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

Gupta Pharma Ltd. approved its financial statements for 2024-25 on 30 July 2025. On 15 April 2025 the Board proposed a dividend of Rs 12 lakh for 2024-25, to be approved by shareholders at the AGM in September 2025. How does AS 4 require this to be treated in the 2024-25 financial statements?

Dividends proposed after the balance sheet date but before approval of accounts are not recognised as a liability at the year end, since no obligation exists until shareholders approve them. The Rs 12 lakh proposed dividend is only disclosed in the notes to the financial statements.

  1. ARecognise a liability of Rs 12 lakh at 31 March 2025 by charging the statement of profit and loss
  2. BRecognise a liability of Rs 12 lakh by appropriation from reserves at 31 March 2025
  3. CDo not recognise a liability at 31 March 2025; disclose the proposed dividend in the notesCorrect
  4. DTreat it as a contingent asset and disclose it only if it is probable

Explanation

Under the revised AS 4, dividends proposed or declared after the balance sheet date are not recognised as a liability at that date, because no present obligation exists until declared by shareholders. They are disclosed in the notes. Options A and B wrongly create a liability, and a dividend payable is not a contingent asset.

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