Topic: “Related Parties” and “Inventory Valuation”
Part A:
The following transaction occurred between “C” Ltd and its parent, “T” Industries, for the
financial year ended 31st December, 2015.
C Ltd borrowed an amount of Rs. 275,000 as a medium term loan from clean bank on
31st December 2015.
The bank was not willing to grant the loan unless T Industries signed a guarantee
against the loan.
The loan is repayable in 24 monthly installments, the first on 31st January 2016. The
market related interest rate on this loan is 20% per year compounded monthly.
T industries do not make use of the debt in the financing of its operations.
Requirement:
Discuss whether or not the above mentioned related party transaction requires disclosure in the
financial statements of the parent company “T” Industries.
Part B:
Fast Trading Corporation purchases motorcycles from various countries and exports them to
Europe. Fast Trading Corporation has incurred these expenses during 2005:
(a) Cost of purchases (based on vendors’ invoices) Rs. 100,000
(b) Trade discounts on purchases Rs. 5,000
(c) Import duties Rs. 2,000
(d) Freight and insurance on purchases Rs. 1,000
(e) Other handling costs relating to imports Rs. 3,500
(f) Salaries of accounting department Rs. 5,000
(g) Sales commission payable to sales agents Rs. 1,000
(h) After-sales warranty costs Rs. 500
Required:
Fast Trading Corporation is seeking your advice on which costs are permitted under IAS 2 to
be included in cost of inventory.
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