- 12 Marks
FR – L2 – Q60 – Financial Reporting Standards and Their Applications
Question
Bawku Limited is engaged in the manufacturing of specialized spare parts for automobile assemblers. During the year 20X4, the company has undertaken the following transactions with its related parties:
(i) Sales of GH₵500 million were made to its only subsidiary Akyem Auto Limited (AAL). Being the subsidiary, a special discount of GH₵25 million was allowed to AAL.
(ii) AAL returned spare parts worth GH₵5.5 million.
(iii) Raw materials of GH₵5 million were purchased from Asante Enterprises, which is owned by the wife of the CFO of Bawku Limited.
(iv) Equipment worth GH₵3 million was purchased from Kofi Limited (KL). The wife of the Production Director of the company is a director in KL.
(v) The company awarded a contract for supply of two machines amounting to GH₵7 million per machine to an associated company.
(vi) In 20X2, an advance of GH₵2 million was given to the Chief Executive of the company. During the year 20X4, he repaid GH₵0.3 million. The balance outstanding as on December 31, 20X4 was GH₵1,100,000.
Required
Prepare a note for inclusion in the company’s financial statements in accordance with the requirement of IAS 24 Related Party Disclosures.
Answer
The related parties comprise a subsidiary, an associated undertaking/an entity having significant influence, director and key management personnel.
Aggregate transactions with related parties are as follows:
| Subsidiary GH₵ | Associate GH₵ | Entity having significant influence GH₵ | Director GH₵ | Key Management Personnel GH₵ | |
|---|---|---|---|---|---|
| Transactions | |||||
| Sales | 500,000,000 | ||||
| Sales discount | 25,000,000 | ||||
| Sales return | 5,500,000 | ||||
| Purchase of raw material | |||||
| Purchase of equipment | 5,000,000 | ||||
| Purchase of machinery | 14,000,000 | ||||
| Balances | |||||
| Advances | |||||
| At beginning of the year | |||||
| Repaid during the year | 1,400,000 | ||||
| At the end of the year | 1,100,000 |
(i) Sales discount represents a special discount which is not usually allowed to other customers.
(ii) All transactions with related parties have been carried out on commercial terms and conditions.
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