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

Ganga Steel Ltd closes its books on 31 March 2026. A dispute with the tax authorities concerned a demand of Rs 50 lakh. At 31 March 2026 the company's advisers considered the demand likely to be dropped. After the balance sheet date but before approval of accounts, the appellate authority upheld the entire demand and the company decided not to appeal. How should the company treat this under AS 4?

The company should adjust its accounts and provide Rs 50 lakh for the year ended 31 March 2026. The appellate order after the balance sheet date confirms a liability that already existed at that date, so it is an adjusting event rather than a matter for disclosure alone.

  1. ADisclose it as a non-adjusting event with no change to the accounts
  2. BDisclose it as a contingent liability in the year ending 31 March 2027
  3. CIgnore it because the tax assessment related to an earlier period
  4. DAdjust the accounts by providing Rs 50 lakh in the year ended 31 March 2026Correct

Explanation

The appellate order provides evidence about an obligation that already existed at the balance sheet date, since the dispute arose from earlier transactions. The settlement of a contingency after the balance sheet date that confirms a liability is an adjusting event. The company therefore provides Rs 50 lakh in the accounts for the year ended 31 March 2026. Mere disclosure would understate the liability.

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