(b) J Stewart loan
Matters
– Provision of the loan represents a related party transaction
– Disclosure requirements of RPT
– Calculation of fair value for an interest free loan
– Determination of market rates for a similar instrument
– Valuation of loan at end of year using amortised cost method
Procedures
– Inspect terms of loan agreement
– Inspect related party disclosures in the financial statements
– Additional procedures in relation to potential other RPTs
– Compare market rate used to range of suitable instruments
– Recalculate initial and year-end loan amounts
– Reconcile effective interest rate from amortised cost calculation to statement of P&L
Maximum marks 6