- 5 Marks
Question
Bongo Designs is the parent company of a small group. Its shares are stock market quoted, with many shareholders. Only one shareholder, Akwasi Boakye, has a holding over 5%. Akwasi Boakye holds 20% of the shares and was the founder of the company. He still retains a seat on the board which is made up of four executive directors (including himself) and two non-executive directors.
Akwasi Boakye’s domestic live-in partner of ten years, Abena Lamptey, recently set up a company, Gushegu Ltd, in the textile industry with a friend, Akosua Pokuaa. Abena Lamptey and Akosua Pokuaa each own 50% of the shares of Gushegu Ltd, and decisions are made jointly under a contract that both parties signed.
Bongo Designs has two subsidiaries, Zabzugu Fabrics which is 100% owned and Binduri Textiles which is 60% owned. The other 40% of Binduri Textiles is owned by a single shareholder, Innovative Sissala, which has two seats on Binduri Textiles’s five-member board. Yaw Abdulai is the Finance Director of Zabzugu Fabrics. He is also the person responsible for finance at the group level but is not a member of the group’s board.
Required:
In accordance with IAS 24: Related Party Disclosures, identify the related parties of Bongo Designs in the above scenario, explaining why each is a related party. (5 marks)
Answer
Related Parties of Bongo Designs under IAS 24:
- Akwasi Boakye
Akwasi Boakye is a related party because:- He holds a significant shareholding in Bongo Designs (20% ownership).
- He is also a member of the board of directors, which gives him significant influence over the company’s policies and decisions.
- IAS 24 defines related parties as individuals with significant influence over the entity, including key management personnel, which Akwasi qualifies as.
- Abena Lamptey (Domestic Partner of Akwasi Boakye)
Abena Lamptey is a related party because:- As the domestic partner of Akwasi Boakye, she is considered a close family member under IAS 24.
- Close family members of key management personnel are deemed related parties due to their potential influence on business decisions through their personal relationships.
- Gushegu Ltd (Owned by Abena Lamptey and Akosua Pokuaa)
Gushegu Ltd is a related party because:- The company is jointly controlled by Abena Lamptey, who is the domestic partner of Akwasi Boakye (a key person in Bongo Designs).
- IAS 24 treats entities controlled or jointly controlled by close family members of key management personnel as related parties.
- Zabzugu Fabrics (Subsidiary)
Zabzugu Fabrics is a related party because:- It is a 100% owned subsidiary of Bongo Designs.
- According to IAS 24, subsidiaries are always related parties because they are part of the same group of companies and subject to common control.
- Binduri Textiles (Partially Owned Subsidiary)
Binduri Textiles is a related party because:- Bongo Designs owns 60% of Binduri Textiles, making it a subsidiary.
- IAS 24 considers subsidiaries within a group to be related parties due to the control exercised by the parent company.
- Yaw Abdulai (Finance Director)
Yaw Abdulai is a related party because:- He is the Finance Director of Zabzugu Fabrics and responsible for finance at the group level.
- Even though he is not a board member, his role as a key management personnel at the group level makes him a related party under IAS 24.
Note:
- Innovative Sissala is not considered a related party as it only holds a 40% interest in Binduri Textiles and does not have significant influence over the group as a whole. Its two seats on the board of Binduri Textiles do not extend to the group level.
- Tags: Disclosure, Entities, IAS 24, Related parties, Relationships
- Level: Level 3
- Uploader: Kwame Aikins