neha kumari

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I, NEH A KUMARI , hereby declare that the project report entitled A STUDY ON

ACCOUNTING STANDARD 18 AS APLLIED BY TATA STEEL under the guidance of

MR.PARTHO SARIDHI submitted in partial fulfillment of the requirements for the award of the

degree of Post Graduate Diploma in Management, from SIVA SIVANI INSTITUTE OF

MANAGEMENT as my original work Carried out during 16 th April,2013 to 15th th June 2013 and

not submitted for the award of any other degree/diploma/fellowship or other similar titles or prizes

to any other institution/organization or university by any other person.

DATE SIGNATURE

PLACE

GUIDE CERTIFICATION

This is to certify that MS. NEHA KUMARI , student of PGDM of our Institute has completed his

dissertation on the topic A STUDY ON ACCOUNTING STANDARD 18 AS APLLIED BY


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I thank MR. PARADHASARIDHI MADASU , faculty of SIVA SIVANI INSTITUTE OF

MANAGEMENT and my corporate guide Mr.RAJEEV CHAUDHARY Head (Financial

Accounts) of TATA STEEL, MR IMTIAZ AHMED, MR VIVEK SINHA for his valuable

guidance and suggestions, which were vital inputs towards the completion of the project.

I would also like to thank him for his help in analyzing, interpreting the data and for the stimulating

discussion which has greatly added to the study.

Last but not the least; I would like to thank all those who have directly or indirectly helped me

complete the project successfully.

THANK YOU

NEHA KUMARI

Table of ContentsINTRODUCTION............................................................................................................................................. 6

Chapter 2 ....................................................................................................................................................... 8

Chapter 2 (Company Profile) ...................................................................................................................... 10

2.1 About Tata Steel ............................................................................................................................... 10

2.1.1 The Beginning ........................................................................................................................... 10

2.1.2 Growth, Expansion and Awards over the Years ................................ Error! Bookmark not defined.

2.1.3 Tata Steel Today ............................................................................ Error! Bookmark not defined.

2.2 Vision and Mission ........................................................................................................................... 10


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2.3 Founders of Tata Steel ...................................................................................................................... 10

2.4 Founding Principles .............................................................................. Error! Bookmark not defined.

2.5 Tata Steels Values ........................................................................................................................... 11

2.6 Goals ..................................................................................................... Error! Bookmark not defined.

2.7 Board of Directors ................................................................................ Error! Bookmark not defined.

2.8 Types of Products ............................................................................................................................. 12

2.8.1Raw Products .............................................................................................................................. 122.8.2Finished Products ........................................................................................................................ 13

2.9 Market Sector ....................................................................................... Error! Bookmark not defined.

2.10 Competitors of Tata Steel ................................................................... Error! Bookmark not defined.

2.11 Operation in Tata Steel ....................................................................... Error! Bookmark not defined.

2.12 Expansion Projects ............................................................................. Error! Bookmark not defined.

2.12.1 Brownfield Projects ..................................................................... Error! Bookmark not defined.

2.12.2 Greenfield Projects ...................................................................... Error! Bookmark not defined. 2.12.2.1 Odisha Project ........................................................................... Error! Bookmark not defined.

2.12.3 Other projects .................................................................................. Error! Bookmark not defined.

2.12.3.1 Chhattisgarh Project .................................................................. Error! Bookmark not defined.

2.12.3.2 Karnataka Project ...................................................................... Error! Bookmark not defined.

2.13 Swot Analysis ................................................................................................................................. 15

Chapter 3 (Steel Industry Overview) .......................................................................................................... 16

3.1 Importance of Steel Industry ............................................................................................................ 173.3 Global Steel Industrial Structure .......................................................... Error! Bookmark not defined.

3.4 Market scenarios ............................................................................... Error! Bookmark not defined.

3.5 Production scenarios ......................................................................... Error! Bookmark not defined.

3.6 Demand-Availability Projection ....................................................... Error! Bookmark not defined.

3.7 South-East Asian Steel industry ....................................................... Error! Bookmark not defined.

3.8 UK and European Steel Industry ...................................................... Error! Bookmark not defined.

3.9 Pricing & Distribution ...................................................................... Error! Bookmark not defined.

3.10 Role of Steel Industries in Economic Development ....................... Error! Bookmark not defined.

3.11 Indian Steel Industry ....................................................................... Error! Bookmark not defined.

ACCOUNTING STANDARD 18 .................................................................. Error! Bookmark not defined.

Objective: ................................................................................................................................................ 19

Purpose of As 18 ..................................................................................................................................... 21

Disclosure to be made by the enterprise according to AS 18 ................................................................. 21


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Different Laws Governing AS 18 ........................................................................................................... 23

Transfer pricing ................................................................................................................................... 23

Clause 188 of New Company Bill 2012 ................................................................................................. 26

Difference between IND AS 24 and AS 18 .............................................................................................. 28

Difference between IAS 24 and AS 18 ................................................................................................... 28

Clause 49 Requirement of Related Party Disclosure .............................................................................. 27

DATA ANALYSIS .................................................................................................................................... 29FINDINGS, ................................................................................................................................................. 33

RECOMMENDATION .............................................................................................................................. 33

AND ........................................................................................................................................................... 33

CONCLUSION .......................................................................................................................................... 33

FINDINGS .................................................................................................. Error! Bookmark not defined.

CONCLUSION .......................................................................................................................................... 37

BIBLOGRAPHY ........................................................................................................................................ 37

INTRODUCTION

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO ) is an Indianmultinational steel- making company headquartered in Mumbai, Maharashtra, India, and a subsidiaryof the Tata Group. It is the 12th-largest steel producing company in the world, with an annual crudesteel capacity of 23.8 million tones, and the largest private-sector steel company in India measured

by domestic production.

Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 81,600 people. Itslargest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steelmaker Corus in what was the largest international acquisition by an Indian company to date.

An enterprise has relation with many parties in which it has acquired power to participate andinfluence the financial decision or operating decision of the parties. Such parties are known asrelated parties. This relation among the enterprise and related parties leads to transaction among

them. The transaction may be in the form of transfer of resources and/ or obligation but may includea price which is different from the price which the enterprise charges other unrelated party. Thetransaction among the related party has effect on the financial statement and for this purposeInstitute of Chartered accountant of India has issued Accounting standard 18 which discloses therelationship between the parties and the effect on the financial statement due to transactions amongthem.
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/List_of_steel_producershttp://en.wikipedia.org/wiki/Crude_steelhttp://en.wikipedia.org/wiki/Crude_steelhttp://en.wikipedia.org/wiki/Jamshedpurhttp://en.wikipedia.org/wiki/Jharkhandhttp://en.wikipedia.org/wiki/Jharkhandhttp://en.wikipedia.org/wiki/Jamshedpurhttp://en.wikipedia.org/wiki/Crude_steelhttp://en.wikipedia.org/wiki/Crude_steelhttp://en.wikipedia.org/wiki/List_of_steel_producershttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/India


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Accounting Standard (AS) 18 comes into effect in respect of accounting periods commencingon or after 1-4-2001. This Standard is mandatory in nature in respect of accounting periodscommencing on or after 1-4-2004 for the enterprises which fall in any one or more of the followingcategories, at any time during the accounting period:

i.

Enterprises whose equity or debt securities are listed whether in India or outside India.

ii.

Enterprises which are in the process of listing their equity or debt securities as evidenced bythe board of directors resolution in this regard.

iii.

Banks including co-operative banks,

iv.

Financial institutions,

v.

Enterprises carrying on insurance business.

vi.

All commercial, industrial and business reporting enterprises, whose turnover for theimmediately preceding accounting period on the basis of audited financial statementsexceeds Rs.50 crore(Turnover does not include other income)

vii.

All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs.10 crore at any time during the accounting period.

Tata Steel is listed on the Bombay Stock Exchange, where itis a constituent of the BSE SENSEX index, and the India. It is ranked 401st in the 2012Fortune Global 500 ranking of the world's biggest corporations. It is the eighth most-valuableIndian brand according to an annual survey conducted by Brand Finance and The EconomicTimes in 2010.
http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/BSE_SENSEXhttp://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/The_Economic_Timeshttp://en.wikipedia.org/wiki/The_Economic_Timeshttp://en.wikipedia.org/wiki/The_Economic_Timeshttp://en.wikipedia.org/wiki/The_Economic_Timeshttp://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/BSE_SENSEXhttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange


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Chapter 2DESIGN OF THE STUDY

STATEMENT OF THE PROBLEM

In this research an effort has been made to develop an understanding of the application of

Accounting Standard 18 in Tata Steel. Tata steel has emerged as important players in the Indian

Steel market in the recent past. This makes an attempt to understand the application of Accounting

standard 18 with respect to various related party transaction with Tata steel.

OBJECTIVES OF THE STUDY

The primary objective of this study is to analysis financial statements with respect to related partytransaction with Tata Steel company by using ratios like Liquidity ratios, Profitability ratios, Long-

term Debt and Solvency analysis and Efficiency ratios. The ancillary objectives of the study are

To understand Accounting Standard 18

To learn the effect of application of AS 18 on financial statement

METHODOLOGYThe following methodology has been used for fulfilling the study objectives. The aspects coveredare data for the study, data sources, data period and tools used for analysis.

Data for the study

The present study has been carried out with the help of secondary data as the study objectives can beaccomplished.Data SourcesThe secondary data for the study has been collected from the following sources

1.

Company records2.

Annual reports of the company collected from company website and other web sites3.

Text books4.

Magazines and journals5.

Pre prescribed Microsoft Excel format, Records of the organization.


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SCOPE OF THE STUDY

The present study is useful to potential investors, outside parties such as the creditors,debtors, government and other related parties to get an idea of the overall financial

performance of the firm.

CHAPTERISATION OF THE STUDY

CHAPTER 1 Theoretical Background

This chapter deals with the theoretical background of the study throwing light on the Executive

Summary, introduction.

CHAPTER 2 Design of the Study

This chapter states the problem of the study, the objectives of the study, methodology, tools for

collecting data, a plan of analysis, scope of study.

CHAPTER 3- Industry Profile & Company Profile

This chapter gives information about steel, steel industry in India, history of steel in India, steelindustry in India company profile, Tata Steel, products of Tata Steel, Swot analysis of Tata Steel-a

brief profile

CHAPTER 4 Analysis and Interpretation of Data

This chapter deals with analysis and interpretation of the data collected. The purpose of this chapter

is to draw inferences, based on the calculations and paper work.

CHAPTER 5 Findings, Recommendations and Conclusion.This chapter is the concluding chapter dealing with findings, recommendations and conclusion

which are drawn after the study .


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Chapter 2 (Company Profile)

2.1 About Tata Steel

2.1.1 The Beginning

Way back in 1907 the greatest visionary of all times Mr. Jamsetji Nusserwanji Tata establishedIndias first Iron and Steel making company and named it the Tata Iron and Steel Company Ltd(TISCO). Tata Iron and Steel Company were registered in Bombay on 26 th August 1907. Theconstruction of the steel plant was then taken up in earnest with the first stake being driven inFebruary 1908. R. G. Wells an American, with steel plant construction experience took over asgeneral manager in 1909. Success came when the first blast furnace was blown in on 2 nd December

1911 and the first ingot rolled on 16th

February 1912. During the year 1917 the company issued 1,50,000 shares at par and 26,250 deferred shares issued at a premium of Rs. 370 per share.

2.2 Vision and MissionTata Steels vision is to be the Gl obal Steel Industry benchmark for value creation and corporate

citizenship.

The Company will achieve their Vision through:

Their People: by fostering teamwork, nurturing talent, enhancing leadership capability and acting

with pace, pride and passion.Their Offer: by becoming the supplier of choice, delivering premium products and services andcreating value for our customers.

Their Innovative Approach: by developing leading edge solutions in technology, processes and products.

2.3 Founders of Tata SteelTata Steel is a business house that has created wealth for the nation. It is a story of struggle,adventure and achievement. The founder along with his successors is as follows:-

Jamshedji Nusserwanji Tata (1839-1904)

Sir Dorabji Tata (1859-1933)

Jehangir Ratanji Dadabhai (1904-1993)

Ratan Naval Tata ( born 28 th Dec193 till date)


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2.4 Tata Steels Values The Tata Group has always been driven by five core values:

Integrity: We must conduct our business fairly, with honesty and transparency. Everythingwe do must stand the test of public scrutiny.

Understanding: We must be caring, show respect, compassion and humanity for ourcolleagues and customers around the world, and always work for the benefit.

Excellence: We must constantly strive to achieve the highest possible standards in our day to

day work and in the quality of goods and services we provide.

Unity: We must work cohesively with our colleagues across the group and with ourcustomers and partners around the world, building strong relationship based on tolerance,understanding and mutual cooperation.


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2.5 Board of Directors

2.6 Types of Products

2.6.1Raw Products

CYRUS P MISTRY- CHAIRMAN

MR.B. MUTHURAMAN- VICE CHAIRMAN

MR.ISHAAT HUSSAIN- COMPANYSECRETARY

MR. JACOBUS SCHRAVEN- BOARDMEMBER.

MR. ANDREW ROBB- BOARD MEMBER

MR. S.M. PALIA- BOARD MEMBER

MR. SURESH KRISHNA- BOARD MEMBER

DR. KARL-ULRICH KOEHLER- MANAGINGDIRECTOR & CEO TATA STEEL EUROPE.

MR. H.M. NERURKAR- MANAGINGDIRECTOR, TATA STEEL LTD.

MR. NUSLIN N. WADIA- BOARD MEMBER


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With a century of experience in sourcing raw material through scientific research and developmentand sustainable mining, TATA STEELs three main areas of raw material, operation are iron - ore,chromites and coal. The companys long term strategy has been designed to have greater controlover raw material.

Raw Material (Source: Internet)

2.6.2Finished Products TURBO

Pipes manufactured by the companys strategy business unit TATA TUBES, is the most prominent brand in the industry today which is retailed through a wide distribution network. A deeply thoughtout branding exercise was under taken in order to unleash the p ower of the TATA PIPES brand inthe welded steel.

Turbo (Source: Internet)

WIRES

Steel wires under the brand name TATA Wiron compromise 30% of market share of the organizedwire market in India. A wide range of wires manufactured by TATA STEELs wire division cater tothe needs of the various industry segments such as automobiles, infrastructure, power and generalengineering.


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Agricultural implements (Source: Internet)

2.7 Swot Analysis

STRENGHTS WEAKNESSES

OPPORTUNITIES THREATS

SWOT

ANALYSIS


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STRENGTHS:

Expanding Market Share in Sector

Strong Position in Europe through Corus

Value Chain Efficiencies

Strong Heritage and Brand Equity

WEAKNESSES:

High Reliance on Coking Coal Imports

Overdependence on Few Markets

Limited Investor Confidence

Declining Operating Margin

OPPORTUNITIES:

Proactive Production Cuts

Emerging Technologies to Change the Metal & Mining

Strategic Acquisitions

THREATS:

Environmental Regulations

Operational Risks

Forecast of Prolonged Slump

Slump in Steel Demand

Declining Growth in Automobile Market

Chapter 3 (Steel Industry Overview)Steel Industry is a booming industry in the whole world. The increasing demand for it was mainlygenerated by the development projects that have been going on along the world, especially theinfrastructural works and real estate projects that has been on the boom around the developingcountries. Steel Industry was till recently dominated by the United States of America but thisscenario is changing with a rapid pace with the Indian steel companies on an acquisition spree. In

the last few years, the world has seen two big M&A deals taking place:-

The Mittal Steel has acquired the world's largest steel company called Arcelor Steel to become the world's largest producer of Steel named Arcelor-Mittal.

Tata Steel of India has acquired the world's fifth largest steel company Corus with thehighest ever stock price.

It has been observed that Steel Industry has grown tremendously in the last one and a half decadewith a strong financial condition. The increasing needs of steel by the developing countries for its


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infrastructural projects have pushed the companies in this industry near their operative capacity. Themost significant growth that can be seen in the Steel Industry has been observed during the period of1960 to 1974 when the consumption of steel around the whole world doubled. Between these years,the rate at which the Steel Industry grew has been recorded to be 5.5 %. This roaring market saw a

phase of deceleration from the year 1975 which continued till 1982. After this period, the continuousfall slowed down and again started its upward movement from the early 1990s.

Steel Industry is becoming more and more competitive with every passing day. During the period of

1960s to late 1980s, the steel market used to be dominated by OECD (Organization for EconomicCooperation and Development) countries. But with the fast emergence of developing countries likeChina, India and South Korea in this sector has led to slipping market share of OECD countries. The

balance of trade line is also tilting towards these countries. World crude steel production for the 59countries reporting to the World Steel Association (world steel) was 119 million tons (Mt) inFebruary 2012. This is 1.9% higher than February 2011.

The main demand for World Steel Industries comes from the construction industry. With thedevelopmental works on a rise in both the developed and developing countries, the infrastructureindustry along with real estate boom, the demand for steel is rising like anything. For example, moreand more real estate companies are using steel frames for building houses. In USA, it had beenobserved in the early 90s that the use of steel for house building has increased by nearly five timesin just one year. The automobile industry is also coming up fast as a potential demander for WorldSteel Industries because through research it has been found out that the use of steel in the vehicleswould cause the weight of the same to lessen by almost twenty five per cent. The other industrieswho demand steel involve appliance industries, Oil and Gas industries and container industries.

On the technological front, the World Steel Industries are making rapid improvement with theimplementation of cutting-edge technologies like steel making through the utilization of electric

furnace, continuous annealing, casting of thin slabs, and vacuum degassing.

3.1 Importance of Steel Industry

The steel industry has a rich history. It exhibited remarkable technological dynamism andentrepreneurship and enjoyed significant economic, political, and strategic importance. Withglobalization and emergence of high technology sectors the industry has lost its clout. Westernnations no longer dominate the industry due to changing costs and diffusion of technology and

favorable government policy by selected high growth developing countries.

Steel is an alloy of iron usually containing less than 1% carbon is a versatile material with multitudeof useful properties used most frequently in the automotive and construction industries. Steel can becast into bars strips, sheets, nails, spikes, wire, rods or pipes as needed by the intended user. Theconsumption of steel is regarded as the index of industrialization and the economic maturity anycountry has attained.


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ACCOUNTING STANDARD 18Accounting Standard (AS) 18 comes into effect in respect of accounting periodscommencing on or after 1-4-2001. This Standard is mandatory in nature in respect ofaccounting periods commencing on or after 1-4-2004 for the enterprises which fall in anyone or more of the following categories, at any time during the accounting period:

Enterprises whose equity or debt securities are listed whether in India or outsideIndia.

Enterprises which are in the process of listing their equity or debt securities aevidenced by the board of directors resolution in this regard.

Banks including co-operative banks, financial institutions and enterprises carrying oninsurance business.

All commercial, industrial and business reporting enterprises, whose turnover for theimmediately preceding accounting period on the basis of audited financial statementsexceeds Rs.50 crore(Turnover does not include other income) and all commercial,industrial and business reporting enterprises having borrowings, including public deposits, inexcess of Rs.10 crore at any time during the accounting period.

Objective:

The objective of Accounting Standard 18 is to disclose the relation with the related partiesand the transactions among them


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Accounting Standard can be explained as follows:

Subsidiary - a company in which another company (the holdingcompany) holds, either by itself and/or through one or more

subsidiaries, more than one-half in nominal value of its equity

share capital or the composition of its board of directors

Accounting Standard 18

Related Party Disclosure

An Associate - an enterprise in which an investing reporting partyhas significant influence and which is neither a subsidiary nor a

joint venture of that party

A Joint venture - a contractual arrangement whereby two ormore parties undertake an economic activity which is subject to

oint control


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Purpose of As 18

Fellow subsidiary - a company is considered to be a fellowsubsidiary of another company if both are subsidiaries of the

same holdin com an .

Relative - in relation to an individual, means the spouse, son,daughter, brother, sister, father and mother who may be

expected to influence, or be influenced by, that individual inhis/her dealings with the reporting enterprise

Key management personnel - those persons who have the

authority and responsibility for planning, directing andcontrolling the activities of the reporting enterprise

n

The basic purpose of As 18 is to show the effect onfinancial statement caused due to:

The relation among the related parties. For example,A subsidiary may terminate relationswith a trading partner on acquisitionby the holding company of a fellowsubsidiary engaged in the same trade asthe former partner.

The arms length basis transactionswith the related parties. Forexample, free provision of

management services and theextension of free credit on a debt bythe enterprise to its subsidiary .


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Disclosure to be made by the enterprise according to AS 18The name and relationship of related parties has to be disclosed whether or not there has been anytransactions among them. If transactions have taken place then the following has to be disclosed bythe enterprise:

Name of transacting party,

Description of relationship between the parties,

Nature of transactions description,

Volume of transaction as an appropriate proportion,

Any other elements necessary for understand the financial statement,

The amount or appropriate proportions of outstanding item pertaining to related parties at the balance sheet date and provisions for doubtful debt due from such parties at that date,

Amount written off or written back in the period in respect of debts due from or to related

parties .

Example of manner of disclosure as required by As 18:Holding company Subsidiary Fellow subsidiary Associate Kmp Relative to kmp total

urchase or sales of goods

urchase or sales of fixed

ssets

endering or receiving of

ervices

Agency arrangements

easing or hire purchase

rrangement

icense arrangement

inance (including loans

And Equity contribution in

ash or kind)

uarantees and collaterals

ransfer of research and

evelopment


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Related Party Disclosure as in Jindal Steel

Transactions with Related Parties

(`

in Crore) Description Subsidiary, Step down Key Management Enterprises controlled

Subsidiaries, Associates Personnel by Key Management and Joint ventures personnel and their

relatives Current Previous Current Previous Current Previous

Year Year Year Year Year Year Purchase of Goods/Services 1648.33 467.81 - - 37.50 23.33 Sales of Goods (incl. capital goods) 441.98 344.07 - - 1062.77 954.52 Rendering Of Services 6.49 28.35 - - 2.89 3.30 Sale Of Investments - - - - - - Investment in Equity Shares/ 307.93 142.80 - - - - preference shares

Advance against share Application 100.73 25.47 - - - - money Other Advances given/(taken) 47.82 - 0.69 0.18 (18.42) 27.73 Security Deposit Given - - - - 50.00 - Rent and other expenses Paid - - - 0.02 - - Interest received/(paid){net} (158.59) (31.38) - - 39.38 29.30 Dividend received/(paid) 130.06 117.05 - - - - Remuneration* - - 80.12 77.94 - - Lease rent received - - - - 3.00 3.00 Hire charges paid - - - - 27.38 22.09 Guarantees/Corporate guarantees (143.31) (3159.62) - - - - obtained/(given) Inter-corporate deposits given 208.15 295.52 - - 8.64 - Inter Corporate deposits Repaid/ (187.50) - - - (33.04) - Adjusted Inter Corporate deposits written off (51.30) - - - - - Inter-corporate deposits taken 1688.00 836.00 - - - - Inter-corporate deposits refunded 720.00 516.00 - - - - Outstanding Balance at the year end Investment in Equity shares 1371.77 1179.42 - - - - Guarantees Outstanding 3189.65 3231.37 - - 16.66 16.66 Inter Corporate Deposits Taken 2486.56 1518.56 - - - - Advance from customer & Others - 8.82 - - - 0.44 Loans and Advances (including 1192.61 1223.88 0.69 0.18 487.39 461.23 Interest) Advance against Share Application 97.04 63.78 - - - - money Debtors Dr. Balance 16.57 74.71 - - 119.22 28.98 Creditors Dr. Balance 28.88 4.82 - - 7.04 23.22

Cr. Balance 132.09 75.28 - - 2.25 0.68


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2.

Material transactions with Key Management Personnel

Name of Related JSW JSW JSW Jindal Jindal Jindal TriShakti Minerals India Party Steel Energy Steel Stainless Saw Reality Real Estate Management Flysafe

Limited Limited Limited Limited Limited Private Private Service Aviation Mumbai Bellary Limited Limited (India) Limited

Private Limited

Relationship Year Purchase of 2011-12 19 - 7.72 6.37 4.35 - - - - Goods/Services 2010-11 11.13 - 1.86 10.17 0.17 - - - - Sale of Goods 2011-12 0.65 3.61 233.51 33.52 787.82 0.19 - - -

2010-11 - 6.63 279.97 37.04 569.07 - - - - Rendering of 2011-12 - - - 0.04 0.51 0.79 - - - services 2010-11 - - - - - 1.36 - - - Other advances 2011-12 - - - - - - - - (18.47) given/(taken) 2010-11 - - - - - 22.05 10.13 - - Security Deposit 2011-12 - - - - - - - 50.00 - Given 2010-11 - - - - - - - - - Interest received 2011-12 - - 0.55 - - 35.9 2.94 - -

2010-11 - - 0.45 - - 27.45 1.41 - -

Interest paid 2011-12

- - - - - - - - - 2010-11 - - - - - - - - - Dividend Received 2011-12 - - - - - - - - -

2010-11 - - - - - - - - - Lease Rent 2011-12 - - - - - - - - 3.00 Received 2010-11 - - - - - - - - 3.00 Hire Charges Paid 2011-12 - - - - - - - - 27.29

2010-11 - - - - - - - - 22.09 Inter-corporate 2011-12 - - - - - - 8.64 - - deposits given 2010-11 - - - - - - - - - Inter-corporate 2011-12 - - - - - (33.04) - - - deposits repaid/ 2010-11 - - - - - - - - - adjusted

3.

Material transactions with Key Management Personnel

Year Shri Naveen Shri Vikrant Shri Anand Shri Naushad Shri Paras Shri A.K. Jindal Gujral Goel Akhter Ansari Goel Mukherjee

Remuneration 2011-12 73.42 2.98 2.46 1.02 0.24 - 2010-11 67.21 5.97 3.63 0.30 0.18 0.65

Loans and 2011-12 0.18 0.01 0.50 - - - advances given 2010-11 0.18 - - - - -


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Page 25

Different Laws Governing AS 18

Transfer PricingCommercial transactions between the different parts of the multinational groups may not be

subject to the same market forces shaping relations between the two independent firms. One party transfers to another goods or services, for a price. That price is known as transfer price .This may be arbitrary and dictated, with no relation to cost and added value, diverge from themarket forces. Transfer price is, thus, a price which represents the value of good; or services

between independently operating units of an organization . But, the expression transfer pricing generally refers to prices of transactions between associated enterprises which may take placeunder conditions differing from those taking place between independent enterprises. It refers tothe value attached to transfers of goods, services and technology between related entities. It alsorefers to the value attached to transfers between unrelated parties which are controlled by acommon entity.

Suppose a company A purchases goods for 100 rupees and sells it to its associated

company B in another country for 200 rupees, who in turn sells in the open market for 400rupees. Had A sold it direct, it would have made a profit of 300 rupees. But by routing it throughB, it restricted it to 100 rupees, permitting B to appropriate the balance. The transaction betweenA and B is arranged and not governed by market forces. The profit of 200 rupees is, thereby,shifted to the country of B. The goods is transferred on a price (transfer price) which is arbitraryor dictated (200 hundred rupees), but not on the market price (400 rupees). Thus, the effect oftransfer pricing is that the parent company or a specific subsidiary tends to produce insufficienttaxable income or excessive loss on a transaction. For instance, profits accruing to the parent can

be increased by setting high transfer prices to siphon profits from subsidiaries domiciled inhigh tax countries, and low transfer prices to move profits to subsidiaries located in low tax

jurisdiction. As an example of this, a group which manufacture products in a high tax countries

may decide to sell them at a low profit to its affiliate sales company based in a tax haven country.That company would in turn sell the product at an arm's length price and the resulting (inflated) profit would be subject to little or no tax in that country.The result is revenue loss and also a drain on foreign exchange reserves.


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Clause 188 of New Company Bill 2012

The new company bill was to introduce to replace the existing companies act 1956.It containsmany changes and amendments as compared to the previous.

Clause 188 of new company deals with Related Party Transactions .The changes withrespect to Related Parties Transaction as compared to previous is as follows:

Consent of the board of directors or the shareholders before entering into a contract witha related party

Introduction of Arms length concept

According to clause 188 of new company bill the consent of the board of directors orshareholders has to be taken for entering into the following transaction with a related

party and for which the board of directors has to give necessary justification along with

the report submitted to the shareholders in the annual general meeting. The transactionsare as follows:

(a) Sale, purchase or supply of any goods or materials

(b) Selling or otherwise disposing of, or buying, property of any kind

(c) Leasing of property of any kind

(d) Availing or rendering of any services

(e) Appointment of any agent for purchase or sale of goods, materials,

services or property

(f) Such related party's appointment to any office or place of profit in the

company, its subsidiary company or associate company; and

(g) Underwriting the subscription of any securities or derivatives thereof, of

the company.

Provided that:

The contract should not be entered by the company when the share capital is less than thesum or the transacting amount exceeding the share capital without prior approval of thecompany by a special resolution,

The member voting for the resolution should not be a related party,

The above subsection is applied only to arms length basis transactions.


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In case a contract has been entered by a director or an authorized director then the board ofdirectors can ratify the contract within 3 months of issue of contract or is voidable at boardsoption .But when the contract is violating the provision as laid down by new company bill then:

The director or employee may be punished by imprisonment of a term extending to one

year or has to pay a sum of 25,0000rs-5,00,000rs in case of listed company, In case of other company the punishment is to pay a sum of 25,000rs - 5, 00, 000rs.

New company bill with respect to Related Party transaction was amended to curb the related party transactions which are not in the interest of the company by introducing the rule of passingresolution by the sharehold ers, Arms length concept and punitive measure in case of non -compliance of the rule.

Clause 49 Requirement of Related Party Disclosure

Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31December 2005. It has been formulated for the improvement of corporate governance in all listedcompanies. The following are the requirement as per clause 49 for related party transactions:

Statement on transactions with related parties in the ordinary course of business shall be placed periodically before the Audit Committee.

Details of material individual transactions with related party which are not in the normalcourse of business shall be placed before the Audit Committee.

Details of material individual transactions with related parties or others, which are not onArms length basis, should be placed before Audit Committee together with

managements justification for the same.
http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_India


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Difference between IND AS 24 and AS 18IND AS 24 uses a close member of that persons family and thus includes dependentswhereas AS 18 uses Relatives of an individual which does not cover dependents. IND AS 24 defines state controlled enterprise as An entity that is controlled, jointlycontrolled or significantly influenced by a government whereas As 18 defines it as Anenterprise which is under control of the government and/or any state government(s).IND AS 24 covers ke y management personnel of parent as well whereas AS 18 coverskey management personnel only.IND AS 24 covers co-venturer and co-associates also which is not covered by AS 18.There is no mention in IND AS 24 regarding inherent difficulty for management todetermine the effect of influence which does not lead to transactions, disclosure of sucheffect is not required whereas it is mentioned in AS 18.In IND AS 24 there is a requirement to disclose the name of the next most senior parentwhich produces the consolidated financial statement for public use whereas such

disclosure is not needed in AS 18.IND 24 requires Amount of transactions to be disclosed whereas Volume of thetransaction either as an amount or as an appropriate proportion need to be discl osed inAS 18.

Difference between IAS 24 and AS 18IAS 24 includes non-executive director as related party whereas AS 18 does not include. IAS 24 includes key management personnel to close members of the family whereasthere is no such inclusion in AS 18. In IAS 24 there is a no reference to control over the composition of board of directors of

the company whereas there is a reference in AS 18. Significant Influence is not defined in IAS 24 whereas it is defined in AS 18. IAS 24 mandates disclosures of related parties where such relationships exist on thereporting date whereas AS 18 requirement are for relationship that exist during thereporting period. IAS 24 provides no exemption for disclosure of transactions with the state controlledenterprise and providers of finance, trade union and public utility whereas in AS 18exempts such disclosure.


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DATAANALYSIS


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Profit and loss accountsParticulars ALP NALP

RevenueRevenue from operation 50000 49000(-)Excise duty 2000 2000

Other Income 500 500

Total Revenue 48500 47500

Expensesa)Raw material consumed 5000 5000

b)Purchase of semi-finished,finshedgood 20000 20000c)Freight 500 500d)Excise duty 1200 1200e)Provident for doubtful debts 700 700f) Changes in inventories 1000 1000g) Employee benefits expense 5000 5000h) Depreciation and amortizationexpense 800 800i) Finance costs 500 500

j) Other expenses 200 200

(-) Expenditure (other than interest)transferred tocapital and other accounts 200 200

Total Expenses 34700 34700Profit before Tax AND ExceptionalItems 13800 12800Exceptional Item 300 300

Profit Before Tax 13500 12500Tax Expense 3000 2885


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Profit After Tax 10500 9615

Balance sheet

Particulars ALP NALPEquity And Liabilities1.Share Holder's Funda) Share Capital 200000 200000b) Reserves and Surplus 15000 13000c) Money received against sharewarrants 0 0

215000 213000

2.Hybrid Perpetual Securities 0 03.Non -current Liabilitiesa) Long-term borrowings 50000 50000b) Deferred tax liabilities (net) 5000 5000c) Other long-term liabilities 500 500d) Long-term provisions 1500 1500

57000 57000

4.Current Liabilities 20000 20000

Total Liabilities 292000 290000ASSET1.Non -current Assetsa) Fixed Assetsi) Tangible assets 140000 140000ii) Capital work-in-progress 17000 17000iii) Intangible assets 12000 12000iv) Net Block 169000 169000

b) Non-current investmentsc)Foreign currency differenceaccount 15000 15000d)Long-term loans andadvances 17500 17500


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e) Other non-current assets 13500 1350046000 46000

2.Current Asset

a) Current investments 20000 20000b) Inventories 15000 15000c) Trade receivables 10000 10000d) Cash and bank balances 10000 8000e) Short-term loans andadvances 5500 5500f) Other current assets 4500 4500g) Interest accrued oninvestment 5000 5000

70000 68000

3.Miscellaneous Expenditure 7000 7000Total Asset 292000 290000


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FINDINGS,

RECOMMENDATION

AND

CONCLUSION


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Revenue ALPRevenue from unrelated party:Sales of goods:600 units@50 30000Rendering of services 5000Revenue from related party:Sales of goods:600 units@50 30000Rendering of services 5000Total 70000

Revenue NALPRevenue from unrelated party:sales of goods:600@50 30000Rendering of services 5000Revenue from related party:Sales of goods:600 units@15 9000Rendering of services 5000Total 49000

The revenue earned when the transaction was Arms length price is more than the revenueearned when the transaction was on Non Arms length basis .

0

10000

20000

30000

40000

50000

60000

70000

80000

ALP NALP

Revenue

Revenue


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The Profit earned on the Arms length basis transaction is less than the Profit Earned on the NonArms length basis transaction . This is so because company tries to save tax which is on based onthe profit. So Non Arms length basis helps a company to sa ve taxes by decreasing the profitintentionally.

The profit in Arms length basis is more than the profit in Non- Arms length basis and so the taxon Arms length basis profit is more than the tax on Non Arms length basis profit

9000

9200

9400

9600

9800

10000

10200

10400

10600

ALP NALP

Profit

Profit

2820

28402860

2880

2900

2920

2940

2960

2980

3000

3020

ALP NALP

Tax

Tax


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FINDINGS

Related party transactions influence the Financial statements of a company

The revenue of a company can be manipulated when the transaction is not on the

basis of Arms length Pricing

The profit can be increased or decreased on the transaction on an Non Arms leng thbasis pricing

Tax can be saved on an Non Arms length basis Transaction


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CONCLUSIONAs dealt by Accounting Standard 18 Related party transaction should be made asanother segment in order to protect the investor as well as the government rightbecause the transaction which are on not on the basis of arm s length pricing helps acompany to save away cash which either the investor should get as an share of profit orthe government should get as tax.

Arms length pricing is one of the effectivetechnique adopted in Accounting Standard 18 to save the investor as well as the

government right thereby necessarily imposing the rule of following market price .


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BIBLOGRAPHY

Executive compensation and related-party disclosure-James Hamilton

The SEC's proposed executive compensation and related-party disclosure reform

Wiley IFRS 2008: Interpretation and Application of International Accounting-Barry J. Epstein, Eva K. Jermakowiczhttp://www.Tata Steel.com

http://www.google.com

http://www.wikipedia.org
http://www.google.com/http://www.wikipedia.org/http://www.wikipedia.org/http://www.google.com/

neha kumari

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