Question 1

Which of the following transactions are not related party transactions for an entity?
I. An employee purchased the entity's products on normal trading terms.
II. A subsidiary of the entity supplied raw materials to the entity.
III. The entity lent money to one of its directors.
IV. The entity made an agreement with a trade union about increase in employee's wages.

Accepted Answer

I and IV are not related party transactions as they involve an employee and a trade union respectively, which are not considered related parties. II is a related party transaction as the subsidiary is considered a related party. III is also a related party transaction as the director is considered a related party.

Question 2

An entity is related to a reporting entity if any of the following conditions apply, except:

Accepted Answer

Significant economic dependence does not automatically establish a related party relationship under accounting standards.

Question 3

According to AASB 124, related party disclosures are required irrespective of whether there have been related party transactions when:

Accepted Answer

Control exists is the condition under which related party disclosures are required according to AASB 124, even if there have been no related party transactions.

Question 4

Amy Limited and Sheldon Limited are the two subsidiaries of Big Bang Company. Leonard, one of the directors of Big Bang Company, is also a director of Sheldon Limited. Leonard's wife, Penny, has 10% shareholding in Sheldon Limited. Which of the following are related parties to Amy Limited?

Accepted Answer

Big Bang Company and Sheldon Limited are related parties to Amy Limited because they are under common control or significant influence by the same parent company, Big Bang Company. Leonard and Penny are not directly related parties to Amy Limited.

Question 5

Two entities are not regarded as related parties simply because:

Accepted Answer

The answer of Two entities are not regarded as related...

Question 6

Flower Limited is a listed company operating in the retail industry with three business units: Aster, Rose, and Jasmine. Which of the following is likely to be the key management personnel of Flower Limited?

Accepted Answer

The general manager of each business unit is likely to be a key management personnel as they are responsible for the day-to-day operations and performance of their respective business units. The other options listed are important roles within the company but are not considered key management personnel.

Question 7

Which of the following are most likely to be considered as key management personnel of an entity? $\begin{array}{|l|l|l|l|}
\hline \text { I. } & \text { Chief Financial Officer } & \text { III. } & \text { Non-executive directors } \
\hline \text { II. } & \text { Admin Officer } & \text { IV. } & \text { General manager } \
\hline
\end{array}$

Accepted Answer

Key management personnel are those having authority and responsibility for planning, directing, and controlling the activities of an entity, directly or indirectly. This typically includes positions like the Chief Financial Officer (I), Non-executive directors (III), and the General Manager (IV), but not typically an Admin Officer (II), who usually handles more routine administrative tasks.

Question 8

The power to participate in the financial and operating policy decisions of an entity is known as:

Accepted Answer

Control is defined as having the power to participate in the financial and operating policy decisions of an entity. Joint control is when two or more parties have the power to control an entity. Share ownership simply means owning shares of an entity, which may or may not give the shareholder control. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but to a lesser extent than control. Therefore, the correct answer is A) control.

Question 9

Howard is one of the directors of Chester Limited. In the current financial year, Chester Limited paid $60 000 to Longfield Agency, where Howard's brother works, for the consultancy services it provided. In addition, Chester Limited also paid $4000 to Howard for a once-off consultancy he provided on a specific project. Which of the following statements describes the relationship between Howard, Chester Limited, and Longfield Agency?

Accepted Answer

The answer of Howard is one of the directors of...

Question 10

Chris holds an investment in Lee Limited that gives him a significant influence over the company. Chris's daughter, Chloe, also has a significant influence over another entity, Chang Limited. What is the relationship between Lee Limited and Chang Limited?

Accepted Answer

The answer of Chris holds an investment in Lee Limited...

Question 11

Amanda is one of the directors in Lions Limited, which is one of the subsidiaries of Harrisville Limited. She also has a joint control with Barry in Zephyr Limited. In this circumstance, the following are related parties to Lions Limited, except for:

Accepted Answer

Barry is not a related party to Lions Limited based solely on his joint control with Amanda in Zephyr Limited, unless he has a direct relationship with Lions Limited himself.

Question 12

Jack is a non-executive director of Shanghi Limited and Jiang Limited. Jack's wife, Sarah, is a non-executive director of Huang Limited. Which of the following statements is correct?

Accepted Answer

The answer of Jack is a non-executive director of Shanghi...

Question 13

Larry is the owner and founder of Manchester Limited. Larry's wife, Katie, has a controlling investment in Hudson Limited. Which of the following describes the relationship between Manchester Limited and Hudson Limited?

Accepted Answer

Katie's controlling investment in Hudson Limited makes Hudson Limited a related party of Manchester Limited. Therefore, any transactions between Manchester Limited and Hudson Limited must be disclosed in the financial statements of Manchester Limited. However, there is no indication that Manchester Limited has control over Hudson Limited.

Question 14

Barry Allen is one of the non-executive directors of Rose Company. In this current financial year, Rose Company had transactions with the following entities:
I. Borrowed money from City Bank.
II. Purchased raw materials from Arrow Company.
III. Loaned money to one of its subsidiaries, Firestorm Company, with 10% per annum.
IV. Sold products to Star Labs Company, of which Barry Allen is also a director.
Which transactions are not related party transactions between Rose Company and another entity?

Accepted Answer

The answer of Barry Allen is one of the non-executive...

Question 15

AASB 124 shall be applied in identifying the following, except for:

Accepted Answer

AASB 124 does not specifically address insider trading, which is typically governed by securities laws and regulations. It focuses on related party relationships and transactions, disclosure requirements, and outstanding balances with related parties.

Question 16

An entity in which an investor has significant influence is known as a/an:

Accepted Answer

An investor is said to have significant influence over an entity when it has the ability to participate in the financial and operating policy decisions of the investee, but is not in control. An associate is an entity in which the investor has significant influence, but does not have control or joint control over its financial and operating policies. Subsidiaries, on the other hand, are entities that are controlled by the investor, while related parties are typically entities with which the investor has a close relationship, such as family members or business partners. Joint ventures involve joint control and are not necessarily indicative of significant influence on the part of the investor.

Question 17

Thompson Limited is a subsidiary of Victor Limited. Which of the following is not a related party to Thompson Limited?

Accepted Answer

A pension scheme that offers benefits to employees of Thompson Limited and the Managing Director of Victor Limited are both related parties as they have a close relationship with Thompson Limited through their employment and ownership relationship, respectively. An associate of Thompson Limited is also a related party as they have some form of control or influence over the financial and operating policies of Thompson Limited. However, a distributor of Thompson Limited's products is not a related party as they do not have a close relationship or control over Thompson Limited's financial and operating policies.

Question 18

Which of the following is the related party of a reporting entity within the scope of AASB 124?

Accepted Answer

A related party under AASB 124 includes entities that are under common control, such as another subsidiary of the reporting entity's parent.

Question 19

The following remuneration categories must be disclosed for key management personnel, except for:

Accepted Answer

Bonus payments are typically considered part of short-term employee benefits and are not separately required to be disclosed for key management personnel.

Question 20

The contractually agreed sharing of control over an economic entity is known as:

Accepted Answer

The answer of The contractually agreed sharing of control over...

Quiz 21: Related Party Disclosures