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

Kaveri Engineering Ltd. has a year-end of 31 March 2025 and its accounts were approved on 30 June 2025. A customer, Raman Traders, owed Rs 8,00,000 at 31 March 2025. The company had made no provision against it. On 12 May 2025 Raman Traders was declared insolvent and the company was told it would receive only 25% of the dues. What amount should be recognised as a loss in the accounts for 2024-25?

The loss to be recognised is Rs 6,00,000. The customer's insolvency after the year-end gives evidence of conditions existing at the balance sheet date, so it is an adjusting event. Only 25 percent, Rs 2,00,000, will be recovered, leaving Rs 6,00,000 to be written off.

  1. ARs 2,00,000
  2. BRs 8,00,000
  3. CRs 6,00,000Correct
  4. DNil, only disclosure is needed

Explanation

Insolvency of a customer after the balance sheet date confirms the debtor's condition at the balance sheet date, so it is an adjusting event. Expected recovery is 25% of Rs 8,00,000 = Rs 2,00,000, so the loss is Rs 8,00,000 - Rs 2,00,000 = Rs 6,00,000. Rs 2,00,000 is the recovery, not the loss.

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