Gamma is a company that manufactures power tools. Gamma was established by Mr Lee, who owns all of Gamma's shares. Mrs Lee, Mr Lee's wife, owns a controlling interest in Delta, a distributor of power tools. Delta is one of Gamma's biggest customers, accounting for 70% of Gamma's sales. Delta buys exclusively from Gamma.

Gamma's official price list is based on the policy of selling goods at cost plus 50%; however, sales to Delta are priced at normal selling price less a discount of 30% to reflect the scale of the business transacted.

Gamma's terms of sale require payment within one month, but Delta is permitted three months to pay.

Mrs Lee has decided to sell her shares in Delta and has provided a potential buyer with financial information including the following:

Sales revenue for the year ended 30 September 2011......$12.0m

Cost of sales.......................................................$8.0m

Gross profit %....................................................33%

Current assets (including bank $0.3m) ........................$4.0m

Trade payables....................................................$3.0m

Other current liabilities..........................................$0.8m

Current ratio......................................................1.1:1 (in line with the ratios reported

in each of the past three years)

The buyer conducted a due diligence investigation and discovered the relationship between Gamma and Delta. She has decided to restate the figures provided in the table above to reflect a 'worst case' scenario before arriving at a final decision concerning the purchase.

Required:

(a) Discuss the manner in which IAS 24 Related Party Disclosures should have alerted the potential buyer in this case.

(b) Recalculate the table of figures provided by Mrs Lee on the basis that Delta will not receive favourable terms from Gamma if Mrs Lee sells her shares, and discuss the resulting changes.