Alpha is a public listed company that owns two subsidiary companies. It owns 100% of the equity shares of Bravo and 55% of the equity shares of Charlie. During the year ended 30 September 2020, Charlie made several sales of goods to Bravo. The sales totalled £15m and had cost Charlie £14m to produce. Charlie made these sales on the instruction of the Board of Alpha. It is known that one of the directors of Charlie, who is not a director of Alpha, 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 £20m. All directors within the group benefit from a profit-sharing scheme. Required: a. Describe the main circumstances that give rise to related parties. b. Explain why the disclosure of related party relationships and transactions may be important.

Alpha is a public listed company that owns two subsidiary companies. It owns 100% of the equity shares of Bravo and 55% of the equity shares of Charlie. During the year ended 30 September 2020, Charlie made several sales of goods to Bravo. The sales totalled £15m and had cost Charlie £14m to produce. Charlie made these sales on the instruction of the Board of Alpha. It is known that one of the directors of Charlie, who is not a director of Alpha, 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 £20m. All directors within the group benefit from a profit-sharing scheme. Required: a. Describe the main circumstances that give rise to related parties. b. Explain why the disclosure of related party relationships and transactions may be important.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 19E

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