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

Kaveri Engineers Ltd has a balance sheet date of 31 March 2026 and its accounts were approved on 25 June 2026. A customer, Rajesh Traders, owed Rs 8,00,000 at 31 March 2026. On 10 May 2026, Rajesh 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 recognised as additional bad debt loss in the year ended 31 March 2026?

The customer's insolvency after the year end is an adjusting event because it gives evidence of a condition existing at the balance sheet date. Only 25% of Rs 8,00,000, or Rs 2,00,000, is recoverable, so the loss to be recognised in the year ended 31 March 2026 is Rs 6,00,000.

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

Explanation

Insolvency after the balance sheet date 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 8,00,000 = 2,00,000. Loss = 8,00,000 - 2,00,000 = 6,00,000. Rs 2,00,000 is the recoverable amount, not the loss.

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