Skip to content

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

Lakshmi Engineering Ltd. has a year end of 31 March 2026 and approved its accounts on 15 June 2026. A customer sued the company in January 2026 for Rs 40 lakh over defective supplies. At 31 March the company's lawyers estimated a probable payout of Rs 25 lakh, which was provided. On 28 April 2026 the court awarded damages of Rs 32 lakh against the company. Which treatment is correct?

The provision should be increased by Rs 7 lakh to Rs 32 lakh in the 2025-26 accounts. The lawsuit existed at year end, and the court award before approval confirms the obligation, making it an adjusting event. Rs 32 lakh minus the Rs 25 lakh already provided gives Rs 7 lakh.

  1. ANo change; the court order is a non-adjusting event to be disclosed only
  2. BIncrease the provision by Rs 7 lakh to Rs 32 lakh in 2025-26 accountsCorrect
  3. CIncrease the provision by Rs 15 lakh to Rs 40 lakh
  4. DReverse the provision of Rs 25 lakh and provide Rs 32 lakh in 2026-27

Explanation

The suit existed at the balance sheet date and the judgment after the date gives further evidence of the obligation at that date, so it is an adjusting event. Required provision is Rs 32 lakh; already provided Rs 25 lakh; additional Rs 7 lakh. Option C uses the claim amount rather than the award.

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