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CA Final · Financial Reporting · Ind AS 10 Events after the Reporting Period

Arjun Engineering Ltd has a 31 March 2026 reporting date. On 15 February 2026 a customer sued it for Rs 90 lakh over defective equipment supplied in 2025, and the company's lawyers considered the outflow possible but not probable, so it disclosed a contingent liability. On 30 April 2026, before approval of the financial statements, the court ordered Arjun Engineering to pay Rs 60 lakh. What is the correct treatment?

Arjun Engineering should recognise a provision of Rs 60 lakh in the 2026 financial statements. The post-period court settlement confirms that a present obligation existed at the reporting date, so it is an adjusting event and the amount settled is recognised instead of just disclosing a contingent liability.

  1. AContinue to disclose a contingent liability of Rs 90 lakh
  2. BRecognise a provision of Rs 90 lakh
  3. CRecognise a provision of Rs 60 lakh in the 2026 financial statementsCorrect
  4. DRecognise Rs 60 lakh as an expense in FY 2026-27 and disclose it

Explanation

Settlement of a court case after the reporting period that confirms a present obligation at the reporting date is an adjusting event. The entity recognises a provision for the settled amount rather than merely disclosing a contingent liability. The amount is Rs 60 lakh, not the Rs 90 lakh claimed.

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