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CA Final · Financial Reporting · Ind AS 10 Events after the Reporting Period

Kaveri Pharma Ltd. closes its books on 31 March 2026, and the Board approved the financial statements on 25 May 2026. A customer, Sharma Distributors, owed Rs 40 lakh at year end, and no impairment had been recognised. On 10 May 2026 Sharma Distributors was declared bankrupt, and the receivable is expected to be wholly irrecoverable. What is the correct treatment?

The company should adjust its 2025-26 financial statements and recognise the Rs 40 lakh impairment. The customer's bankruptcy after the reporting period usually confirms that the receivable was credit-impaired at 31 March 2026, so it is an adjusting event and not merely a disclosure item.

  1. ADisclose only, as the bankruptcy occurred after the reporting period
  2. BRecognise the loss in the financial year 2026-27 when the bankruptcy occurred
  3. CAdjust the financial statements for 2025-26 to recognise the Rs 40 lakh credit impairmentCorrect
  4. DRecognise a contingent liability of Rs 40 lakh by way of note

Explanation

The bankruptcy of a customer after the reporting period usually confirms that the customer was credit-impaired at the end of the reporting period. It is therefore an adjusting event, and the Rs 40 lakh loss is recognised in the 2025-26 statements. Disclosure alone would be wrong because that treatment applies to non-adjusting events.

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