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

Kaveri Engineers Ltd closed its books on 31 March 2026, and the accounts were approved on 25 June 2026. Trade receivables included Rs 6,00,000 due from Bharat Traders, shown as fully good. On 12 April 2026 Bharat Traders was declared insolvent, and the official receiver indicated that only 25% of the dues would be recovered. Ignoring tax, what is the amount to be charged to the profit and loss account for 2025-26 on account of this event?

The insolvency is an adjusting event because it confirms a condition that existed at the balance sheet date. Only 25% of Rs 6,00,000, which is Rs 1,50,000, will be recovered, so the loss to be charged for 2025-26 is Rs 4,50,000.

  1. ARs 1,50,000
  2. BRs 4,50,000Correct
  3. CRs 6,00,000
  4. DNil, as the event is a post balance sheet event

Explanation

Insolvency after the year end confirms the customer's poor financial 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. Loss = 6,00,000 - 1,50,000 = 4,50,000. Rs 1,50,000 is the recoverable amount and not the loss.

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