Tag (SQ): Financial Disclosures

(a) The determination of related party status depends on the substance of the relationship, not just the legal form.

Required:

(i) Define a related party transaction and state any TWO examples of such transactions. (3 marks)

(ii) Based on IAS 24 Related Party Disclosures, state any FOUR conditions under which an entity can be said to be related to another.

(b) Cedar Plc has two subsidiaries, Sycamore Ltd and Birch Ltd. The share capital of Cedar Plc is held by Alan and Akwasi at 60% and 40%, respectively. Alan is the Chair of Cedar Plc, while Akwasi is the Managing Director.

Sycamore Ltd is wholly owned by Cedar Plc. On 31 December 20X4, Sycamore Ltd sold a parcel of land it vacated some years back to Birch Ltd for GH¢2m. The latter company, owned and managed by Alan’s son, intends to develop the potential of the site as a location for an events center. The carrying amount at that date was estimated to be GH¢5m. This sale has not been reflected in the Financial Statements of Sycamore Ltd for the year ended 31 December 20X4.

Outline how the above transactions should be recorded in the financial statements of Sycamore Ltd and the consolidated financial statements of Cedar Plc for the year ended 31 December 20X4. (8 marks)