Related party

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

16 December 2013 Pl. let me know below entities are related party as per AS 18? Pl. explain also

Company A Holds 99 percent equity share in Company B. Company A holds 40 percent equity share in Company C.

Whether B and C Related Party as per AS18?

Hitendra Jain

Hitendra Jain (Expert)
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17 December 2013 B and C are under the common control of A and hence relative parties.

I Believe the doubt arise that between A and B Holding and subsidiary relationship existed but with A and C is not.

We start from Para 12 of AS 18:

12. An enterprise is considered to have a substantial interest in another enterprise if that enterprise owns, directly or indirectly, 20 per cent or more interest in the voting power of the other enterprise. Similarly, an individual is considered to have a substantial interest in an enterprise, if that individual owns, directly or indirectly, 20 per cent or more interest in the voting power of the enterprise.

Now we move to clause (c) of para 10.3:

(c) a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise.

And now we move to para 10.1:

10.1 Related party - parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions.

So we can conclude that C falls under the sweep of clause (a) of para 3 Being

An Enterprise that controlled by Reporting Enterprise.