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Cbactg01 Chapter 5 Module

PAS 24 prescribes disclosure requirements for related party relationships and transactions. A related party is a person or entity related to the reporting entity, such as investors with control or significant influence, key management personnel, close family members, and post-employment benefit plans. Disclosures include the nature of related party transactions and outstanding balances. PAS 26 provides guidance on financial statements for defined contribution and defined benefit retirement plans. PAS 27 addresses separate financial statements and allows investments in subsidiaries to be accounted for at cost, in accordance with PFRS 9, or using the equity method.

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29 views

Cbactg01 Chapter 5 Module

PAS 24 prescribes disclosure requirements for related party relationships and transactions. A related party is a person or entity related to the reporting entity, such as investors with control or significant influence, key management personnel, close family members, and post-employment benefit plans. Disclosures include the nature of related party transactions and outstanding balances. PAS 26 provides guidance on financial statements for defined contribution and defined benefit retirement plans. PAS 27 addresses separate financial statements and allows investments in subsidiaries to be accounted for at cost, in accordance with PFRS 9, or using the equity method.

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CHAPTER 5

PAS 24 – RELATED PARTY DISCLOSURES

Objectives:
Enumerate examples of related parties
Describe the disclosure requirements for related parties

PAS 24 prescribes the necessary disclosures regarding related


party relationships and transactions, outstanding balances and
commitments between an entity and its related parties.

Related parties
A related party is “a person or entity that is related to the
reporting entity that is preparing its financial statements.” (PAS 24)
Examples of related parties:
1. Investor and investee relationship where control, joint
control or significant influence exists
2. Key management personnel
3. Close family member
4. Post-employment benefit plan
Control – an investor controls an investee when the investor is
exposed, or has rights, to variable returns from its involvement with the
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investee and has the ability to affect those returns through its power
over the investee.
Significant influence is the power to participate in the financial and
operating policy decisions of an entity, but is not control over those
policies. Significant influence may be gained by share ownership,
statute or agreement.
Joint control is the contractually agreed sharing of control over an
economic activity.
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the
entity, directly or indirectly, including any director (whether executive or
otherwise) of that entity
A related party transaction is a transfer of resources, services or
obligations between a reporting entity and a related party, regardless of
whether a price is charged
Disclosure:
- Parent-subsidiary relationship regardless of whether there
have been transactions between them
- Key management personnel compensation broken down into
the following categories SPOTS and loans to key
management personnel.
- Related party transactions - nature of transaction and
outstanding balances
Disclosures that related party transactions were made on terms
equivalent to those that prevail in arm’s length transactions are made
only if such terms can be substantiated.

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PAS 26 Accounting and Reporting by Retirement Benefit Plans

PAS 19 - Applied by an employer in (among others) determining the


cost of providing retirement benefits
PAS 26 - Applied by, for example, a trustee, when preparing the
financial statements of a retirement benefit plan.

Financial Statements of a Defined Contribution Plan


- a statement of net assets available for benefits
- a statement of changes in net assets available for benefits
- accompanying notes to the financial statements

Financial Statements of a Defined Benefit Plan


a statement that shows:
1. the net assets available for benefits
2. the actuarial present value of promised retirement benefits,
distinguishing between vested benefits and non-vested benefits
3. the resulting excess or deficit
a statement of net assets available for benefits including either:
1. a note disclosing the actuarial present value of promised retirement
benefits, distinguishing between vested benefits and non-vested
benefits
2. a reference to this information in an accompanying actuarial report

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PAS 27 Separate Financial Statements

- PAS 27 does not mandate which entities should produce


separate financial statements
- An entity shall apply PAS 27 in accounting for investments in
subsidiaries, joint ventures and associates when it elects, or is
required by local regulations, to present separate financial
statements
Separate financial statements are those presented in addition to
consolidated financial statements or in addition to financial statements in
which investments in associates or joint ventures are accounted for using
the equity method. Separate financial statements need not be appended
to, or accompany, those statements.
Preparation of separate financial statements
Separate financial statements shall be prepared in accordance with all
applicable PFRSs, except as follows:
1. Investments in subsidiaries, associates and joint ventures are
accounted for in the separate financial statements either:
a. at cost
b. in accordance with PFRS 9 Financial Instruments
c. using the equity method
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2. The entity shall apply the same accounting for each category of
investments

PAS 28 Investments in Associates and Joint Ventures

Associate - an entity, including an unincorporated entity such as a


partnership, over which the investor has significant influence
Significant influence - the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies.
Significant influence is presumed to exist if the investor holds, directly or
indirectly (e.g. through subsidiaries), 20% or more of the voting power of
the investee, unless it can be clearly demonstrated that this is not the
case.
Equity method
- Investments in associates or joint ventures are accounted for
using the equity method. Under this method, the investment is
initially recognized at cost and subsequently adjusted for the
investor’s share in the changes in the EQUITY of the investee.
Discontinuance of the use of equity method
- An investor starts to apply the equity method on the date it

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obtains significant influence and ceases to apply the equity
method on the date it loses significant influence
- On the loss of significant influence, the investor shall measure
at fair value any investment the investor retains in the former
associate. The investor shall recognize in profit or loss any
difference between:
1. The fair value of any retained investment and any
proceeds from disposing of the part interest in the
associate
2. The carrying amount of the investment at the date
when significant influence is lost
Reclassification of cumulative OCI
If an investor loses significant influence over an associate, all
amounts recognized in other comprehensive income in relation to the
associate shall be accounted on the same basis as would be required if
the associate had directly disposed of the related assets or liabilities.
Share in losses of associate
If an investor’s share of losses of an associate equal or exceeds its
interest in the associate, the investor discontinues recognizing its share
of further losses.
Interest in the associate includes the following:
a. Investment in associate measured under equity method
b. Investment in preference shares of the associate
c. Unsecured long-term receivables or loans
Interest in the associate does not include the following:
a. Trade receivables and payables
b. Secured long-term receivables or loans

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For further discussion please refer to the link provided: PAS 24 – Related Party Disclosure
https://www.youtube.com/watch?v=19mZWo-KFks
For further discussion please refer to the link provided : PAS 28 – Investment in
associates
https://www.youtube.com/watch?v=gGrPuR1MpJc
For further discussion please refer to the link provided: Joint Ventures
https://www.youtube.com/watch?v=tGQveH0148s

Reference Book:
Conceptual Framework and Accounting
Standards
By: Zeus Vernon B. Millan, 2019

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