What Are Asset Class Correlations?

In economic activities, there are various related party relationships, and various related party transactions often occur. Such as buying or selling goods, providing or receiving labor services, etc.

Related transaction type

discuss

In economic activities, there are various related party relationships, and various related party transactions often occur. Such as buying or selling goods, providing or receiving labor services, etc.

Chinese name

Related transaction type

Example

Buy or sell goods

Types of

the term

Use

market

Eleven common types of connected transactions are listed in accounting standards:

Buying or selling goods

Buying or selling goods is the most common transaction for related party transactions. For example, members of an enterprise group buy or sell goods to each other, forming related party transactions. This type of transaction can reduce transaction costs, reduce uncertainty in the transaction process, ensure supply and demand, and ensure the quality and standardization of products to a certain extent. Appropriate trading arrangements within the company group are conducive to maximizing the company group's profits and improving its overall market competitiveness. The problem with this type of transaction is that it may provide a good way for companies to adjust their profits. Disclosure of such related party transactions is beneficial to small and medium shareholders, creditors and other report users to understand the nature, type, amount and other information of such transactions, and to judge the value orientation of such transactions, which provides a very useful economic decision for report users. information.

Purchase or sale of assets other than commodities

The purchase or sale of assets other than commodities is also the main form of related party transactions. For example, equipment or buildings that a parent company sells to its subsidiaries.

Providing or receiving labor services

Providing or receiving labor services between related parties is also the main form of related party transactions.

For example: Enterprise A is an associate of Enterprise B. Enterprise A specializes in equipment maintenance services. All equipment of Enterprise B is maintained by Enterprise B. Enterprise B pays 200,000 yuan for equipment maintenance each year. As a report user outside the enterprise, it is necessary to understand the pricing standards for providing or receiving labor services and whether related party transactions are conducted under normal transaction conditions. The relevant circumstances of such related transactions are disclosed in the notes, which provides a basis for users of the statements to analyze the financial status and operating results of the group.

4. Guarantee

There are many forms of guarantees. Taking loan guarantees as an example, an enterprise needs funds in production and operation and often applies for loans from financial institutions such as banks. In order to ensure the safety of the loaned funds, banks and other financial institutions require companies to provide them with loans guarantee. The guarantee is risky. Once the guaranteed company fails to perform the repayment agreement on time, the guarantee company becomes the person responsible for the repayment. Providing guarantees between affiliated companies can effectively solve the company's financial problems and facilitate the effective development of business activities. However, it also forms contingent liabilities, which increases the financial risks of the guaranty companies and may cause economic disputes. Therefore, the disclosure of relevant guarantee information between related parties in the notes is very useful for analyzing and judging the financial status of the enterprise.

V. Providing funds (loans or equity investments)

Funding includes loans or equity investments in cash or in kind.

For example: the parent company uses the financial institutions within the group to provide loans to the subsidiaries, the parent company invests funds in the subsidiaries, purchases shares, and so on.

Six, lease

Leases usually include operating leases and financial leases. Leasing contracts between related parties are also major transactions.

Seven, agents

Agency is mainly based on the terms of the contract, and one party can act for the other party on certain matters, such as selling goods or signing a contract.

Transfer of research and development projects

When there are related party relationships, sometimes the research and development projects of an enterprise may be abandoned or transferred to other enterprises due to the requirements of the other party.

For example: Company B is a subsidiary of Company A. Company A requires Company B to stop research and trial production of a new product and transfer the existing results of Company B's research to Company A's recently purchased research and development capabilities exceeding B. The company's C company continued to develop, thus forming related party transactions.

Nine, license agreement

When there is a related party relationship, some related parties may reach an agreement that allows one party to use the other party's trademark, etc., thereby forming a related party transaction.

X. Debt settlement on behalf of or on behalf of another party

This is also a relatively common form of related party transactions between related party companies, for example, the parent company pays advertising costs for subsidiaries, or repays long-term loans that have expired.

Eleven, key management personnel compensation

Remuneration paid to key management personnel is also a major form of related party transaction. Because the company's key management personnel constitute a related party relationship.

For example, the remuneration paid by the company to the chairman, general manager and other personnel is a related party transaction and should be disclosed appropriately.