Set 2 - FR Chapter 15 Related Parties

Question 1

ASPE first! What is the issue with related party transactions?

Answer 1

They may occur at less than FV, meaning that parties could benefit financially if not accounted for properly.

Question 2

ASPE first! What are the two ways RPT can be measured?

Answer 2

carrying value: the amount the item was recorded at by the transferor (book value)
exchange amount: sales price. In an NMT, this is the amount parties agree to, which may or may not be FMV.

Question 3

When RPT’s are measured at carrying amount, how are gains/losses accounted for? ASPE

Answer 3

Gains - contributed surplus

Losses - contributed surplus up to amount left over from prior RPT’s, then retained earnings for difference.

Question 4

When RPT’s are measured at exchange amount, how are gains/losses accounted for? ASPE

Answer 4

Recognized in income for the period. If exchange value is less than carrying value - consider checking for impairment.

Question 5

Related parties include? CHECK OUT ASPE DECISION TREE

Answer 5

• any party over which the entity exercises direct or indirect control, joint control or significant influence
• any party that can exert direct or indirect control, joint control, or significant influence over the entity
• parties 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

Is PPE sale considered normal course of ops?

Answer 6

No.

Question 7

What does a substantive change in ownership entail?

Answer 7

More than 20% of total ownership or service benefits transferred. Example - company A owned 100% by Mr. A and company B owned 50% by Mr A and Mr B. Inventory xfer from company A-B would be a change of 50% in ownership for Mr B.

Question 8

What is some independent evidence that is needed to support?

Answer 8

• appraisals
• market prices
• comparable independent bids from outside company

Question 9

What does commercial substance mean?

Answer 9

Transaction is going to change future cash flows of entities

Question 10

Disclosures requried under ASPE

Answer 10

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

Question 11

IFRS differences

Answer 11

• always recorded at exchange amount, unless another standard provides guidance
• significant disclosures required, including nature of relationship and transactions and key management compensation.