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CMA Intermediate · Corporate Accounting and Auditing · Events after the Reporting Period (Ind AS 10)

Lakshmi Pharma Ltd. has a year ended 31 March 2027, and accounts were approved on 30 June 2027. A provision of ₹40 lakh had been made for a damages claim against it. On 15 May 2027, the court settled the case, which related to supplies made in 2025-26, and ordered payment of ₹55 lakh. The company had a present obligation at 31 March 2027. What is the correct accounting?

The provision should be increased by ₹15 lakh in the 2026-27 accounts. The court settlement after year end confirms a present obligation at the reporting date, so Ind AS 10 requires adjusting the existing ₹40 lakh provision to ₹55 lakh rather than just disclosing a contingent liability.

  1. ALeave the provision at ₹40 lakh and disclose the extra ₹15 lakh as a contingent liability
  2. BIncrease the provision by ₹15 lakh in the 2026-27 accounts as an adjusting eventCorrect
  3. CReverse the ₹40 lakh and charge ₹55 lakh in 2027-28
  4. DRecognise ₹15 lakh in 2027-28 as a non-adjusting event

Explanation

The settlement confirms a present obligation existed at the reporting date, which Ind AS 10 treats as adjusting. The previously recognised provision is adjusted under Ind AS 37, so the additional ₹15 lakh (55 − 40) is provided in 2026-27. Merely disclosing a contingent liability is specifically rejected by the standard.

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