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

Narmada Pharma Ltd. closed books on 31 March 2026. In a dispute with a supplier, the company had disclosed a contingent liability of Rs 12 lakh. The case was decided by the High Court on 15 April 2026, directing the company to pay Rs 9 lakh. The company's accounts were approved on 30 June 2026. Which treatment is correct under AS 4 for the year 2025-26?

Rs 9 lakh must be provided as a liability and charged in 2025-26. The court's decision after the balance sheet date gives evidence of an obligation existing at 31 March 2026, so it is an adjusting event, and the amount fixed by the court replaces the earlier Rs 12 lakh contingent claim.

  1. AContinue disclosing a contingent liability of Rs 12 lakh and ignore the judgment
  2. BDisclose a contingent liability of Rs 9 lakh only
  3. CProvide Rs 9 lakh as a liability in the 2025-26 accounts and charge it to profit and lossCorrect
  4. DProvide Rs 12 lakh as a liability since that was the original claim

Explanation

The judgment after the year-end confirms an obligation that existed at the balance sheet date, so it is an adjusting event. The amount settled by the court, Rs 9 lakh, is to be provided in 2025-26. Continuing as a contingent liability ignores evidence of the final position, and Rs 12 lakh is the claim, not the determined amount.

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