Page 225 - SBR Integrated Workbook STUDENT S18-J19
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Related parties
Example 1
Related party transactions
A public listed company, X, owns two subsidiary company investments. It
owns 100% of the equity shares of A and 55% of the equity shares of B.
During the year ended 31 May 20X6 B made several sales of goods to A.
These sales totalled $15 million and had cost B $14 million to manufacture. B
made these sales on the instruction of the Board of X. It is known that one of
the directors of B, who is not a director of X, is unhappy with the parent
company’s instruction as he believes the goods could have been sold to other
companies outside the group at the far higher price of $20 million. All directors
within the group benefit from a profit sharing scheme.
Describe the financial effect that X’s instruction may have on the
financial statements of the companies within the group and the
implications this may have for other interested parties.
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