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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 ending 31 March 2025, with accounts approved on 25 June 2025. A customer, Mehta Traders, owed Rs 6,00,000 at 31 March 2025 and Rs 1,00,000 had already been provided as doubtful. On 15 May 2025, Mehta Traders was declared insolvent and the company expects to recover only 10% of the debt. What additional charge should be made in the 2024-25 accounts?

The customer's insolvency confirms a condition existing at the year end, so it is an adjusting event. Expected recovery is Rs 60,000, giving a loss of Rs 5,40,000. After deducting the Rs 1,00,000 already provided, the additional charge in 2024-25 is Rs 4,40,000.

  1. ARs 4,40,000Correct
  2. BRs 5,00,000
  3. CRs 5,40,000
  4. DRs 6,00,000

Explanation

The insolvency gives evidence of the customer's financial condition at the balance sheet date, so it is an adjusting event. Expected recovery is 10% of 6,00,000 = Rs 60,000, so the total loss is Rs 5,40,000. Less the existing provision of Rs 1,00,000, the additional charge is Rs 4,40,000. Rs 5,40,000 ignores the existing provision.

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