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

Kaveri Industries Ltd closed its books on 31 March 2026. The board approved the accounts on 30 June 2026. On 15 May 2026, a fire destroyed a warehouse with inventory carried at Rs 12,00,000 at year end; the fire had no connection with conditions at 31 March 2026. The loss is not expected to affect going concern. What is the correct treatment under AS 4?

The 2025-26 figures should not be adjusted; instead the nature of the fire and an estimate of its financial effect should be disclosed. The fire occurred after the balance sheet date and did not reflect conditions then existing, so it is a non-adjusting event requiring disclosure only.

  1. AWrite down inventory by Rs 12,00,000 in the 2025-26 accounts
  2. BDisclose the nature of the event and an estimate of its financial effect in the report of the approving authority, without adjusting the 2025-26 figuresCorrect
  3. CMake no disclosure as the loss is not significant to going concern
  4. DCreate a provision of Rs 12,00,000 in the balance sheet as at 31 March 2026

Explanation

The fire occurred after the balance sheet date and did not relate to conditions at that date, so it is a non-adjusting event. Where it is material and non-disclosure would affect users' decisions, AS 4 requires disclosure of the nature and an estimate of the financial effect. Adjusting or providing is wrong; and absence of going concern impact does not remove disclosure.

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