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Problem:

Malcolm Co is the manufacturer of automobile spare parts. It transacts business by the business model that has worked for many years and has made the entity the successful enterprise that is rated in top ten businesses in its field by trade journal. Malcolm Co believes in working with dependable and reliable vendors and also sells only to entities which it can either control or exercise important affects over. The business model works in this way:

a) Malcolm Co purchases everything it needs from Powell Co, a famous supplier.  Due to high quality of material that Powell Co has provided over the last ten (10) years, Malcolm Co has never purchased from any other supplier. Thus, it might be considered economically dependent on Powell Co.

b) Malcolm Co sells 70% of its output to a company owned by the director and the balance to entity that is its ‘associates’ by virtue of Malcolm Co owning 30% of the share capital of that company.

c) Malcolm Co stores inventory in the warehouse that is leased from the wife of its director. The lease rentals are at arm’s length.

d) Malcolm Co has provided an interest-free loan to company owned by chief executive officer (CEO) of Malcolm Co for the purposes of financing the purchase of delivery vans which the company owned by the CEO is using for transporting goods from warehouse of supplier to the warehouse employed by Malcolm Co for storing inventory.

Required:

Based upon the requirements of IAS 24, recognize which transactions would require to be disclosed as related party transactions under IAS 24.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M98892

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