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

Kaveri Components Ltd. has a balance sheet date of 31 March 2026 and the accounts were approved on 30 June 2026. A customer, Mehra Traders, owed Rs 6,00,000 at 31 March 2026. On 15 May 2026 Mehra Traders was declared insolvent, and the company expects to recover only 25% of the amount. The company had made no provision earlier. What amount should be charged to the statement of profit and loss of FY 2025-26 on account of this?

Rs 4,50,000 should be charged. The customer's insolvency after the balance sheet date confirms a receivable problem existing at year end, so it is an adjusting event. With 25% of Rs 6,00,000 recoverable, being Rs 1,50,000, the loss is the remaining Rs 4,50,000.

  1. ANil, as the insolvency happened after the balance sheet date
  2. BRs 1,50,000
  3. CRs 4,50,000Correct
  4. DRs 6,00,000

Explanation

The insolvency of a customer after the balance sheet date normally confirms a condition that existed at the balance sheet date, so it is an adjusting event. Expected recovery is 25% of 6,00,000 = 1,50,000, so the loss is 6,00,000 - 1,50,000 = 4,50,000. Rs 1,50,000 is wrong because it is the recoverable amount, not the loss.

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