Question 2 (25 marks) Discuss the rules that should be applied in determining the existence of related party relationships, making it as clear as possible your understanding of related parties. (6marks)

Consider the following situation: Husband Spouse Wife

controls

Significant influence

Mahatima Ltd

Graces Ltd

Husband controls Mahatima Ltd. His spouse, Wife, exercises significant influence over Graces Ltd.

From the above statements and graph, explain the related party relationships that arise. (4)

Aaron, Barnabas, and Cecilia decided to establish a new entity called Dentals Ltd. Aaron had 50% of the voting rights in Dentals Ltd, Barnabas had 30% and Cecilia had 20%. Contractual arrangement agreed upon among the partners, Aaron, Barnabas, and Cecilia specified that at least 75% of the voting rights are required to make decisions about the activities of Dentals Ltd.

Discuss the way Aaron should account for its investment in Dentals in its consolidated financial statements? (5)

Sparrow owns 18% of the ordinary shares of Blackbird. The remaining 82% of the ordinary shares are held by hundreds of investors, and no single investor has a holding of more than 5%.

Blackbird has six directors and Sparrow is able to appoint two of these. Blackbird is one of Sparrows key suppliers. Sparrows operations and human resource managers spend several days a year at Blackbird in order to ensure that trading between the two entities is as smooth as possible.

In the consolidated financial statements, the directors of Sparrow wish to account for the investment in Blackbird as a financial asset.

Required: Discuss whether the proposed accounting treatment is correct. (5)

In accordance with the IFRS 8 on reportable segments discuss the disclosure requirements (5