Skip to content

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

Kaveri Pharma Ltd. has a balance sheet date of 31 March 2025 and its accounts were approved on 25 June 2025. On 10 May 2025, a fire destroyed a warehouse and stock worth ₹40,00,000, which was uninsured. The company is still a going concern and the loss is material. What is the correct accounting treatment under AS 4?

The 2024-25 figures remain unchanged, but the company must disclose the nature of the fire and its estimated financial effect of ₹40,00,000. The fire arose after the balance sheet date and does not show conditions existing at 31 March 2025, so it is a non-adjusting but material event.

  1. ACharge ₹40,00,000 to the 2024-25 profit and loss account
  2. BDo not adjust the 2024-25 figures, but disclose the nature of the event and the estimated financial effect of ₹40,00,000Correct
  3. CCreate a provision of ₹40,00,000 in the balance sheet at 31 March 2025
  4. DIgnore, as the loss will be recognised in 2025-26 without any disclosure

Explanation

The fire occurred after the balance sheet date and does not reflect conditions existing at that date, so it is a non-adjusting event. AS 4 requires disclosure of its nature and estimated financial effect where material, without changing 2024-25 figures. Providing for it would wrongly adjust the accounts.

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