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

Meridian Pharma Ltd. has a year-end of 31 March 2025 and the Board approved the accounts on 25 June 2025. A customer, Sahyadri Traders, owed Rs 12 lakh at 31 March 2025, and Meridian had made no provision against it. On 10 May 2025, Sahyadri was declared insolvent and the court intimated that only 25% of dues would be recoverable. The deterioration in its finances had begun before March 2025. What is the additional charge to the profit and loss account for 2024-25?

The charge is Rs 9,00,000. The customer's insolvency after the balance sheet date confirms conditions existing at year-end, so it is an adjusting event. Only 25% of Rs 12 lakh, that is Rs 3 lakh, is recoverable, so the remaining Rs 9 lakh must be provided or written off.

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

Explanation

Insolvency of a debtor after the balance sheet date confirms the deterioration that existed at the balance sheet date, so it is an adjusting event. Recoverable is 25% of 12 lakh = Rs 3 lakh, so the loss is 12 - 3 = Rs 9 lakh. Option B wrongly charges only the recoverable amount; option D writes off the entire debt.

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