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

Mehta Engineering Ltd. prepares accounts for the year ended 31 March 2026, approved on 30 June 2026. A customer, Sharma Traders, owed Rs 12 lakh at 31 March 2026, and the company had made no provision against it. On 15 April 2026, Sharma Traders was declared insolvent, and the company expects to recover only 25% of the dues. What amount should be charged to the 2025-26 profit and loss account as a loss on this debtor?

Rs 9,00,000 should be charged. The debtor's insolvency after the year end confirms that the dues were doubtful at 31 March 2026, so it is an adjusting event. With only 25% (Rs 3,00,000) recoverable out of Rs 12,00,000, the loss is the remaining Rs 9,00,000.

  1. ANil, because the insolvency occurred after the balance sheet date
  2. BRs 3,00,000
  3. CRs 9,00,000Correct
  4. DRs 12,00,000

Explanation

The insolvency of a debtor after the balance sheet date confirms that the debt was impaired at the balance sheet date, so it is an adjusting event. Expected recovery is 25% of 12,00,000 = 3,00,000, so the loss is 12,00,000 - 3,00,000 = 9,00,000. The option of Rs 3,00,000 is the recoverable amount, not the loss.

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