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

Kaveri Engineering Ltd has a balance sheet date of 31 March 2026 and the accounts were approved on 25 June 2026. A customer, Mehra Traders, owed Rs 12 lakh at 31 March 2026, and the company had made no provision against it. On 10 May 2026 Mehra Traders was declared insolvent, and the company expects to recover only Rs 2 lakh. What amount of loss should be recognised in the accounts for the year ended 31 March 2026?

The loss to be recognised is Rs 10 lakh. The customer's insolvency after the balance sheet date gives evidence of a condition existing at that date, so it is an adjusting event. Only the unrecoverable portion, Rs 12 lakh less the Rs 2 lakh expected recovery, is provided for.

  1. ARs 12 lakh
  2. BRs 2 lakh
  3. CNil, as only a disclosure is needed
  4. DRs 10 lakhCorrect

Explanation

The customer's insolvency after the balance sheet date confirms that the debt was already impaired at 31 March 2026, so it is an adjusting event. The loss is the irrecoverable part: 12 lakh less 2 lakh expected recovery = Rs 10 lakh. Writing off Rs 12 lakh ignores the recovery, and mere disclosure would be wrong for an adjusting event.

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