CC Ltd prepares its financial statements to 31 March each year. The financial statements are approved for issue on 20 May. On 1 June 20X1, the…
CA Final · Financial Reporting · RTP · November 2026
CC Ltd prepares its financial statements to 31 March each year. The financial statements are approved for issue on 20 May. On 1 June 20X1, the spouse of one of the directors of CC Ltd. purchased a controlling interest in O Ltd., a long-standing customer of CC Ltd. Sales of products from CC Ltd. to O Ltd. in the two-month period from 1 April 20X1 to 31 May 20X1 totalled ₹ 8,00,000. Following the share purchase by the spouse of one of the directors of CC Ltd. on 1 June 20X1, CC Ltd. began to supply the products at a discount of 20% to their normal selling price and allow O Ltd. three months' credit (previously O Ltd. was only allowed one month's credit, CC Ltd.'s normal credit policy). Sales of products from CC Ltd. to O Ltd. in the ten-month period from 1 June 20X1 to 31 March 20X2 totalled ₹ 6 million. On 31 March 20X2, the trade receivables of CC Ltd. included ₹ 1.8 million in respect of amounts owing by O Ltd. Required: Explain how the above event would be reported in the financial statements of CC Ltd. for the year ended 31 March 20X2.
Suggested Answer and Working Notes:
CC Ltd. would include the total revenue of ₹ 6.8 million (₹ 6 million + ₹ 0.8 million) from O Ltd. receivable in the year ended 31 March 20X2 within its revenue and show ₹ 1.8 million within trade receivables at 31 March 20X2. The spouse of a director of CC Ltd. would be regarded as a related party of CC Ltd. because he/she is a close family member of one of the key management personnel of CC Ltd. From 1 June 20X1, O Ltd. would also be regarded as a related party of CC Ltd. because from that date O Ltd. is an entity controlled by another related party. Because O Ltd. is a related party with whom CC Ltd. has transactions, then CC Ltd. should disclose: The nature of the related party relationship. The revenue of ₹ 6 million from O Ltd. since 1 June 20X1. The outstanding balance of ₹ 1.8 million at 31 March 20X2. In the current circumstances it may well be necessary for CC Ltd. to also disclose the favourable terms under which the transactions are carried out.
Topics: Ind AS 24, Ind AS 108
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