30 April 2008
In case of a related party transaction between a company & a partnership firm, is it necessary to disclose the profit earned by the company from the firm in the company's P&L account??
30 April 2008
No, it is not required to disclose profit seperately. I suppose you are referring the case when sales is made by company to the firm. In this case, even no need to disclose seperately amount of sales to firm also. But in Notes to accounts, you have to disclose the sales amount for the year (to firm) and unpaid amount by firm, included in Debtors, as on Balance Sheet date.
01 May 2008
I agree with the treatment suggested by my friend but still want to add some.
AS 18 applies where there are 1) two related parties, and 2) they enter into any trabnsaction, like sale, purchase, loan, etc.
In this case, if company does not enter into any transaction with firm it only needs to disclose name and relation with firm and not the share in annual profits of firm. Even if it enters in any transaction, details of those transactions will need to be disclosed as required by standard.
So, disclosure of profit is not required by AS 18. But you should include the profit in P&L as profit received from partnership firm is exempt in hands of partners as well as it will help you to reconcile acounts of each entity in each other's books.
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