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

Kaveri Foods Ltd. has a reporting date of 31 March 2026. The financial statements were approved on 30 June 2026. On 10 April 2026 the board proposed a final dividend of Rs 12,00,000 for 2025-26, to be approved by shareholders at the AGM in September 2026. As per AS 4 (as revised) and Indian GAAP at Foundation level, how should the dividend be treated in the 2025-26 financial statements?

No liability should be recognised for the proposed dividend in the 2025-26 statements. It was proposed after the balance sheet date and becomes an obligation only on shareholder approval, so the Rs 12,00,000 is merely disclosed in the notes.

  1. ACreate a liability of Rs 12,00,000 as an adjusting event
  2. BDo not recognise a liability; disclose the proposed dividend in the notesCorrect
  3. CCharge it to the statement of profit and loss for 2025-26
  4. DIgnore it, since no disclosure is needed until paid

Explanation

Dividends declared after the balance sheet date are not a liability at that date, as the obligation arises only when shareholders approve it. Under revised AS 4 they are not recognised as liability but disclosed in the notes. Option A treats it as adjusting, which the revised AS 4 does not permit.

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