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

Himalaya Foods Ltd prepares accounts for the year ended 31 March 2026, approved on 28 July 2026. Facts: (a) Closing stock of Rs 20,00,000 at cost was included; on 20 April 2026, part of this stock costing Rs 6,00,000 was sold for Rs 4,50,000 net of selling costs because of damage that occurred in February 2026. (b) On 2 May 2026, the company issued fresh equity shares worth Rs 50,00,000. (c) On 15 May 2026, a major fraud committed in February 2026 was discovered, causing an embezzlement loss of Rs 1,20,000 not recorded. What is the total reduction in profit for the year ended 31 March 2026 due to adjusting events?

Two events are adjusting: the post-year-end sale of damaged stock below cost, which reduces stock value by Rs 1,50,000, and the discovered fraud loss of Rs 1,20,000 relating to the year. The share issue is non-adjusting. The total reduction in profit is Rs 2,70,000.

  1. ARs 2,70,000Correct
  2. BRs 1,50,000
  3. CRs 1,20,000
  4. DRs 52,70,000

Explanation

Stock sale below cost confirms net realisable value at the balance sheet date: write-down = 6,00,000 - 4,50,000 = 1,50,000 (adjusting). Fraud discovered after the year end shows an error relating to the period: loss 1,20,000 (adjusting). Share issue is a non-adjusting event, disclosed only. Total = 1,50,000 + 1,20,000 = 2,70,000. Including the share issue is wrong since it does not affect profit.

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