Skip to content

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

Kaveri Foods Ltd. has a year ended 31 March 2026, with accounts approved on 25 June 2026. On 10 May 2026, a fire destroyed a warehouse, and stock costing Rs 12,00,000 was lost, of which the insurer has accepted a claim of Rs 9,00,000. The stock was in good condition on 31 March 2026. What is the correct treatment under AS 4?

The 2025-26 accounts are not adjusted. The fire happened after the balance sheet date on stock that was sound at year end, so it is a non-adjusting event. If material, the company discloses its nature and an estimate of the financial effect, which is a net loss of Rs 3,00,000 after insurance.

  1. AAdjust the stock by Rs 3,00,000 in the 2025-26 accounts
  2. BAdjust the stock by Rs 12,00,000 in the 2025-26 accounts
  3. CDo not adjust the 2025-26 accounts; consider disclosing the nature of the event and an estimate of its financial effect if materialCorrect
  4. DDo not adjust and do not disclose anything because the loss is partly insured

Explanation

The fire occurred after the balance sheet date and the stock was fine at 31 March 2026, so it is a non-adjusting event. Assets are not changed, but if the event is material and non-disclosure would affect users' decisions, the nature and estimated financial effect are disclosed. Rs 3,00,000 is the net loss but is not adjusted.

Did you get it right without looking?

One question tells you little. A timed set on AS 4 Contingencies and Events occurring after the Balance Sheet Date shows your real accuracy, how long you take and where you lose marks.

Practise AS 4 Contingencies and Events occurring after the Balance Sheet DateFree diagnostic mock

More AS 4 Contingencies and Events occurring after the Balance Sheet Date questions