disclose all of the
ONE of the following fall within the definition of an following information except the
entity's related party? a. Nature of the relationship between the parties to
a. Another entity in which the entity owns 5% of the the transactions.
voting rights b. Nature of any future transactions planned between
b. An executive director of the entity the parties and the terms involved.
c. The partner of a key manager in a major supplier to c. Amount of the transactions for each of the periods
the entity for which an income statement is presented.
d. A customer with whom an entity transacts a d. Amounts due from or to related parties as of the
significant volume of business date of each statement of financial position
presented.
7. According to PAS24 Related party disclosures, the
following are related parties, except 13. Which of the following is not a required disclosure for
a. A supplier with whom an entity transacts a related party transactions?
significant volume of business a. The nature of the relationship.
b. An associate’s subsidiary and the investor that has b. A description of the transactions.
significant influence over the associate c. The amounts due from or to related parties.
c. A joint venture’s subsidiary and the investor that d. The impact of the transactions on current year's
has joint control over the joint venture income.
d. A post-employment benefit plan for the benefit of
the employees of the entity's parent - done -

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EXCEL PROFESSIONAL SERVICES, INC.
LECTURE NOTES
SUMMARY OF PAS 24
RELATED PARTY DISCLOSURES
Objective
The objective of PAS 24 is to ensure that an entity's
financial statements contain the disclosures necessary to
draw attention to the possibility that its financial position
and profit or loss may have been affected by the existence
of related parties and by transactions and outstanding
balances with such parties.
Who Are Related Parties?
A related party is a person or entity that is related to the
entity that is preparing its financial statements (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.
(b) An entity is related to a reporting entity if any of the
following conditions applies:
(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).
(ii) One entity is an associate or joint venture of the
other entity (or an associate or joint venture of a
member of a group of which the other entity is a
member).
(iii) Both entities are joint ventures of the same third
party.
(iv) One entity is a joint venture of a third entity and
the other entity is an associate of the third entity.
(v) The entity is a post-employment defined benefit
plan for the benefit of employees of either the
reporting entity or an entity related to the
reporting entity. If the reporting entity is itself
such a plan, the sponsoring employers are also
related to the reporting entity.
(vi) The entity is controlled or jointly controlled by a
person identified in (a).
(vii) A person identified in (a)(i) has significant
influence over the entity or is a member of the
key management personnel of the entity (or of a
parent of the entity).
The following are deemed not to be 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
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What Are Related Party Transactions?
A related party transaction is a transfer of resources,
services, or obligations between related parties, regardless
of whether a price is charged.
Disclosure
Relationships between parents and subsidiaries.
Regardless of whether there have been transactions
between a parent and a subsidiary, an entity must disclose
the name of its parent and, if different, the ultimate
controlling party. If neither the entity's parent nor the
ultimate controlling party produces financial statements
available for public use, the name of the next most senior
parent that does so must also be disclosed.
Management compensation. Disclose key management
personnel compensation in total and for each of the
following categories:
• short-term employee benefits
• post-employment benefits
• other long-term benefits
• termination benefits
• share-based payment benefits
Key management personnel are those persons having
authority and responsibility for planning, directing, and
controlling the activities of the entity, directly or indirectly,
including any directors (whether executive or otherwise) of
the entity.
Related party transactions. If there have been
transactions between related parties, disclose the nature of
the related party relationship as well as information about
the transactions and outstanding balances necessary for an
understanding of the potential effect of the relationship on
the financial statements. These disclosure would be made
separately for each category of related parties and would
include:
• the amount of the transactions
• the amount of outstanding balances, including terms
and conditions and guarantees
• provisions for doubtful debts related to the amount of
outstanding balances
• expense recognised during the period in respect of bad
or doubtful debts due from related parties
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
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FAR.2848