Advanced Accounting · AS 4 Contingencies and Events occurring after the Balance Sheet Date

AS 4 Disclosure Requirements and Practical Problems for CA Inter

Updated 5 October 2026 · Fact-checked

AS 4 (Revised 1995) deals only with events occurring after the balance sheet date. Contingencies are covered by AS 29. You adjust the books for events that give more evidence of conditions existing at the balance sheet date. You only disclose later events, giving the nature and an estimate of the financial effect, or stating that no estimate can be made.

Understand Disclosure Requirements and Practical Problems

AS 4 (Revised 1995) deals only with events occurring after the balance sheet date. Contingencies are dealt with in AS 29, which is effective for accounting periods commencing on or after 1 April 2004. Know the split before you write an answer.

An event after the balance sheet date is a significant event, favourable or unfavourable, that occurs between the balance sheet date and the date the financial statements are approved by the board of directors (or the corresponding authority for other enterprises).

There are two types. Adjusting events give additional evidence about conditions that existed at the balance sheet date. You change the figures in the books. Non-adjusting events concern conditions that arose after the balance sheet date. You do not change figures. You disclose them if they are material enough that non-disclosure would affect users' decisions.

The Companies (Accounting Standards) Amendment Rules, 2016 amended AS 4 on the treatment of dividends. Under AS 4 as amended in 2016, dividends proposed or declared after the balance sheet date, for the period covered by the statements, are not provided for and are not recognised as a liability at the balance sheet date. They are disclosed in the notes. The dividend is recognised as a liability in the period in which it is declared, that is, when shareholders approve it at the AGM. This is the effect of the amendment, not a new principle. Earlier, a proposed dividend was provided for as a liability. Exam questions now follow the amended treatment.

The test is simple. Ask whether the condition existed on the balance sheet date. If yes, adjust. If it arose later, disclose only. Insolvency of a debtor and settlement of litigation are the usual adjusting cases. A fire or flood after the year end is the usual disclosure-only case.

Key rules to remember

Adjusting event rule: Condition existed at balance sheet date → adjust the assets and liabilities; Examples: debtor becomes insolvent due to a condition that existed at year end, court settles a case pending at year end, discovery of fraud or error showing the financial statements were incorrect.
Non-adjusting event rule: Condition arose after balance sheet date → no adjustment, disclose if material; Examples: a fire or flood after year end that destroys a major asset, a major acquisition, a major purchase or disposal of assets, and litigation arising from events that occur after the balance sheet date. The materiality test applies to these events.
Dividend rule (after 2016 amendment): Proposed or declared dividend after balance sheet date → no liability at balance sheet date; disclose in notes; The Companies (Accounting Standards) Amendment Rules, 2016 amended AS 4 so that a dividend proposed or declared after the balance sheet date for the period covered by the statements is not provided for and is not recognised as a liability at the balance sheet date. It is disclosed in the notes. The dividend is recognised as a liability in the period in which it is declared (approved by shareholders at the AGM). This is the effect of the amendment, not a new principle.
Disclosure content: Nature of the event + estimate of financial effect (or statement that estimate cannot be made); Material non-adjusting events should be disclosed. Where they are not disclosed in the financial statements, they should be disclosed in the report of the approving authority (for example, the Board's report).
Going concern exception: Events showing the enterprise is no longer a going concern → financial statements not prepared on a going concern basis; This applies even if the event occurs after the balance sheet date. It is an adjustment of the basis of preparation, not just a disclosure.
Window of events: Balance sheet date to date of approval of financial statements; Events outside this window are not covered by AS 4. Mark the two dates on the question first.

How to solve Disclosure Requirements and Practical Problems questions

Use this order for every AS 4 problem, whether it is a one-line event or a long case with several items.

1Note the balance sheet date and the date of approval of the financial statements. Only events between them count.
2List each event separately with its date and amount.
3For each event ask: did the condition exist at the balance sheet date? Write the answer as adjusting or non-adjusting.
4For adjusting events, compute the correct figure and pass the adjusting entry or restate the amount (for example, provision for bad debts, or provision for the final amount of damages).
5For non-adjusting events, make no entry. Write the disclosure: nature of the event and estimated financial effect.
6Check special cases: proposed dividend (disclose only), going concern doubts (change the basis), and whether the loss is already covered by insurance.
7Recompute the profit or the balance sheet figure after the adjustments, and show the revised number clearly.
8Close with a one-line conclusion stating what was adjusted and what was only disclosed.

Quickest way: Date test and two-column sort

When to use it: Use this in MCQs and in long problems where several events are listed and time is short.

Underline the balance sheet date and the approval date in the question.
Draw two columns on rough paper: Adjust and Disclose.
Put each event in a column using one test: did the cause exist on the balance sheet date?
For MCQs: if the option says a proposed dividend is shown as a liability, eliminate it. Eliminate any option that adjusts for a fire or flood after year end.
In the written answer, give the reasoning in one line per event, then the entry or the disclosure wording, then the revised figure. Step marks come from the classification, the working and the final figure, so show all three.

Common mistakes in Disclosure Requirements and Practical Problems

Treating a proposed dividend as a liability at the balance sheet date.
Students remember the old treatment from before the 2016 amendment.
Fix: Remember that a dividend proposed or declared after the balance sheet date is not provided for. It is only disclosed in the notes. It is not a liability at the year end.
Adjusting for a fire or flood that happened after year end.
The loss is large and it feels like it must change the profit.
Fix: The fire did not exist at the balance sheet date. Do not change the figures. Disclose the nature of the event and the estimated financial effect, showing the gross loss and the expected insurance recovery, with the estimated net effect if the claim is admitted.
Ignoring the date of approval of the financial statements.
Students focus on the balance sheet date and miss the end of the window.
Fix: Check the approval date. An event after approval is outside the scope of AS 4, so do not adjust for it under this standard. Other requirements may still apply to such an event, so do not assume it can be ignored altogether.
Treating every debtor insolvency as a non-adjusting event.
Students see that it happened after year end and stop there.
Fix: If the insolvency confirms that the debtor was already in financial trouble at year end, it is adjusting. Provide for the loss in the year's accounts.
Mixing AS 4 and AS 29 for contingencies.
Older material combined both topics in AS 4.
Fix: Contingent liabilities and assets are covered by AS 29 now. In an answer, name AS 29 for the contingency and AS 4 for the post balance sheet event.
Disclosing the event without any estimate of its effect.
Students write only what happened.
Fix: State the nature and an estimate of the financial effect. If you cannot estimate it, say so explicitly.

Worked examples

Example 1

A company closes its books on 31 March 2027. The financial statements are approved on 25 May 2027. A debtor owed ₹4,00,000 at 31 March 2027 and was already in serious financial difficulty at that date. On 10 April 2027 the debtor was declared insolvent and the company expects to recover only ₹1,00,000 from his estate. Profit before this adjustment is ₹20,00,000. State the treatment and the revised profit.

Show the solution

The balance sheet date is 31 March 2027 and the approval date is 25 May 2027. The event on 10 April 2027 falls inside this window.
The debt of ₹4,00,000 existed at the balance sheet date, and the debtor's financial difficulty existed then too. The insolvency confirms that condition, so this is an adjusting event.
Expected recovery is ₹1,00,000, so the loss is ₹4,00,000 − ₹1,00,000 = ₹3,00,000.
Entry: Bad debts A/c Dr ₹3,00,000 to Debtors A/c ₹3,00,000 (or provide the same amount as provision for doubtful debts).
Revised profit = ₹20,00,000 − ₹3,00,000 = ₹17,00,000.
Debtors are shown in the balance sheet at ₹1,00,000 for this party.

Answer: This is an adjusting event. Charge ₹3,00,000 as bad debts for 2026-27. Revised profit is ₹17,00,000, and the debtor is carried at ₹1,00,000.

Example 2

A company's year ends on 31 March 2027 and the board approves the accounts on 30 June 2027. On 15 May 2027 a fire destroyed stock worth ₹6,00,000 stored at the factory. Insurance is expected to cover ₹4,00,000. The board also proposed a dividend of ₹8,00,000 on 20 May 2027 for the year ended 31 March 2027. Show the treatment of both items.

Show the solution

Both events occur between 31 March 2027 and 30 June 2027, so AS 4 applies.
Fire: the fire occurred on 15 May 2027, after the balance sheet date, so it is a non-adjusting event. Assume the question gives no sign that the stock was damaged at 31 March 2027. Do not write off the stock in the 2026-27 books.
Disclosure for the fire: nature of the event (fire on 15 May 2027), gross loss of stock ₹6,00,000, and insurance recovery of ₹4,00,000 expected. Do not treat the recovery as certain. The estimated net financial effect is ₹6,00,000 − ₹4,00,000 = ₹2,00,000 if the claim is admitted.
Dividend: proposed after the balance sheet date. Under the amended AS 4, it is not provided for and not recognised as a liability at 31 March 2027. No provision is made.
Disclosure for the dividend: state in the notes that the board has proposed a dividend of ₹8,00,000 for the year, subject to approval by shareholders.
Reserves and surplus are not reduced by the ₹8,00,000 at 31 March 2027.

Answer: Neither item changes the 2026-27 figures. Disclose the fire (gross loss ₹6,00,000, insurance recovery of ₹4,00,000 expected, estimated net effect ₹2,00,000 if the claim is admitted) and disclose the proposed dividend of ₹8,00,000 in the notes only.

Exam tips

Write the two dates (balance sheet date and approval date) at the top of every answer. It shows the examiner you know the window.
Classify each event in one line with a reason. Marks go to the reasoning, not just the label.
Use the post-2016 treatment for dividends in every question unless the question clearly states otherwise.
In RTP and MTP style problems, expect a mix of events in one question: insolvency, litigation, fire, dividend. Handle each separately and then give the revised profit.
For disclosure answers, always include both the nature of the event and the estimate of its financial effect.

Practice questions from AS 4 Contingencies and Events occurring after the Balance Sheet Date

Disclosure Requirements and Practical Problems in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Disclosure Requirements and Practical Problems: frequently asked questions

Is a proposed dividend a liability under AS 4?

No. After the 2016 amendment, a dividend proposed or declared after the balance sheet date for that period is not provided for and is not recognised as a liability at the balance sheet date. You disclose it in the notes.

Is the insolvency of a debtor after year end adjusting or non-adjusting?

It is usually adjusting if it gives evidence of the debtor's condition at the balance sheet date. The debt existed at year end, so you provide for the expected loss. Read the facts in the question carefully.

Does AS 4 still cover contingencies?

The revised AS 4 deals only with events after the balance sheet date. Contingent liabilities and contingent assets are covered by AS 29, effective for periods commencing on or after 1 April 2004. In exams, cite the correct standard for each part of your answer.

What must I disclose for a non-adjusting event?

Disclose the nature of the event and an estimate of its financial effect. If an estimate cannot be made, state that fact. Disclose the event only if it is material enough to affect the decisions of users. A dividend proposed or declared after the balance sheet date is not provided for and is disclosed in the notes.