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

Ganga Steels Ltd. prepares accounts for the year ended 31 March 2025, approved on 28 July 2025. Its profit before considering the following was Rs 50,00,000. (i) A debtor of Rs 3,00,000 became insolvent on 15 April 2025 and nothing is recoverable; no provision existed. (ii) On 2 May 2025 the company's godown was damaged by flood, loss Rs 4,00,000, with no insurance. (iii) The Board proposed a dividend of Rs 5,00,000 on 20 May 2025. (iv) Stock held at 31 March 2025 at cost Rs 10,00,000 was sold on 10 April 2025 for Rs 7,00,000 because of damage that existed at the year-end. Stock was valued at cost. What is the adjusted profit for 2024-25?

Adjusted profit is Rs 44,00,000. The debtor's insolvency (Rs 3,00,000) and the stock sold Rs 3,00,000 below cost due to year-end damage are adjusting events. The flood loss is non-adjusting and the post-year-end dividend proposal is only disclosed, so neither reduces profit.

  1. ARs 44,00,000Correct
  2. BRs 41,00,000
  3. CRs 47,00,000
  4. DRs 40,00,000

Explanation

Adjusting events: debtor insolvency (Rs 3,00,000) and stock sold below cost due to year-end damage (write-down to NRV Rs 3,00,000). Total adjustment Rs 6,00,000, so profit = Rs 50,00,000 - Rs 6,00,000 = Rs 44,00,000. The flood is non-adjusting (disclose only). The dividend proposed after year-end is not recognised as a liability. Deducting the flood too gives Rs 40,00,000, which is wrong.

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