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

Mahadev Steels Ltd had at 31 March 2026 a long-term loan of Rs 50 crore. It breached a material covenant on 28 March 2026, so the loan became payable on demand at the reporting date. The lender agreed on 10 May 2026 not to demand payment because of the breach, and the Board approved the financial statements on 20 May 2026. The financial statements relate to a period beginning before 1 April 2026. Under the text of Ind AS 10 applicable to such a period, how is the lender's agreement treated?

The lender's agreement is treated as an adjusting event. Under the Ind AS 10 text applicable to periods beginning before 1 April 2026, a lender's agreement obtained before approval of the financial statements not to demand payment after a covenant breach is adjusting, so it is considered in classifying the loan.

  1. AAs an adjusting event, so the agreement is considered in classifying the loan at the reporting dateCorrect
  2. BAs a non-adjusting event, so the loan is classified as current and the waiver is only disclosed
  3. CAs an event that is ignored because the breach occurred before the reporting date
  4. DAs an adjusting event only if the waiver was obtained on or before 31 March 2026

Explanation

Ind AS 10 provides that where a material provision of a long-term loan is breached on or before the reporting date so that the liability becomes payable on demand, the lender's agreement before approval of the financial statements not to demand payment is an adjusting event. The waiver here was obtained on 10 May, before approval on 20 May. The omission of this paragraph applies only to annual periods beginning on or after 1 April 2026, so it does not apply here.

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