Ch. Related-Party Transactions

Question 1

definition

Answer 1

Related-party transactions refer to exchanges that occur between parties that are “related” and, therefore, may occur with conditions that differ from exchanges between parties that are not related
RPT

Question 2

measurement

Answer 2

sometimes occur at values other than fair value or could benefit those involved in the transaction at the expense of other stakeholders, due to the closeness of the relationship of the parties involved. so how should it be measured?
ASPE 3840 :
• carrying amount: the amount the item was recorded at by the transferor (book value). difference between the carrying amounts- terms exchanged is included as a charge to equity
• exchange amount: the amount of consideration paid or received as agreed to by the related parties (sales price); in the case of a non-monetary transaction, the exchange value is the amount the parties agree to, which may or may not be equal to the fair value
gain or loss is recognized in income for the period
if exchange amount is < BV then consider if there is an impairment

Question 3

measurement- carrying amount JE

Answer 3

transferer: 
dr cash 
dr RE
    Cr whatever they transferred 
any difference is adjusted to RE

whoever got it: 
Dr whatever they got
   Cr contributed surplus 
   Cr cash 
OR dr whatever they got
dr contributed surplus or RE
    cr cash 
any difference is adjusted to contributed surplus

Question 4

measurement - exchange amount JE

Answer 4

when sold transferer:
Dr cash
dr loss on sale
cr whatever they transferred (at BV)

whoever got it: both same amounts
dr cash
cr whatever they transfered

Question 5

definition of related

Answer 5

• any party over which the entity has the ability to exercise control, joint control, or significant influence; this ability may be direct or indirect
• any party that is able to exert control, joint control, or significant influence over the entity; this ability may be direct or indirect
• two or more parties are related when they are subject to common control, joint control, or common significant influence
• management of the entity
• members of the immediate family of an individual who is a related party

Question 6

definition of transaction

Answer 6

transfer of economic resources or obligations between related parties, or the provision of services by one party to a related party.

Question 7

Is the transaction in the normal course of operations?

Answer 7

normal course of operations when it is of a type that is usually, frequently, or regularly undertaken by the enterprise for the purpose of generating revenue.
sale of PPE is never normal course of action

Question 8

Is the change in ownership interests in the item transferred substantive?

Answer 8

substantive when a transaction results in unrelated parties having acquired or given up at least 20% of the total equity ownership interest in the item or service benefits, unless persuasive evidence exists to the contrary.

Question 9

Is the amount of the exchange supported by independent evidence?

Answer 9

Evidence should include at least one of the following:
• independent appraisals, valuations, or approvals used to determine the exchange amount
• comparable recently quoted market price
comparable independent bids on the same transaction
• comparable amounts of similar transactions actually undertaken with unrelated parties

Question 10

Is the transaction a non-monetary exchange or transfer of a non-monetary asset?

Answer 10

monetary are measured at the exchange amount.

non-monetary flow from here to the final two criteria,

Question 11

Is the transaction an exchange of product or property held for sale in the normal course of operations to facilitate sales?

Answer 11

exchanging items that are similar in nature
Transactions that are exchanges of items held for sale in the normal course of operations are measured at the carrying amount

Question 12

Does the transaction have commercial substance?

Answer 12

commercial substance when the future cash flows are expected to change significantly as a result of the transaction
with commercial substance are measured at the exchange amount
without commercial substance are measured at the carrying amount

Question 13

CASE- must disclose the following for ASPE .51

Answer 13

• relationship
• transaction details
• amount
• measurement basis
• amounts and terms for any receivables or payables
• contractual obligations
• contingencies

Question 14

IFRS

Answer 14

RPTs are not recorded differently than non-RPTs.
RPTs are generally recorded at the exchange amount agreed to by the two parties
In addition to the disclosure required under ASPE, paragraph 13 of IAS 24 Related Party Disclosures requires the following disclosures:
• nature of related-party relationships *
• transactions undertaken
• key management compensation